The recent steepening of the yield curve is arguably a cause for concern, but our base case remains that long-dated yields will fall back. Soft payrolls provide little succour It briefly looked like a softer-than-expected September US Employment Report …
5th October 2026
While higher bond yields are creating valuation losses, higher interest rates are lifting banks’ lending margins. What’s more, higher rates are not creating major problems for insurance firms. The upshot is that financial stability concerns won’t convince …
October hike looks unlikely The comments from this week’s Fed speakerthon skewed dovish on balance and pushed back against the idea that the Fed will move again in October . The most notable speeches in that respect were from NY Fed President Williams and …
2nd October 2026
The latest monthly GDP data (see here ) confirmed that the three main consumer-facing sectors outperformed in the three months up to July. While construction led the way, even that was partly due to the strongest three months for residential construction …
The surge in Treasury yields has put equities under more pressure than headline returns may suggest. If yields remain high much longer or rise further, more serious cracks may soon emerge in the stock market. The fall in Treasury yields following the …
SA bonds should soon recover from global sell-off South African assets have come under pressure from the global bond sell-off, but the yields on local currency bonds are still at low levels by post-pandemic standards. Improving fiscal fundamentals should …
MXN plunge makes a rate hike more likely The sharp fall in the Mexican peso this week brought an abrupt end to its recent period of strength (dubbed the ‘super peso’) and makes us more confident that the next move in interest rates will be a hike. The …
This page has been updated with additional analysis since initial publication. Softer data suggest market pricing has gone too far The softer payroll gain and tick up in the unemployment rate in September is not enough to spoil the image of a labour …
We’re hosting a special in-person roundtable event at our London office on Wednesday 14th October to discuss what Chancellor Healey could announce in his first Budget on 28th October, which taxes may rise and what it all means for the economy and …
The further sell-off in French government bonds this week is unlikely to mark the low point in France’s public debt crisis. A turning point is likely only when there is a credible commitment to reduce the deficit over several years to put debt on a …
The Hormuz conundrum Crude oil exports from the Middle East appear to have risen significantly in late September, helped by an increase in ship-to-ship transfers through the Strait of Hormuz and, more recently, a resumption of loadings from Saudi Arabia’s …
The global economy is facing another energy shock, yet growth has remained remarkably resilient. In this week's Capital Economics Weekly Briefing , Neil Shearing is joined by Jennifer McKeown and Mark Williams to discuss why households, governments and …
Global and domestic rollout is supporting growth A mid-year report by the State Administration of Foreign Exchange (SAFE), published this week, contained novel estimates of China’s AI-related trade, broken down into computing equipment, power equipment …
Korea – exports boosting the economy The latest data out of Korea have been somewhat mixed, but the key takeaway is that the export-driven part of the economy remains in very good shape. The manufacturing PMI rose to 53.9 in September, its highest in four …
Fiscal restraint in Russia’s 2027 budget The details of Russia’s 2027 budget published this week showed projections for a sharp reduction in the size of the deficit after this year’s blowout, driven by non-war spending cuts and yet more tax hikes. This …
Indirect effects of higher energy costs might be emerging September’s HICP data show that almost all of the increase in inflation since the Iran war began is due to higher fuel prices and energy bills. There are some signs that the indirect effects of …
Activity data paint upbeat picture… The RBI’s policy announcement on Wednesday is going to be a close call. (See our full preview here .) While we have been steadfast in our view that the repo rate will be hiked by 25bps (to 5.50%), this is a forecast …
Tankan shows no drag from higher interest rates The “Summary of Opinions” from the BoJ’s September meeting highlighted a sharp divide between the two members who favoured unchanged rates and the rest of the Board. Indeed, several members argued that the …
A cooling labour market should help The RBA’s decision to hike rates by 25bp, to a 15-year high of 4.60%, came as little surprise. More notable was that the Bank kept the door firmly open to further tightening, reiterating that it stood ready to raise …
The jump in the EM manufacturing PMI in September to one of its highest levels since the post-pandemic recovery provides encouraging signs that EM growth is picking up in spite of the ongoing energy shock. So far at least, the surveys suggest that the …
1st October 2026
With 30-year fixed mortgage rates now at a near three-year high of 7.3%, the near-term outlook for home sales and prices remains weak. However, we expect things to improve from next year as energy prices fall back and the Fed delivers less tightening than …
The S&P 500 may have largely withstood the surge in Treasury yields so far but US corporate bonds have not been so lucky. And we suspect credit spreads will rise further over the coming year or so. Returns from US high yield corporate bonds since April …
Demand remains solid; price pressures not letting up The small fall in the ISM Manufacturing Index to 54.5 in September, paired with the downward revision to the flash estimate of its S&P Global counterpart, gives a slightly less favourable impression of …
China's rapidly expanding trade surplus is the clearest sign of a widening in external imbalances on a scale not seen since the mid-2000s. But how much of a risk do they pose to global macro stability, how long will they persist, and how disruptive would …
Saudi deficits likely to be larger than MoF expects Saudi Arabia published its Pre-Budget Statement for 2027 this week which showed that officials now expect the budget deficit to be larger than previously thought, both for this year and 2027-28. The …
