Muzinich Weekly Market Comment: Something for everyone: politics, central banks and resilient growth

November 2, 2026

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Last week had it all. From economists and central bank watchers to sovereign, corporate, political, and macro analysts, every corner of the market had something to digest as headlines, press conferences, and data releases came thick and fast. Investors were looking for answers on the direction of politics, the health of major economies, the staying power of both corporate earnings and the AI cycle, and how far central banks will go with tightening.

Politics started the week on the back foot after Lula secured a surprise fourth term in Brazil, winning the presidential runoff with 51.8% of the valid vote, the first time a candidate trailing after the first round has reversed the outcome. Investors reacted negatively, unwinding all the goodwill priced in after Flávio Bolsonaro’s strong first-round showing on 4 October. To win back investor confidence, the administration must move quickly on a credible fiscal plan, something it deferred in its previous term. Meanwhile, a Congress that has tilted even further to the right may make Lula’s social policy agenda harder to pass, potentially leading to four lost years without major structural reforms and with the administration relying on the state and state-owned enterprises to drive growth and investment.¹ Sound familiar?

In Europe, France got some good news when Moody’s held the country’s rating at Aa3 with a negative outlook, defying expectations of a downgrade, although the agency warned that political divisions could make it harder to cut the deficit and curb rising debt.² Meanwhile, European Central Bank (ECB) President Christine Lagarde announced she will step down by 7 February 2027.³ The early exit gives Macron a say in choosing her successor, helping lock in pro-European leadership at both the ECB and the Banque de France, while Lagarde, one of France’s most popular figures, will be free to lend her credibility to the pro-European centre.

In the UK, while the much-awaited first Budget under Prime Minister Andy Burnham was a low-key event, successfully kicking the can on a comprehensive fiscal overhaul down the road to 2027, it at least seems to have achieved its goals of providing some cost-of-living support and maintaining market confidence, for now!⁴

In Israel, the election delivered a hung parliament, broadly in line with the polls. Prime Minister Benjamin Netanyahu’s bloc won 53 seats, ahead of the main opposition bloc’s 48, but short of the 61 needed to govern, while Arab parties nearly doubled their representation to 19 seats in the 120-seat Knesset. President Isaac Herzog must now decide who gets the first chance to form a coalition. If neither Netanyahu nor Gadi Eisenkot, leader of the largest opposition party, Yashar, can reach 61 seats, another election is possible early next year. In the meantime, Netanyahu is expected to remain caretaker prime minister, a role that formally carries the same powers as a regular government, albeit with a duty of restraint.⁵

In Iran, the outcome has become a binary sword of Damocles, war or agreement, and the decision remains firmly in Washington’s hands. What was clear last week was that negotiations are continuing at many levels. Senior officials from Saudi Arabia, Turkey and Pakistan met Iranian representatives in Tehran to promote regional stability,⁶ Vice President JD Vance is engaging one of Iran’s most powerful hardliners to revive peace talks,⁷ and, according to Axios, Qatari mediators have presented Iran with a new draft deal. What may be underpriced is a muddle-through scenario that lasts into 2027 as both sides inch closer to an understanding.

Away from politics, the “Big Three” central banks offered markets a potential source of stability. As expected, all three held rates while leaving the door open to playing the Christmas Grinch with December hikes.

The Bank of Japan (BOJ), arguably the most hawkish, held its target rate at 1.25% in an 8–1 vote, and a hawkish-sounding Governor Kazuo Ueda signalled further tightening, declaring that underlying inflation had reached the BOJ’s 2% goal. The Outlook Report backed this up, projecting inflation at or above target over the forecast horizon and keeping its assessment that risks are skewed to the upside. The surprise was the BOJ’s decision to nearly triple the pace of its exchange-traded fund (ETF) sales from January to about ¥860 billion (US$5.5 billion) a year, though it would still take around 43 years to unwind its holdings.⁸

The ECB, probably the most dovish of the three, left the deposit rate at 2.50% and appeared to lay the groundwork for ending its hiking cycle. It struck a dovish tone on second-round effects from the energy shock and highlighted that rising sovereign bond yields are already doing some of its work by tightening financing conditions. Still, it kept a December hike on the table, warning that a larger and longer energy shock would likely push inflation up, and growth down.⁹

The Federal Open Market Committee, the most balanced of the three, held rates at 3.75%–4.00% in a 10–2 vote, with both dissenters favouring a hike. Chair Kevin Warsh acknowledged that financial conditions had tightened since the September meeting, but said he was unwilling to call them tight, keeping a December move firmly in play. The statement contained two other changes: an upgrade in its description of economic activity from “solid” to “strong”, and a tweak to the policy rationale, giving the Committee more time to gather information on the appropriate stance while maintaining its commitment to a “timely” return to price stability. The surprise was a change to the meeting calendar. In 2027, one of the year’s eight meetings will be devoted to strategy, with no rate decision, leaving seven policy meetings, while 2028 will have six policy meetings and two strategy sessions.¹⁰

The overnight index swap markets currently price an 80% probability of December hikes from both the BOJ and the ECB, and a 75% probability from the Federal Reserve, with a further 25 basis point (bp) hike priced in for each central bank in 2027.¹¹ See Chart of the Week.

