The European Central Bank remains optimistic about a “Goldilocks” economic scenario, expecting U.S. tariff effects to be short-lived and offset by Germany’s fiscal stimulus, supporting its decision to maintain interest rates at 2% in October. Despite forecasts of growth returning by early 2026 and inflation nearing 2% by 2027, risks like expanding U.S. tariffs, a stronger euro, and slower German fiscal measures could lead to lower-than-expected inflation, potentially sparking discussions of monetary easing in 2026. Germany’s October PMI data suggests ongoing economic stabilization, with manufacturing steady at 49.5 and services slightly down at 51.0, reflecting a fragile recovery driven by resilient services amid industrial and trade challenges.

Japan’s new government, led by Takaichi, is expected to implement a stimulus package similar to Abenomics, but with a focus on targeted support for strategic industries and inflation relief, rather than broad spending. The yen’s weakness, driven by the U.S.-Japan yield spread, may be limited by potential fiscal discipline from coalition partners and veteran policymakers like Taro Aso, who advocate prudent spending. The Bank of Japan’s upcoming meeting could signal tighter policy, potentially strengthening the yen, while recent data shows inflation meeting expectations and a slowdown in private-sector activity, with manufacturing declining but optimism for future growth.

The Reserve Bank of Australia maintained its cash rate at 3.60% in September, prompting debate about whether its rate-cutting cycle has concluded. While some economists predict another cut in November due to declining inflation (2.1% annually) and rising unemployment (4.5%), major banks expect the RBA to hold rates until early 2026, awaiting clearer economic signals. Recent PMI data shows steady growth (Composite PMI at 52.6), driven by services, though manufacturing contracted (49.7), and cooling price pressures may support the RBA’s cautious stance. Markets anticipate a 63% chance of a November rate cut, with upcoming CPI data and RBA Governor Bullock’s comments likely to influence expectations.