This Focus is an essay that was shortlisted in September for the 2026 Rybczynski Prize run by the Society of Professional Economists. While the essay was written in an individual capacity, it reflects Capital Economics thinking and draws upon CE research. …
South Africa’s government debt-to-GDP ratio should peak this year, and we think the government will use the Medium-Term Budget Statement (MTBPS) later this month to reaffirm its fiscal discipline credentials. The resulting improvement in fiscal …
Alternatives with strong secular drivers are well placed to deliver robust demand growth, with those that are less institutionalised – such as self-storage, single-family rental and senior living – having further scope for yield compression as their …
The survey data for Central Europe out this week generally point to a slightly weaker September than in July or August, but it still looks like regional GDP growth over Q3 as a whole was around 3% y/y. There’s little sign (yet) that the recent leg-up in …
Energy-driven rise in inflation, core inflation still very low The small rise in Swiss inflation in September was largely due to a rise in energy inflation. With core inflation low and limited evidence of indirect effects from higher energy prices, we …
We’re hosting an in-person roundtable event at our London office on Wednesday 14 th October to discuss what Chancellor Healey could announce in his first Budget on 28 th October, which taxes may rise and the implications for the economy and financial …
Australia’s housing downturn still has further to run, even if there are tentative signs that demand is beginning to stabilise. Weakening housing market conditions should help ease shelter inflation in the coming months, giving the RBA greater confidence …
Tankan will encourage BoJ to keep tightening at faster pace The Q3 Tankan survey showed that overall business conditions were the most favourable in decades, which should encourage the Bank of Japan to keep tightening policy at a faster pace. The Tankan’s …
We continue to think the AI rally is reaching its final stages, even if recent headwinds to equity markets owe more to surging government bond yields than a re-assessment of the prospects for tech firms. We judge that the bond market sell-off is …
30th September 2026
Overview – Trade uncertainty and lower immigration will limit GDP growth to 1.5% next year, keeping core inflation from drifting too far back above target. Accordingly, the Bank of Canada will only hike twice, to the midpoint of its 2.25% to 3.25% neutral …
If the Fed hikes interest rates further and oil prices fall back over 2027-28, as we anticipate, the current strength of lending growth in the Gulf is likely to lose steam. That will hold back recoveries in non-hydrocarbon sectors as they emerge from the …
Data dump reveals better core inflation picture, while consumer is still going strong The data dump today shows that core price pressures are slightly less firm than feared and provides some support to our view that the Fed will pause in October. …
Table of Key Forecasts Global Overview – We expect the global economy to remain resilient in the face of the energy shock. In Asia, many governments will continue to shield their economies from the worst of higher energy prices. In most DMs, labour …
Indirect effects starting to appear? Data released for Germany, France, Italy and Spain point to an increase in euro-zone headline inflation from 3.2% in August to 3.7% in September. They also suggest that the indirect effects of higher energy costs might …
We expect the RBI to hike the repo rate by 25bps to 5.50% next week Strong growth, rising inflation and excess bank liquidity point to policy tightening We think the repo rate will rise to 6.00% in H127, a more hawkish view than consensus The …
Jump in headline rate not enough to prompt tightening next week The sharp rise in headline inflation in Poland to 4.0% y/y this month, from 3.4% y/y in August, was driven by food and energy. As a result, we don’t think the MPC will shift towards rate …
China’s latest stimulus package eschews broad-based easing in favour of targeted measures to support housing demand and bank lending to specific sectors. It is unlikely to have a big impact on its own. But it does point to growing policymaker concern …
We’re hosting a special in-person roundtable event at our London office on Wednesday 14 th October to discuss what Chancellor Healey could announce in his first Budget on 28 th October, which taxes may rise and what it all means for the economy and …
The public sector has reined in its profligate tendencies ever so slightly in recent quarters, but the 2026/27 state and federal Budgets point to continued strong growth in government spending. That will make the RBA’s job of returning inflation to target …
Momentum picks up as fiscal support starts to kick in The PMI readings for September were reassuring. Downward pressure on construction activity eased markedly, reflecting the fading impact of typhoon disruptions and a likely pick-up in fiscal spending. …
Most assets would be affected if US yields continued to rise, but some – including bonds in economies with less-ingrained price pressures and weak currencies – might be the best of a bad bunch. The latest rise in bond yields seems to have put markets in …
With underlying inflation no longer accelerating, further tightening is unlikely Measures of core inflation didn’t strengthen any further in August, supporting our view that the RBA’s tightening cycle is likely at an end. The rise in headline inflation …
GDP growth should slow in Q3 The sharp fall in industrial output in August probably reflects disruptions from the Kumamoto earthquake and won’t be sustained. According to the preliminary estimate released today, industrial production fell by 1.7% m/m in …
While bond markets have been largely in hock to energy prices over recent weeks, headline equity indices have generally held up well in the face of surging bond yields. In large part, that reflects renewed enthusiasm for tech stocks and a reliance on a …
29th September 2026
Overview – Booming exports of AI-related products have helped offset the drag from higher energy prices and should continue to support growth across most of Asia in the near term. The AI boom is not feeding through into increased price pressures, with the …
