Key Takeaways:

  • US Inflation: October CPI is this week’s key event, and it could decide whether the Fed hikes rates in December.
  • US Jobs Report: 165,000 new jobs beat forecasts and lifted the odds of a December rate hike to 75–78%.
  • Oil Prices: Brent fell about 12% to around $91 after the US midterm elections.
  • Eurozone: Inflation hit 4%, and Lagarde’s planned exit adds uncertainty to the ECB’s path.
  • UK: The Bank of England warns that inflation could approach 5%, and Thursday’s GDP data may bring a December hike forward.
  • Japan: The Bank of Japan is moving closer to a hike to 1.5% before year-end.
  • China: It faces falling inflation and a shrinking trade surplus instead of rising prices.

Introduction

The global economy enters this week shaped by three simultaneous developments: the end of the US midterm elections, a notable drop in oil prices, and a jobs report that beat expectations by a wide margin. Together, they raise a key question ahead of the major central banks’ final December rate decisions of the year: is the fall in oil prices enough to delay further interest rate hikes, or will broader price pressures demand more tightening?

Bloomberg analysts believe the outcome of the US midterm elections could act as a barrier to fiscal expansion and create a better opportunity to ease geopolitical tensions. This was one of the reasons Brent crude fell by around 12% week-on-week to roughly $91 per barrel, while the 10-year US Treasury yield slipped to 4.85%. However, concerns over tighter regulation of the artificial intelligence sector triggered a rapid sell-off that wiped nearly $2.3 trillion off the Nasdaq in a single session.

Meanwhile, the US jobs report brought inflation back into focus. The US economy added 165,000 jobs in October, far above the expected 65,000, while the unemployment rate held steady at 4.1% and wages rose 3.1% year-on-year. As a result, the probability of a Fed rate hike at its final meeting in December rose to between 75% and 78%.

Performance of the Major Economies

1. United States: Inflation Data Will Shape the Next Rate Move

October’s Consumer Price Index (CPI) will be the most important global event this week. Most analysts expect headline CPI to slow to 0.3% month-on-month, down from 0.6% in September, with core CPI easing from 0.3% to 0.2%.

The inflation picture will be completed by the Producer Price Index (PPI) on Friday, which is expected to slow sharply on a monthly basis from 1.3% to 0.4%.

Markets will also watch the annual inflation readings, after CPI came in at 3.7% and PPI at 6.3%. If the figures come in below expectations, the Federal Reserve would have grounds to hold off on further hikes, especially as financial conditions have tightened and equity markets have fallen significantly.

Analysts also believe the midterm results could reassure markets about the US fiscal deficit, as passing tax cuts or large spending programs now looks difficult. This could ease pressure on long-term bond yields. However, potential disputes over certain spending items could revive the threat of a government shutdown before the end of the year.

2. The Eurozone and the United Kingdom

Eurozone inflation reached 4% in October, driven by higher energy prices, which could increase pressure on the European Central Bank (ECB) to raise interest rates. At its last meeting, the ECB held rates at 2.65% while maintaining a hawkish stance.

Alongside speeches by European officials on monetary policy, the second estimate of eurozone growth will be released at the end of this week.

However, Christine Lagarde’s announcement that she intends to step down as ECB President in February next year may add uncertainty to the monetary policy path in 2027. This comes amid ongoing concerns about France’s public finances, particularly after the French economy contracted in the third quarter, while Germany is showing clearer signs of an industrial recovery.

In the United Kingdom, inflation remains one of the main risks. The Bank of England has warned that inflation could approach 5% by the middle of next year due to the energy shock. This led Governor Andrew Bailey to state that a further rate increase remains the baseline scenario unless geopolitical tensions ease. That makes Thursday’s preliminary UK GDP reading critical: a strong figure could strengthen the case for a rate hike at the December meeting rather than in February.

3. Japan

The Bank of Japan continues to hold interest rates at 1.25%, but its tone has recently turned more hawkish after it raised its inflation forecast for fiscal year 2027 to 2.6%, increasing the likelihood of a hike to 1.5%.

The Bank of Japan will publish the summary of opinions from its latest meeting, which markets will use to gauge its readiness to raise rates at the December 18 meeting. Investors are also awaiting household spending data, the key indicator of consumer strength and one that opponents of a rate hike have relied on.

In summary, the continued weakness of the yen and stable wage growth support the case for a rate hike to 1.5% before year-end, with the preliminary third-quarter GDP reading due early next week.

4. China

China continues to face a very different challenge from other major economies: falling inflation rather than rising prices. Markets will watch Monday’s inflation data, with expectations that it will fall to 0.8%, and producer prices are also likely to decline.

China will also release its trade balance figures, with the surplus expected to narrow to around $126.5 billion after the official export orders index fell to 48.7.

Rather than launching large stimulus packages, China continues to support its financial markets as an alternative way to attract foreign investment and bolster the domestic economy, an approach that could weaken the Chinese currency.