US Economic Growth Exceeds Expectations as Europe's Energy Crisis Deepens Central Bank Policy Divisions

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Summary:

US GDP grew at an annualized rate of 3.4% in the preliminary estimate for the third quarter; the European Central Bank kept interest rates unchanged...

Headlines

1. Preliminary Vote Count Completed in Israeli Parliamentary Election, With Seat Distribution Largely Determined

2. EU Energy Ministers Meet as Natural Gas Prices Take Center Stage

3. ECB Officials Expect Rate Hike in December, Followed by a Pause in Tightening

4. US GDP Grew at an Annualized Rate of 3.4% in Q3, While September PCE Inflation Rose to 3.6%

5. ECB Holds Rates Steady as Lagarde's Early Departure Fuels Concerns Over Energy Costs and France's Political Situation

6. Bank of Japan Expected to Hold Rates Steady but May Lay the Groundwork for Future Hikes

7. Putin Says Russia Is Willing to Improve Relations With Europe, Emphasizing That No One Wins in a Conflict

Detailed

Preliminary Vote Count Completed in Israeli Parliamentary Election, With Seat Distribution Largely Determined

Israel's Central Elections Committee has completed the preliminary count of all ballots cast in the country's parliamentary election and released the preliminary results. According to the count, which includes all special ballots, the right-wing governing coalition led by incumbent Prime Minister Benjamin Netanyahu secured 53 seats, while the opposition bloc led by former Israel Defense Forces Chief of General Staff Gadi Eisenkot won 48 seats. Arab parties outside the two main blocs secured 19 seats. No single bloc has reached the 61-seat threshold required for a parliamentary majority and the formation of a government.

By party, Netanyahu's right-wing Likud party won 27 seats, retaining its position as the largest party in the Knesset. Eisenkot's Yashar party came second with 21 seats. The Unity party, led by former prime ministers Naftali Bennett and Yair Lapid, won 12 seats, while the Arab party alliance known as the Joint List secured 11. The center-left Democrats and the Arab United Arab List, also known as Ra'am, each won eight seats. The right-wing Yisrael Beiteinu party, the far-right Otzma Yehudit party, and the ultra-Orthodox United Torah Judaism party each won seven seats. The far-right Religious Zionist Party and the ultra-Orthodox Shas party each secured six seats.

EU Energy Ministers Meet as Natural Gas Prices Take Center Stage

EU energy ministers met on October 29, with natural gas prices high on the agenda. Energy costs have surged, leaving Europe facing a difficult heating season. European benchmark natural gas futures climbed above €100 per megawatt-hour, reaching that level for the first time since December 2022. Dan Jørgensen, the European Commissioner for Energy and Housing, warned that Europe was facing another energy crisis, with more than 50 million Europeans potentially unable to afford heating this winter.

For a typical household that relies on gas heating, energy costs are expected to rise by around €600 during the heating season from November this year through March next year. Including taxes and fees, the additional expense could reach €715. Jørgensen also noted that the current crisis is more severe than the one in 2022 in some respects, as the pressure on Europe is no longer confined to natural gas. Prices of refined fuels, including gasoline and diesel, are also elevated. Higher energy costs are likely to feed through to transportation, industrial production and consumer goods, putting further pressure on the European economy.

ECB Officials Expect Rate Hike in December, Followed by a Pause in Tightening

According to three people familiar with the matter, European Central Bank policymakers expect to raise interest rates by 25 basis points on December 17, lifting the deposit facility rate from 2.50% to 2.75%. Unless energy prices fall sharply, the rate hike is considered almost certain.

However, officials expect the ECB to halt further tightening after the increase. Rising bond yields could reduce euro area economic growth by one percentage point and lower inflation by 0.9 percentage points between 2027 and 2028.

