Global Economic Outlook: Key Central Bank Decisions and Economic Indicators Await Next Week

Attention shifts to Election Day this week, though we do not anticipate the midterm outcomes will meaningfully alter the U.S. economic trajectory. We expect the ISM manufacturing and services indices to ease slightly but remain firmly in expansion territory, with market focus on the prices paid components for clues on inflation trends. The week concludes with October payrolls on Friday, which we project will rise by 65K while the unemployment rate holds steady at 4.2%, indicating a resilient labor market.

Internationally, Canadian employment is poised for a modest October rebound following two consecutive monthly declines, though hiring momentum remains muted. The policy pivot by the Bank of Canada toward tighter measures, driven by rising inflation risks, has led us to revise upwards our expectations for future policy rate increases. This tightening bias is mirrored across other advanced economies, with anticipated rate hikes from both the RBA and BoE next week, and we have adjusted our 2027 forecasts to include additional hikes from each. In contrast, emerging markets may see more patience, with Brazil’s central bank and Banxico both projected to maintain current rates next week.

• ISM Manufacturing & Services Indices (Mon. & Wed.), Election Day (Tues.), Employment (Fri.)

• Reserve Bank of Australia (Tue.), Bank of England (Thu.), Canada Labor Force Survey (Fri.)

• Brazilian Central Bank (Wed.), Banxico (Thu.)

Next week brings the latest assessment of October activity through the ISM surveys. Regional Fed surveys indicate only modest softening, suggesting both manufacturing and services indices will likely remain consistent with solid expansion. The prices paid components will attract particular attention given ongoing inflation concerns, with recent commodity price increases hinting that input costs may continue to exert upward pressure. Industry commentaries should offer valuable real-time insights into business sentiment.

For manufacturing, we anticipate the ISM index to ease modestly to 54.1, maintaining expansion for an eleventh consecutive month. Supplier delivery times have accounted for approximately 40% of headline index movements over the past five months, and while improvement alongside recent durable goods orders suggests activity may broaden beyond high-tech sectors, the overall outlook remains positive.

The services sector is projected to ease to 54.0 from 54.9 last month. Employment may see some pullback after a broad-based increase in September, though we continue to expect 65K payroll gains in October. Beyond employment, new orders and business activity readings will signal cooling trends, with prices paid remaining a critical gauge for determining whether resilient demand is generating renewed inflation pressures.

Election Day arrives Tuesday, and our baseline view is that the 2026 midterms will not substantially transform the U.S. economic outlook. Key policy drivers—the Iran conflict, tariff policies, and federal deficit—are unlikely to shift meaningfully regardless of congressional composition. Divided government could complicate a 2027 debt-limit negotiation, while Senate control will influence future Fed nominee confirmations. Democrats are projected to retain the House, with a slight edge in a competitive Senate. Overall, we expect these outcomes to have minimal impact on economic fundamentals.

Nonfarm payrolls are forecast to rise 65K in October, aligning with the six-month average. The labor market narrative continues to reflect stability: initial jobless claims remain historically low, while job openings show little change. Regional Fed employment indices dipped slightly in manufacturing but retention in expansion across both goods and services sectors suggests continued near-breakeven job growth. Unemployment remains at 4.2%, supported by modest rebounds in labor force participation that are unlikely to sustain further significant movement given demographic headwinds. Average hourly earnings are expected to rebound 0.3% after a 0.1% increase in September, maintaining year-over-year growth at 2.9%. This pace suggests wage dynamics are unlikely to accelerate absent improved hiring, keeping inflation pressures primarily supply-driven.

Moving internationally, we anticipate the Reserve Bank of Australia will raise its Cash Rate by 25 basis points to 4.85% next week. Recent communication strengthens the case for additional tightening, with policymakers citing domestic capacity pressures and the energy shock as reasons inflation may outpace August forecasts. Upcoming quarterly inflation data shows headline CPI up 4.3% year over year, with trimmed mean at 3.7% and inflation expectations holding near 5.3%. We have revised our Q1 2027 forecast to include another 25 bp hike, potentially in February, targeting 5.10%.

At the Bank of England, patience is wearing thin. We expect a 25 basis point increase to 4.00%—the first tightening in this cycle. Pre-Middle East conflict conditions had suggested potential cuts from restrictive policy. However, September headline inflation rose to 3.5% year over year, with core and services inflation at 2.8% and 3.7% respectively. Recent PMI data shows stronger activity and modest employment growth, while wage pressures remain contained. We now project another Q1 2027 hike to 4.25%, recognizing that recent minutes show limited second-round inflation effects but highlight risks of premature restraint.

Canada’s labor market showed further weakness in September, with a 68K employment decline following a 42K drop in August. Job losses occurred broadly across full- and part-time roles and sectors, pushing unemployment to 6.5%. An October rebound appears likely but reflects adjustment from two weak months rather than meaningful reacceleration, as hiring intentions remain below historical averages. The Bank of Canada responded this week with a 25 bp hike to 2.50%, citing persistent energy shock risks to broader price stability. Inflation is now expected to stay above 3% through much of 2027, prompting us to forecast another 25 bp increase in December and an additional rise in Q1 2027 to exceed the BoC’s neutral rate estimate.

The Brazilian Central Bank is expected to hold the Selic Rate at 13.75% next week, with Lula’s fiscal policy direction influencing timing of future cuts. September inflation rose to 4.58% year over year, and strong real wage growth of 8.1% underscores persistent domestic price pressures. While activity has slowed under restrictive monetary conditions, upside inflation risks limit near-term easing prospects. We project rates unchanged through year-end with cuts resuming in 2027.

Banxico is likely to maintain its policy rate at 6.50% next week despite Q3 GDP growth of 3.2% year over year. September minutes suggest openness to cuts if inflation continues improving, but recent data shows headline inflation accelerating to 3.62% in early October and core inflation rising to 3.78%. Persistent services inflation and climate-related risks including potential El Niño impacts complicate the dovish case. We expect rates steady through 2026 and 2027 given stronger activity and renewed inflation pressures.

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