A look at the day ahead in European and global markets

By Wayne Cole, Chief Correspondent, Treasury

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The Takaichi trade has been in full swing since the Liberal Democratic Party did a deal with the Japan Innovation Party to form a coalition government, bringing Japan closer to its first female prime minister.

Analysts assume Sanae Takaichi would be pro-stimulus and against further hikes in interest rates, a negative for the yen and bonds but a plus for equities. The Nikkei duly jumped 2.9% to an all-time high, while the yen slipped modestly. Even ultra-long JGBs caught a bid, perhaps on relief there would actually be a government, albeit a minority one.

The leader of Japan's ruling Liberal Democratic Party Sanae Takaichi (right) meets Japan Innovation Party co-leader Fumitake Fujita at Japan's National Diet Building in Tokyo, Japan, October 17, 2025. REUTERS/Kim Kyung-Hoon

The jump in the Nikkei helped lead most of Asia higher, with markets successfully navigating a slate of mixed Chinese economic news. The giant economy topped forecasts by growing 1.1% in the third quarter versus three months prior, while the annual pace slowed as expected to 4.8%. Industrial output also beat forecasts, while retail sales were bang in line and home prices remained weak.

On face value, the data were solid enough to give China confidence it can outlast the United States in a trade war, with President Trump conceding 100% tariffs were unsustainable.

Top Chinese policymakers convene this week to discuss the Five-Year Plan, though investors have long given up on expecting aggressive stimulus.

Analysts were also not quite sure what to make of news that China's top trade negotiator Li Chenggang had been removed from his post as the country's permanent representative at the World Trade Organization.

Graphics are produced by Reuters.

In the U.S., there is no end in sight to the government shutdown and the longer it drags on the more impact it will have on economic growth, even if markets seem complacent about it right now.

The statistics bureau is making a special effort to get the CPI out on Friday since it is needed for all sorts of indexing, including for TIPS. An acceleration in core inflation to 3.1% is widely expected and shouldn't move the dial on rate cut expectations given the Federal Reserve has not pushed back on a near 100% probability for a move this month.

On the corporate side, companies reporting earnings this week include Tesla, Ford, GM, Netflix, Procter & Gamble and Coca-Cola, along with aerospace and defence giant RTX and tech stalwarts IBM and Intel.

The bar is high and markets have a habit of punishing results that don't knock the lights out. Options suggest average share loss of around 6% on the smallest disappointment.

BofA is tipping earnings growth of 11%, led by a 20% rise in the tech sector and Nvidia alone driving a quarter of growth in total earnings per share.

Graphics are produced by Reuters.

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