Macro Outlook Europe — October 2026: What Changed

Inflation surprised higher, again on energy.

• Headline HICP: the September flash is 3.8% YoY, up from 3.2% in August (Aug revised from the 3.3% flash). MoM is +0.6%.
• Energy HICP: 18.8% (from 14.3%), contributing about 1.7pp to headline.
• Core and services: core HICP is 2.5% (from 2.4%, MoM +0.2%). Services are 3.2% (from 3.0%).
• Big four: DE 3.3%, FR 3.4%, IT 4.1%, ES 5.0%.
• Missing this run: core 3-month annualized and negotiated wages are not available.
• ECB staff projections (Sept):
• HICP 3.0% / 2.5% / 2.1% for 2026 / 27 / 28, with a peak of 3.6% in Q4 2026.
• Core 2.5% / 2.6% / 2.3%.
• Compensation per employee 3.3% in each year.
• September already exceeds the staff-projected Q4 peak.

ECB.

• The prior state's 2.00% deposit rate is superseded. The ECB hiked 25bp on 11 June and another 25bp on 10 Sep, effective 16 Sep.
• The deposit facility rate is 2.50% (MRO 2.65%, MLF 2.90%). Meeting-by-meeting guidance is retained.
• Market pricing for the next three meetings:
• October hike odds are negligible or below 30%.
• The next hike is not fully priced until January.
• Up to three more hikes are seen over the coming year.
• €STR was 2.19% and about 40bp of cumulative hikes were priced by end-2026 (as of 9 Sep).
• Meeting-by-meeting OIS figures are unavailable.
• Balance sheet: APP/PEPP run-off continues, and excess liquidity fell about €101bn to €2,117bn.
• Dissent at the September meeting: not sourced.

Rates and spreads.

• 10Y Bund: ~3.47% in the latest quote (3 Oct), versus 3.36% at the prior run (+11bp). It touched a 17-year high, with quotes as high as 3.64% on 2 Oct, before easing below 3.45%.
• 2Y Schatz: 3.00% (2 Oct), versus 2.98% prior.
• OAT-Bund: about 130-152bp across 2-3 Oct quotes (central ~140bp), the widest since 2011-12, versus 80.4bp prior. This follows the French budget presentation.
• BTP-Bund: 116.5bp at the 1 Oct close and 122.5bp in the latest quote. It was unavailable last run.
• Unavailable: EUR/USD, the euro 5y5y swap and the 10y inflation swap.

Equities.

• STOXX Europe 600: 631.35, versus 646.32 prior (−2.3%). The 52-week high is 660.51 (11 Aug).
• Valuation multiples: forward P/E 15.37 and trailing 19.67 are still dated 30 Jun 2026 and flagged STALE.
• Mechanically re-scaled by price (631.35 / 641.73), they would be about 15.12 and 19.35, ignoring EPS revisions.
• Earnings growth: expected Q3 earnings growth is +19.4% y/y, or +9.9% ex-energy. One bank sees eurozone EPS +15% in both 2026 and 2027.
• Euro Stoxx 50: 6,320.26 (30 Sep). Its index forward P/E is unavailable.

Forces.

• TTF gas: EUR 71.9-76.5/MWh (2 Oct), with a 30-day average of 75.89 (range 70.51-82.51). Prior was 73.2-73.7, so roughly flat-to-higher.
• Brent: USD 99.8-102.7, versus ~95 prior.
• Supply news:
• Saudi Arabia restarted the East-West pipeline and Yanbu loadings, but Hormuz transit remains risky.
• European governments are weighing an emergency oil/diesel stock release.
• Fiscal:
• The euro area deficit is projected at 3.6% / 3.7% / 3.6% of GDP for 2026-28.
• The defence escape clause is active for 14 euro area countries.
• An EDP was opened for Bulgaria.
• German package news is unavailable.
• Trade: the US-China "30-for-30" tariff truce covers about $60bn of goods and expires 10 Jan 2027. There is no US-EU tariff item.
• Unavailable: electricity prices, unemployment and China export prices.