US GDP Grew at an Annualized Rate of 3.4% in Q3, While September PCE Inflation Rose to 3.6%

The preliminary estimate showed that US GDP grew at an annualized quarterly rate of 3.4% in the third quarter, exceeding the market expectation of 3.2%. The preliminary GDP implicit price deflator rose by 2.2%, compared with expectations for a 3.5% increase. During the quarter, the personal consumption expenditures (PCE) price index rose by 2.1%, below the forecast of 2.6%, while the core PCE price index increased by 2.5%, slightly above the expected 2.4%. Preliminary consumer spending growth came in at 3.8%. Final sales rose by 1.7%, below the market forecast of 2.0%.

In September, the US PCE price index increased by 0.5% month over month, in line with expectations. On a year-over-year basis, it rose by 3.6%, also matching forecasts and up from 3.4% previously. The core PCE price index increased by 0.3% month over month, in line with expectations, and rose by 3.1% year over year, also matching forecasts and up from 3.0% previously. US personal spending increased by 0.5% in September, below the expected 0.6%, while personal income rose by 0.2%, compared with the forecast of 0.3%.

ECB Holds Rates Steady as Lagarde's Early Departure Fuels Concerns Over Energy Costs and France's Political Situation

The European Central Bank kept interest rates unchanged at 2.50%, in line with market expectations. Meanwhile, news that President Christine Lagarde would leave office earlier than expected has added to concerns about energy costs and France's political situation.

On monetary policy, the ECB opted to wait and assess developments. Since the war involving Iran disrupted energy markets, the ECB has raised rates twice. Officials are concerned that inflation could rise to twice the ECB's 2% target, although there is currently no evidence that higher oil and gas prices are spreading to other sectors. At the same time, the resilience previously displayed by the European economy appears to be fading.

Markets broadly expect policymakers to raise rates again in December. The ECB will also publish updated economic projections at that meeting to assess the severity of inflationary pressures. France's political situation has contributed to tighter financial conditions, further weighing on demand. Analysts expect the year-end rate hike to be the final increase in the ECB's current tightening cycle. However, investors are pricing in two further rate hikes in 2027.

Bank of Japan Expected to Hold Rates Steady but May Lay the Groundwork for Future Hikes

The Bank of Japan is expected to leave its policy rate unchanged at 1.25% on Friday while emphasizing its commitment to preventing underlying inflation from exceeding its 2% target. Such guidance could signal that another rate hike may come as early as December.

Analysts said this guidance would reinforce the message the BOJ delivered last month: the central bank has entered a new phase of monetary policy with a more hawkish stance and remains open to raising rates every few months.

Putin Says Russia Is Willing to Improve Relations With Europe, Emphasizing That No One Wins in a Conflict

Russian President Vladimir Putin said on Thursday evening that Russia supported any efforts to restore relations with European countries, emphasizing that there would be no winners in a conflict. Although Russia was prepared for the possibility of a war with Europe, it did not want one.

"We are ready, but we do not want to go to war with Europe. If anyone wants a war, let them prepare for it. So far, they have failed to inflict a strategic defeat on Russia. If things go too far, there will be no winners," Putin said.

Putin added that some European countries had criticized Finnish President Alexander Stubb and Norwegian Prime Minister Jonas Gahr Støre for engaging with Moscow, accusing them of breaking ranks. However, he said the two leaders had made the right decision.

Russia did not want maritime navigation in the Baltic Sea to be obstructed, Putin said, warning that restrictions on passage could create a situation in the Baltic similar to that in the Strait of Hormuz. He said Russia did not want such a scenario but would respond to any challenges.

Economic Calendar

11:00 (UTC+8) Bank of Japan's October Interest Rate Decision

14:30 (UTC+8) BOJ Governor Kazuo Ueda Holds Monetary Policy Press Conference

14:30 (UTC+8) France's Preliminary Q3 GDP, Year over Year

15:45 (UTC+8) France's October CPI

16:00 (UTC+8) Switzerland's October KOF Economic Barometer

17:00 (UTC+8) Germany's Q3 GDP

18:00 (UTC+8) Eurozone's Q3 GDP

20:30 (UTC+8) Canada's August GDP, Month over Month

21:00 (UTC+8) Germany's Preliminary October CPI, Month over Month

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US Economic Growth Exceeds Expectations as Europe's Energy Crisis Deepens Central Bank Policy Divisions

Headlines

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