Cautious optimism prevails in the markets as technological advancements, central bank actions and geopolitical tensions shape the direction of investment environment.
Global economic growth is expected to recover moderately in 2026, although a temporary slowdown is anticipated toward the end of 2025 due to consumption pressures stemming from higher inflation. Growth prospects are supported by easing trade tensions, a shift toward looser monetary policy, and expansionary fiscal policy in both the US and Europe. Economists have raised their growth forecasts for the US economy to 1.8% for next year, and for the euro area to 1.1%.
Trade relations improve, but political tensions persist
Trade relations between the US and China briefly became more strained, driven by export restrictions on rare earth metals and the threat of new import tariffs. Once again, these proved to be part of President Trump’s negotiating tactics ahead of the US–China summit held in South Korea. At the meeting, the two presidents reached an agreement to proceed with a trade deal.
The US federal government shutdown in early October had little impact on the markets, although delays in the release of key economic data are complicating the Federal Reserve’s decision-making. In France, a government crisis led Standard & Poor’s to downgrade the country’s credit rating to A+. France’s debt burden is projected to rise from 112% to over 120% of GDP in the coming years. In Japan, a new female prime minister, Sanae Takaichi, was appointed. She is expected to increase government spending and cut taxes, which sent Japanese equity indices to record highs following her appointment.
Corporate earnings season remains strong in the US
The earnings season began with low expectations. However, strong results from US technology companies – with earnings growth exceeding 25% – lifted realized earnings growth at the index level to over 10%. Analysts expect emerging markets to deliver 11% growth, while Europe is projected to show zero growth.
In the US, tech sector investments have been robust, driven in part by the construction of data centers to support the growth of artificial intelligence. AI company OpenAI signed major agreements with Nvidia, AMD, Broadcom and Oracle, potentially leading to a massive expansion in data center capacity. Semiconductor manufacturer Nvidia surprised the Finnish market by announcing a billion-dollar stake in network company Nokia. Nvidia also became the first company in the world to cross the USD 5 trillion dollar market value threshold. At the same time, interdependencies among technology companies increase AI-related risks in equity markets.
In the US, individual regional banks reported some credit losses, but a wider systemic crisis is not expected in the market as a result.
Central bank actions
As expected, the US Federal Reserve cut its federal funds rate by 0.25 percentage points. However, Fed Chair Jerome Powell tempered expectations, noting that an interest rate cut in December is not guaranteed.
In the euro area, inflation remained moderate at 2.2%, a level considered appropriate by the European Central Bank, which left its key interest rate unchanged. ECB President Christine Lagarde emphasized that inflation is close to the two-percent medium-term target and that the central bank will continue to follow a data-driven approach in its interest rate decisions.
Image of the month: Lower economic policy uncertainty supports rising confidence in equity markets