Ledger changes (≥0.05pp):

• Energy 3y: +0.20 → +0.25. Brent is near USD 100, energy HICP accelerated to 18.8%, and core and services ticked up, so second-round pass-through into core over 3 years is more likely. All other weights are unchanged.

Scenario changes:

• B: 0.40 → 0.45 (+5pp). Headline at 3.8% already exceeds the ECB's projected 3.6% Q4 peak, services are rising, and staff see core at 2.6% in 2027.
• A: 0.30 → 0.28. Residual.
• D: 0.15 → 0.12. Energy prices are not falling durably.
• C: unchanged at 0.15. Spread widening and a 5%+ UST 10Y tighten financial conditions, offsetting ECB-hike credibility.

Verdict: model moved (modestly).

Switzerland

• CPI: +1.0% YoY in September (0.0% m/m). It was unavailable last run.
• Core CPI: +0.5%, versus 0.4% (Feb, stale) prior.
• SNB: held at 0% on 24 Sep. The discount on sight deposits above the threshold is unchanged at 0.25pp.
• The SNB repeated its willingness to be active in FX markets as necessary.
• It noted the franc has depreciated ~3% trade-weighted since the last assessment.
• EUR/CHF: no new level is available, so 0.9392 (1 Sep) is carried STALE. Market commentary reported EUR/CHF sliding as French spreads widened on 2-3 Oct.
• USD/CHF: 0.8101 (1 Sep), carried STALE.
• Sight deposits: CHF 454.4bn (13 Mar), carried STALE.
• Read:
• Strong-franc pressure eased on a trade-weighted basis over the quarter.
• Renewed euro-area fragmentation (OAT-Bund ~140bp) is a fresh safe-haven channel.
• With policy at the zero floor, negative-rate risk remains the SNB's fallback alongside FX intervention.
• For Swiss-listed exporters: this means a less adverse trade-weighted franc than in June but renewed safe-haven risk versus the euro.

United Kingdom

• CPI: 3.1% in August (prior 2.9% July), expected to rise further.
• Services CPI: 3.4%, unchanged.
• Core CPI: not sourced; 2.6% (Jul) carried STALE.
• Bank Rate: held at 3.75% on 16 Sep, on a 6-3 vote, with three members preferring a hike to 4%. The MPC also voted to reduce its gilt stock to zero.
• Unavailable: the 10Y gilt and GBP/EUR.
• For European-listed companies: a hawkish-leaning BoE and rising UK CPI keep sterling-area financing costs elevated.

United States

• Fed: hiked 25bp to 3.75-4.00% on 16 Sep (prior 3.50-3.75%), with the effective rate at 3.88%. The median dot is 4.1% for end-2026.
• 10Y UST: 5.24% (1 Oct), versus ~4.8% prior.
• Core PCE: 3.0% (Aug), with headline at 3.4%. This replaces the prior ambiguous 3.7%.
• DXY: ~101.5, versus ~99.4-99.8 prior, up ~2% in September.
• Read: this is the main external driver behind the higher Bund term premium, and dollar strength implies a softer euro.
• For European-listed companies: higher global discount rates weigh on multiples, while dollar earners gain translation support.

Japan

• BoJ: hiked at its 17-18 Sep meeting. The level is not stated; it is implied at ~1.25%, since the next hike to 1.5% is priced at 90% for December.
• 10Y JGB: 3.092%, versus just above 3% prior.
• USD/JPY: high of 158.44, versus ~158 prior.
• Tokyo core CPI: 3.0%.
• Read: JGB spillover adds to upward pressure on global long yields.
• For European-listed companies: repatriation risk from Japanese investors is a factor for euro duration and credit funding.

China

• CPI, PPI, export growth and USD/CNY are all unavailable this run.
• The US-China tariff truce, expiring 10 Jan 2027, may reduce trade diversion toward Europe.
• For European-listed companies: the goods-deflation channel cannot be updated this run.

Other EM

• India (RBI repo, CPI) and Russia are unavailable this run.
• No EM signal can be read for European-listed companies.