As central banks weigh the early effects of tighter financial conditions, the week’s other constant was robust growth, both economic and corporate. In China, industrial profits rose 14.4% year-over-year in September, the fastest pace in three months and up from 4.2% in August. Warning signs were also visible, with factory-gate prices jumping 5%, the fastest since 2022, while profit gains remain lopsided, concentrated in energy-and AI-linked sectors.¹²

In the euro area, GDP grew 0.4% quarter-over-quarter in Q3, twice the pace analysts expected, though performance was mixed, with Germany beating expectations, Italy stagnating and France shrinking by 0.1%.¹³ Earnings season also continues strongly, with MSCI Europe constituents expected to post a 23% jump in third-quarter profits, although stress is emerging here too, particularly in consumer-exposed stocks hit by weaker demand and inflation concerns.¹⁴

In the US, real GDP growth accelerated to an annualized 3.4% in the third quarter, from 2.2% previously. AI-related business investment remained a major engine of growth, consumer spending stayed extraordinarily resilient at 3.8%, and productivity appears to be improving.¹⁵ At the corporate level, with over 60% of S&P 500 companies having reported, the blended net profit margin for Q3 stands at 14.9%, which, if it holds, would be the index’s second highest since tracking began in 2009.¹⁶ Strong as these numbers are, they mask growing unease about the AI cycle. Investors continue to search results for signs of a slowdown and are punishing stocks exhibiting two warning signs in particular: AI payoffs arriving too slowly and capex rising too fast. Alphabet and Intel fell on the former, and Meta and Amazon on the latter, leaving Microsoft as the relative winner for the week. This caps a tough month for the Magnificent Seven, which ended October down more than 4%, while the Dow Jones gained close to 2%.

Chart of the Week: Central Banks - The End of Tightening in Sight?

Cumulative rate hikes priced by OIS markets over the next 12 months.

Source: Bloomberg, as of October 30, 2026. Implied 3-month forward OIS rate at each horizon minus current overnight fixing (SOFR, €STR, TONA). Muzinich views and opinions are subject to change. For illustrative purposes only, not to be construed as investment advice or an invitation to engage in any investment activity.

Past performance is not a reliable indicator of current or future results.

References to specific companies is for illustrative purposes only and does not reflect the holdings of any specific past or current portfolio or account.

This material is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed by Muzinich & Co. are as of October 30, 2026, and may change without notice. All data figures are from Bloomberg, as of October 30, 2026, unless otherwise stated.

References

1.Goldman Sachs, “Brazil: President Lula Wins Reelection,” October 25, 2026
2.Finwire News, “Moody’s maintains France’s credit rating despite political turmoil,” October 26, 2026
3.Bloomberg, “ECB REACT: Dovish Tone Flags End of Cycle Post December Hike,” October 29, 2026
4.Oxford Economics, “Low-key UK Budget kicks the can into 2027,” October 28, 2026
5.Bloomberg, “Netanyahu’s Likud-Led Bloc Garners Most Seats in Israel Election,” October 29, 2026
6.Bloomberg, “Top Saudi, Turkish Officials Travel to Iran to Quell War Tension,” October 26, 2026
7.Euronews, “JD Vance contacts senior Iranian official in bid to revive peace talks,” October 29, 2026
8.Bloomberg, “BOJ’s Ueda Keeps December Hike in Play After Hitting Price Goal,” October 30, 2026
9.Bloomberg, “ECB REACT: Dovish Tone Flags End of Cycle Post December Hike,” October 29, 2026
10.Deutsche Bank, “October FOMC: Fed doesn’t fear FCI tightening,” October 28, 2026
11.Bloomberg, as of October 30, 2026
12.Bloomberg, “China’s Industrial Profits Surge Most in Three Months on Oil,” October 26, 2026
13.Bloomberg, “ECB REACT: Dovish Tone Flags End of Cycle Post December Hike,” October 29, 2026
14.Bloomberg, “Europe’s Earnings Growth to Rival US for the First Time in Years,” October 29, 2026
15.Bloomberg, “US REACT: AI Investment Lifts GDP Growth—and Productivity,” October 29, 2026
16.Factset, “S&P 500 Reporting Second-Highest Net Profit Margin in More Than 15 Years for Q3 2026,” October 26, 2026

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