The Weekly Briefing from Capital Economics

There was an extraordinary swing to the Democrats in the US midterm elections, setting the scene for the final two years of the Trump presidency. Will it mean a greater focus on foreign policy for the president? What could it mean for the debt ceiling at home? We'll be talking though the implications for the US and global markets with chief economist Neil Shearing.

And the Australian central bank has raised its policy rate to an 18-year high, a week after New Zealand’s central bank unexpectedly left rates on hold. Both countries are dealing with the same energy shock, but they find themselves at different points in their rate cycles. We'll be finding out more with head of Asia-Pacific Marcel Thieliant.

If you have any comments or questions you can get in touch via podcast@capitaleconomics.com
https://www.capitaleconomics.com/publications/global-economics-update/blue-wave-could-bring-new-geopolitical-risks
https://www.capitaleconomics.com/publications/us-economics-update/blue-tsunami-midterms-increases-policy-risks-markets
https://www.capitaleconomics.com/publications/australia-new-zealand-economics-weekly/investors-are-underestimating-scope-rba-rate

UK Chancellor John Healey delivered his first Budget this week, giving some relief to households worried about their energy bills and managing to maintain credibility will the markets. But there are questions about whether implied spending cuts can be made in a few years and Deputy Chief UK Economist Ruth Gregory discusses whether the plans are credible. Has Healey left himself too much to do next year? 

The Brazilian election result prompted market falls as investors were surprised by a victory for the incumbent President Lula over the challenger Flavio Bolsonaro, who had won the first round of voting. And in Israel there's uncertainty as we're still some way from knowing what the governing coalition will look like. We'll be hearing about the market reaction to both elections with Senior Emerging Markets Economist Liam Peach.

If you have any comments or questions you can get in touch via podcast@capitaleconomics.com
https://www.capitaleconomics.com/publications/uk-economics-focus/uk-budget-response-fiscal-credibility-preserved-difficult-decisions
https://www.capitaleconomics.com/publications/emerging-europe-economics-focus/israels-election-what-it-means-macro-outlook
https://www.capitaleconomics.com/publications/latin-america-economics-update/brazils-market-rout-threatens-growth-more-inflation

Next week could be a pivotal one for the global economy, with interest-rate decisions from the Fed and ECB alongside a challenging UK Budget.
In this episode of The Weekly Briefing, Chief UK Economist Paul Dales is joined by Chief Global Economist Jennifer McKeown to explain what to expect and where the biggest risks lie. They discuss why the Fed is likely to pause next week but resume raising rates from December, and what to listen for from Fed Chair Kevin Warsh as inflation pressures remain uncomfortably strong.

They also explain why the ECB faces a rather different inflation problem and why its tightening cycle may be close to an end. And with central bankers increasingly reluctant to commit themselves to a particular path for rates, they ask whether forward guidance is really dead, and how investors should interpret the signals coming from the Fed and ECB next week. Finally, with the UK Budget looming, they consider the difficult balancing act facing the Chancellor as he seeks to ease cost-of-living pressures without unsettling already-nervous bond markets.
https://www.capitaleconomics.com/events/central-bank-drop-unpacking-fed-and-ecb-october-meetings
https://www.capitaleconomics.com/publications/ecb-watch/ecb-will-hike-only-once-more
https://www.capitaleconomics.com/publications/uk-economics-focus/uk-budget-2026-preview-unfinished-fiscal-business

China's economy is slowing, but not collapsing. Domestic demand remains weak, the property downturn continues to weigh on growth, and deflationary pressures persist. Yet exports remain remarkably strong, helping to drive a growing trade surplus and raising questions about how long the rest of the world will tolerate China's expanding global footprint.

In this week's Capital Economics Weekly Briefing, Neil Shearing is joined by Julian Evans-Pritchard, Head of China Economics at Capital Economics, and Erik Britton, CEO and Chief Economist at Fathom Consulting. They discuss Capital Economics' central outlook for China and introduce the new China Economic Scenarios service, developed in partnership with Fathom.

The conversation explores six possible futures for China's economy, from a renewed export-led boom to a world in which China is increasingly shut out of global supply chains. Along the way, they examine the outlook for growth, inflation and trade tensions, and explain why scenario analysis can help investors navigate an increasingly uncertain global environment.

Topics covered:
Why China's domestic economy remains under pressure
The outlook for exports and trade surpluses
Deflation risks and the prospects for inflation
How rising geopolitical tensions could reshape China's future
The six scenarios featured in the new China Economic Scenarios service
What China's future means for the global economy and financial markets
https://www.capitaleconomics.com/china-economic-scenarios
https://www.capitaleconomics.com/publications/china-economics-update/china-could-weather-tougher-eu-trade-restrictions
https://www.capitaleconomics.com/publications/global-inflation-watch/inflation-outlook-doesnt-justify-market-rate-expectations

This week, Neil Shearing is joined by James Reilly and Jack Allen-Reynolds to unpack the latest bond market sell-off, the forces driving higher global yields, and why equity markets continue to defy expectations. They also examine mounting fiscal concerns in France, assess whether the eurozone faces a renewed debt crisis, and discuss how Europe is responding to growing competitive pressures from China.
https://www.capitaleconomics.com/publications/global-economics-update/what-bond-sell-means-monetary-policy
https://www.capitaleconomics.com/publications/capital-daily/increasingly-narrow-equity-rally-rings-alarm-bells