Monthly house view | October 2026
The global economy has been surprisingly resilient.
- In the US, consumer spending and artificial intelligence (AI) investment are driving growth.
- In Europe, exports and German spending on defence and infrastructure are providing support.
- Asian manufacturing hubs are seeing high demand for semiconductors and machinery.
But there are clouds on the horizon and market uncertainty is rising. Over the past month, bond yields have risen to multidecade highs due to a mix of geopolitical risk, stubborn inflation and solid growth.
In this environment, central banks have turned hawkish, led by the Federal Reserve's unanimous decision to hike policy rates for the first time in three years.
The trajectory of oil prices is critical to the outlook. A prolonged conflict in Iran or a sharper disruption to global oil supplies would further squeeze household purchasing power, corporate margins and financial conditions.
If inflation becomes more persistent, additional monetary tightening will become likely. If, instead, energy prices ease and consumption slows, the tightening cycle could be shorter.
For now, markets are pricing three additional Fed rate hikes over the next 12 months.
Our baseline is more dovish. We foresee one additional increase from the Fed, the European Central Bank (ECB) and the Bank of England (BoE), while the Swiss National Bank (SNB) stays on hold.
We are more measured for two reasons. First, the US labour market is stabilising without adding domestic inflationary pressure. Second, we see US inflation becoming more manageable.
As for the ECB and the BoE, the combination of contained core inflation and subdued growth should help avert an aggressive rate hiking cycle. For Switzerland, low inflation and a stronger currency will restrain the SNB.
The price of oil remains a key variable to watch but we expect it to remain within a contained range.
