ECB on hold as Lagarde to leave early

In focus today and this weekend

• In the euro area, focus will be on the first Q3 GDP estimate. Following Ireland's strong 5.5% q/q GDP print, we now expect aggregate euro area GDP growth of 0.5% q/q in Q3, above consensus. However, Ireland's economy is volatile and not representative of the euro area, so focus should remain on euro area GDP excluding Ireland, which we forecast at a more modest 0.3% q/q. Germany likely stagnated, while growth in the rest of the euro area probably continued at a modest pace, as suggested by PMIs.
• Also from the euro area, we receive flash October inflation figures from the large economies as well as the September unemployment rate. We expect national inflation figures to point to a slight increase in euro area HICP inflation on Monday and forecast the unemployment rate to stay at 6.3%.
• In Norway, we expect unemployment to have remained unchanged at 2.0% in October. Registered unemployment remains low, supported by robust employment growth, while the economic slowdown has mainly been reflected in weaker productivity growth and slightly shorter average working hours.
• On the wires, Fed's Daly speaks this afternoon. She is not a voter in 2026 but will vote in 2027 and has been among the more dovish FOMC members. We will also hear from Fed's Musalem, although he will not vote until 2028.
• For China's official October PMI on Saturday, we expect a broadly flat manufacturing reading after September's rebound from 49.8 to 50.1. The private RatingDog manufacturing PMI is released on Monday and, given its higher starting point of 52.1, a small decline would not be surprising.
• The seven core OPEC+ members meet on Sunday to decide December production. Quota changes have had limited impact this year, with Gulf output still constrained by Strait of Hormuz disruptions. Focus will be on signals about 2027 quotas, the delayed capacity review ahead of the full OPEC+ meeting on 29 November and Iran headlines, which may be the bigger oil market driver.

Economic and market news

What happened overnight

In Japan, the Bank of Japan (BoJ) kept its policy rate unchanged at 1.25% as widely expected. The decision was taken with an 8-1 vote, with board member Takata voting for hike. The meeting marks a landmark, as the BoJ now judges underlying inflation to be "generally consistent" with its 2% target. The efforts initiated in 2013, when the 2% target and heavy QE were introduced, have thus finally paid off, and Japan is officially free of deflation. The core inflation forecasts for 2027 and 2028 were lifted by 0.1pp to 2.7% and 2.3%, respectively. At the same time, BoJ highlighted the risk of future inflation overshooting, clearly signalling that more rate hike will come, and we expect the next one in December. The bank also decided to increase its pace of ETF selling, and it will now take about 43 years to unwind its holdings, versus the previously estimated 112 years. The market reaction has been muted ahead of the press conference at 07.30 CET

Also in Japan, the data released ahead of the decision painted a mixed picture. Tokyo core inflation eased slightly to 2.6% y/y as expected, while inflation excluding food and energy fell more markedly to 2.4% from 2.7%. September retail sales disappointed, with growth slowing to 2.3% y/y, well below expectations of 3.3% y/y. Industrial production, by contrast, rebounded by 2.2% m/m after falling 2.4% in August.

What happened yesterday

In the euro area, the ECB kept policy rates unchanged at the October meeting, with the deposit rate at 2.50%, in line with consensus and market pricing. We expect a 25bp hike to 2.75% in December, which Lagarde clearly signalled during the press conference. However, the press release had a greater dovish focus on the lack of second-round effects and stable core inflation, so we continue to see 2.75% as the terminal rate. See more here: ECB Review - A no-hike decision, 29 October.

Also in the euro area, ECB President Christine Lagarde announced she would step down on 7 February 2027, ending her term ahead of time. The two main government-endorsed candidates to replace her are Klaas Knot of the Netherlands, whom we see as a pragmatic hawk, and Pablo Hernández de Cos of Spain, whom we see as a moderate dove. Kalshi markets currently assign the highest probability to de Cos at 42%, followed by Knot at 34%.

