Flat opening in European markets (Eurostoxx futures -0.2%, S&P 0% and Nasdaq +0.5%), awaiting the Fed meeting (decision at 19:00, Warsh press conference at 19:30), with a huge battery of results including those from Alphabet and Microsoft in the US, both after the American close and relevant to the AI theme, focusing on the sustainability of spending and AI financing.
We highlight the significant advances in Asia, especially in South Korea (Kospi +7%, its largest gain in three months) following good results from SK Hynix (share price +11%), which multiplies its profits by seven, announces a shareholder return plan of about 100 trillion won (4%) and states it has its HBM memory sold out until 2029, an indicator of long-term revenue visibility and scarce supply, supporting prices and margins. These results again boost appetite for AI and affect its counterpart Samsung (+9%, results published tomorrow).
In the energy markets, both Brent and TTF, the European benchmarks for crude and gas, continue to rise, +2% to 116 usd/b and +1% to 97 eur/Mwh respectively. According to the WSJ, the US has asked Gulf countries to prepare for a new campaign against Iran.
Today we will have the Fed meeting, with expectations of a “hawkish pause” in the intervention rate hikes following the increase in September, but likely pointing to new hikes by the end of the year (we expect dissent in the decision, with some supporters of raising today). Rates are at 3.75%-4.00% after the 25 bps increase on 16 September, adopted unanimously, and the market discounts only a 10% probability of a 25 bps hike at today's meeting, especially after Warsh's recent statements (positive about the impact of AI and awaiting new price references). From R4 we believe that the Fed will pause today, although it could raise 25 bps at the meeting on 9 December (about 80% probability), in line with the "dot plot" presented in September, which places rates at 4.0%-4.25% by the end of 2026, and taking into account that by then we will have more data (two more employment reports and one CPI report). The market also discounts two additional hikes in 2027 up to 4.5% (versus stability expected by the Fed), although these movements will be entirely dependent on the evolution of inflation, and therefore on unpredictable geopolitics. We will be especially attentive to the tone of Warsh's intervention, particularly after the recent slight easing of Treasury yields (5% current vs 5.36% earlier this month) and with the dollar at 1.11 vs euro (highest since May 2025).
On the corporate front, we will continue with the presentation of Q3 2026 results: in the US, it will be the turn of the mentioned Alphabet and Microsoft, while in Europe we will have relevant companies such as Airbus, BNP Paribas, Danone, Deutsche Bank, BASF, Mercedes-Benz Group, Unilever and Heineken. In Spain, Banco Santander, Mapfre, Endesa, Aena, Redeia, Línea Directa, Ebro Foods, CIE Automotive and Vidrala will publish their figures, while Puig will celebrate its Investor Day.
Regarding macro data, today the focus will be on GfK consumer confidence in Germany which in November will remain depressed (-30.3e vs -30.6 previous) in a context of loss of purchasing power due to the energy shock and against a backdrop of higher interest rates.
On the political front, the Israeli elections held yesterday, with exit polls (the final count is expected on Friday and the official result will be published on 4 November), point to a technical tie, with neither of the most voted blocs reaching the majority of 61 seats (51-52 seats out of 120 for Netanyahu's bloc and 49-51 for the opposing Yashar party, led by Eisenkot, former chief of staff), with the Arab parties summing around 19. Voter turnout was 77.7%, the highest since 1999 (+7 points vs 2022). From now on, President Herzog will consult with party leaders and task the one with the most options to form a government, for which he will have up to 42 days. If he fails, there will be new elections, with Netanyahu as acting prime minister in the meantime. The most likely scenario seems to be a long negotiation and an unstable government, or even a repeat election, which adds political uncertainty in an already tense environment due to Iran.
We will also be watching today for the budget presentation in the United Kingdom, which is expected to be “modest and prudent” to sustain the Labour resurgence in the polls (28% vs 19% before Starmer's resignation in July) at the lowest possible cost, but with potential impact on the bond market if it surprises.
