As we all watch and see how the US election impacts global economies here is a look back at what we know:

• Recent macro data suggests the Fed will not cut rates as much as markets expect. Weaker euro area activity gives the European Central Bank (ECB) more room to loosen.
• Mixed corporate earnings and guidance from mega cap tech companies hurt U.S. stocks last week. U.S. 10-year Treasury yields hit four-month highs.
• The Fed and Bank of England are both poised for another 25-basis point cut this week. U.S. rates are expected to settle slightly higher than markets predict.
• Solid jobs and wage data reinforce why the Fed is unlikely to deliver the lower rates markets expect. Investors are viewing structural changes through the lens of a typical business cycle, driving market volatility. The ECB is expected to cut rates closer to market expectations, favouring euro area fixed income over the U.S.
• Market pricing of ECB rate cuts aligns more closely with expectations than in the U.S. The ECB tightened by more than the Fed on the way up, making ECB policy look tighter given Europe’s weaker consumer spending and limited fiscal support. Tight policy gives the ECB more room to cut rates to jump-start growth. The ECB sped up easing, cutting rates a third time last month, making each policy meeting a live one. The ECB is expected to cut to around 2%, consistent with market pricing. This drives a preference for European fixed income over the U.S., especially in credit. UK bond markets are eyeing the potential inflation impact of the tax and spending mix in the UK’s new budget. A tepid UK growth outlook is driving the Bank of England to cut more than markets have priced in, leading to an overweight position in UK gilts.
• In Australia, inflation has fallen to a 3.5-year low of 2.8% in the September quarter. The Reserve Bank of Australia (RBA) forecasts underlying inflation to fall below 3% by December 2025. However, the RBA is not expected to cut interest rates until at least February or April next year. The Australian economy remains resilient, with GDP growth expected to return to around its potential growth rate by late 2025. Tight labor market conditions are expected to ease gradually, with the unemployment rate forecast to increase over the coming year. Population aging and other structural forces are also expected to impact inflation and economic growth in Australia.

Bottom line: This is not a typical business cycle. Structural forces are holding inflation higher long term, keeping the Fed from cutting as much as markets expect. ECB rate cut pricing is closer to expectations, favouring euro area bonds. In Australia, inflation is easing, but interest rate cuts are not expected until next year.