Finally, in the euro area firms' selling price expectations increased in October, according to the European Commission's business survey. The level remains low in services, while industry and retail are gradually moving back towards the levels seen before the summer. While some indirect effects on goods prices from industry may begin to appear, broader spill-overs to services do not currently seem to be in the pipeline.

In the US, Q3 GDP growth came in strong at 3.4% q/q SAAR, in line with our forecast and slightly above consensus at 3.2%. The details were solid, with both consumer spending and investment exceeding already high expectations, while inventories and public spending also contributed positively. Net exports were the main drag, as imports rose more than expected and exports declined.

Also in the US, PCE inflation was in line with market expectations, with headline inflation at 0.5% m/m and core at 0.3% m/m. Energy prices increased again, as expected, while core goods picked up to 0.2% m/m and core services also rose on the month. Overall, the figures point to resilient growth momentum yet no upside surprise on inflation.

In Sweden, the data released were broadly strong, with the Q3 GDP indicator in line with expectations at 2.8% y/y and 0.4% q/q. The NIER Economic Tendency Indicator increased to 108.1, marking the fourth consecutive month of stronger-than-normal sentiment, with manufacturing confidence and employment plans improving. This points to upside risks to our growth forecast. Firms' 12-month inflation expectations increased to 2.7% from 1.9%, but NIER changed the questionnaire, creating a break in the time series for what has historically been one of the most reliable indicators of Swedish inflation.

In commodities, energy prices declined yesterday, with Brent crude falling to USD 113/bbl for the first time in a week. European natural gas prices also moved lower, dropping to EUR 97/MWh from EUR 100/MWh two days ago. There were no clear fundamental news drivers behind the move. Instead, the decline appears to reflect broader negative risk sentiment, partly stemming from weaker US equity markets, while the still elevated USD may also be weighing on commodity prices.

 Equities: Equities were lower on Thursday, with the AI trade swinging back into negative territory. The S&P 500 fell 0.3%, while the Stoxx 600 continued to rise, gaining 0.8%. Tech and communications were among the worst performers, primarily driven by Alphabet selling off no less than 13% following disappointing earnings and negative cash flow. However, it is worth reiterating that it was the core business that missed, not AI revenues.

 Aftermarket trading just as interesting, as the final one of the hyperscalers, Amazon, reported. However, dynamics were similar to Alphabet, with a miss in the core business and somewhat lowered guidance (only -1% below consensus, though) as Amazon expects weaker consumers into holiday season, primarily due to rising energy prices. The timing is of course unfortunate, with core business weakening all while cash burn accelerated. Except, when it comes to Amazon, the cash burn is in its own league. Free cash flow decreased to an outflow of more than $33bn in Q3 alone. This can be compared to the Q3 EBIT of 17bn, while consensus had expected cash flow to be around breakeven. As a result, the stock is down more than 7% in the aftermarket and AI capex scepticism will likely come back into markets today. This also goes for the hardware side, with Intel down -20% in the aftermarket, again not driven by AI-related revenues but by a slowing PC market following surging memory prices.

 As a result, Asian markets dipped into negative territory this morning, with the Kospi down 4% and the Nikkei 225 down 2.5%. US futures indicate an opening around -1%, and Europe -0.5%.

 FI and FX: The ECB kept policy rates unchanged, as expected, and a dovish touch to the press release helped the EGB curves to steepen from the short end. We, and markets, are still looking for a December hike, which we see as the final of this cycle. EUR/USD ended yesterday higher, closing in on 1.12, as continuous headwinds for the US tech sectors weighed on the dollar. Overnight, BoJ kept its policy rate steady at 1.25, as expected, and USD/JPY continues to trade centred around 158. In Scandie markets, the NOK traded mixed whereas the SEK continued its strong runt, bringing EUR/SEK below 11.00 and NOK/SEK closer to 1.06.