The October 20 Citi Survey left GDP growth forecasts unchanged at 1.4% for 2026 and 1.8% for 2027, while keeping Banxico's policy rate at 6.50% at the end of both years. For 2026, headline inflation remained at 3.90%, while core inflation was revised down to 3.80% from 3.88%. For 2027, headline inflation edged up to 3.86% from 3.83%, while core inflation held at 3.80%. The most notable change was a shift toward a weaker peso, with year-end USD/MXN forecasts raised to 18.20 for 2026 and 18.60 for 2027, from 18.00 and 18.50, respectively.

Our Take

The weaker peso outlook warrants caution, despite the improved core inflation forecast for this year. Consensus expectations continue to point to moderate growth and inflation persistently above target, consistent with an extended monetary policy pause. We believe additional peso depreciation could limit the scope for rate cuts, while unchanged GDP forecasts suggest little expectation of a robust economic recovery.

UK inflation accelerated to 3.5% year over year in September, from 3.1% in August, reaching its highest level since October 2025. Consumer prices rose 0.4% month over month, driven primarily by fuel costs. Price pressures also broadened to core inflation, which increased to 2.8% from 2.6%, and services inflation, which climbed to 3.7% from 3.4%.

Our Take

We believe the acceleration in core and services inflation makes it difficult to dismiss the increase as a purely energy-driven shock. The data heightens the risk of renewed monetary tightening and extends pressure on household spending and borrowing costs. For the Bank of England, a key challenge will be preventing higher fuel prices from feeding persistently into wages and broader inflation.

Japan's exports rose 16.7% year over year in September, below market expectations of 20.1%. This marked a second consecutive month of slowing growth after exports recorded their strongest expansion in nearly four years in July. Imports, meanwhile, increased 18.9% year over year, also falling short of forecasts.

Our Take

Slower export growth, combined with imports expanding at a faster pace, points to weakening external support for Japan's economy. The recovery will increasingly depend on domestic demand, while exporters face a less favorable environment. The weaker-than-expected figures also warrant caution regarding the strength of global demand.

France's 10-year government bond yield briefly climbed above 5% for the first time since 2002, while its spread over German Bunds approached 160 basis points, the widest in 15 years. The selloff reflects difficulties in passing the 2027 budget and containing public debt near 120% of GDP. Protests and recent civil unrest are adding political obstacles to fiscal consolidation and undermining investor confidence.

Our Take

We believe France is caught in a difficult cycle. Resistance to fiscal adjustment pushes risk premiums higher, while rising borrowing costs make it harder to stabilize the debt burden as existing obligations are refinanced. For markets, the implications extend beyond French sovereign debt, potentially raising corporate borrowing costs and widening risk premiums for other European issuers.

Corporate News

SpaceX beat third-quarter expectations, reporting net income of $4.4 billion versus forecasts of $1.88 billion, while revenue surged 161% year over year. Its artificial intelligence business generated $7.56 billion in revenue, more than nine times the year-earlier figure, while connectivity revenue rose 69% to $5.25 billion. Shares gained as much as 4.7% in after-hours trading. Elon Musk also confirmed that SpaceX and Tesla had established special committees to evaluate a potential merger, although no agreement has been announced.

Super Micro Computer expects revenue of $18.5 billion to $19.5 billion for its first fiscal quarter of 2027, up from previous guidance of $14.5 billion to $15.5 billion. The company also projects gross margins of 12.0% to 12.5%, above its prior range of 10.4% to 10.8%. The figures are preliminary and unaudited. Shares were up approximately 11% in premarket trading.

Netflix reported third-quarter earnings of $0.87 per share, above expectations of $0.82, while revenue came in at $12.9 billion, in line with forecasts. However, shares fell as much as 7% in after-hours trading after the company projected fourth-quarter revenue of $13.4 billion, below consensus estimates. The guidance implies a fourth consecutive slowdown in revenue growth, weighed down by weaker-than-expected advertising performance.

AT&T reported quarterly revenue of approximately $32.3 billion, up 5.3% year over year, and adjusted earnings of $0.65 per share. Both figures exceeded analysts' estimates. The company also recognized a $2.6 billion noncash charge related to its Mexican business, which has been classified as held for sale.

The To-Do List

  • Review Meta and Tesla's earnings after the closing bell, focusing on capital expenditures, margins, and cash generation.

  • Prepare scenarios ahead of Mexico's biweekly inflation report and Friday's PMI releases, assessing implications for interest rates, hedging strategies, and demand.

  • Set aside 20 minutes for an outdoor walk and a screen break.

Quote of the Day…

“Hardships often prepare ordinary people for an extraordinary destiny.” — C.S. Lewis