EU Midday Digest - 05 Nov 2026

ECB's Zigman flags "rather big chance" of December hike as oil drops below $100 on midterm peace hopes.

Asia-Pacific & European Session

Asia-Pacific markets diverged sharply: the Nikkei 225 fell 1.79% to 61,078 as SoftBank slid after China blocked its $5.4 bn ABB robotics deal, while the Hang Seng surged 3.67% to 24,797 on the oil-driven risk-on impulse. Gold climbed to US$ 4,144, Brent crude traded at US$ 96.15, and Bitcoin held near US$ 80,237. In Europe, the Euro Stoxx 50 rose 0.65% to 6,306, the DAX gained 0.83% to 26,658, and the FTSE 100 advanced 0.80% to 10,916 as investors rotated out of AI-exposed names into cyclicals. EUR/USD stood at 1.1207, GBP/USD at 1.3434 ahead of the Bank of England decision, and the US 10‑year yield closed at 4.90% on 4 November.

Key Themes

• ECB tightening bias: Governing Council member Ante Zigman sees a "rather big chance" of a December rate increase, which would be the third hike since the Iran war began, signalling the ECB may tolerate further tightening even if growth slows. Bloomberg reports the explicit reference to a third hike ties the policy trajectory to geopolitical risk. With euro‑zone inflation still above target and the euro at 1.1207, a December move would push the deposit rate to 4.25% and keep front‑end yields under upward pressure.
• Post‑midterm sector rotation: The Democratic sweep in the US midterms has triggered a two‑day rotation out of chipmakers and AI‑linked growth stocks into economically sensitive cyclicals. Bloomberg notes European equities briefly exceeded their prior record high as investors reward a strong earnings season, while CNBC highlights a bifurcated AI infrastructure market where existing data‑centre capacity gains value but new debt‑funded "neocloud" projects face higher hurdles. The Euro Stoxx 50's 0.65% gain and DAX's 0.83% rise reflect this broadening leadership.
• Oil plunge reshapes EM and inflation outlook: Brent falling below US$ 100 on post‑election peace hopes eases inflation pressures and delivers a positive terms‑of‑trade shock for oil importers. Bloomberg reports Indian equities and bonds rallied sharply as lower crude reduces external‑finance strain and gives the RBI policy flexibility. The move also supports gold, which Citi argues could reach US$ 5,000 over 6‑12 months if sustained oil weakness shifts the Fed from hiking to cutting.
• German manufacturing data shows fragile rebound: Destatis reports real manufacturing orders jumped 4.4% m/m in September (5.1% excluding large contracts), driven by a 10.5% surge in automotive and 8.3% in mechanical engineering. However, the three‑month Q3 change is only +0.2% versus Q2, and August orders were revised down 10.1% m/m, highlighting volatility. The data reinforces a mixed picture: near‑term momentum but no sustained quarterly expansion, keeping the ECB's growth‑inflation trade‑off in focus.
• Bank of England poised for 25 bps hike to 4%: InvestingLive previews a 25 bps increase at 12:00 GMT, with Goldman Sachs forecasting a 7‑2 vote in favour. Markets have priced further hikes to 4.25% early next year, but most economists see only one more move. A cautious post‑hike message could temper aggressive pricing, while any hint of a faster pace would reinforce it. The pound gauge has already hit its strongest level since the 2016 Brexit vote at 1.3434.

What to Watch

The Bank of England announces its rate decision at 12:00 GMT with the MPC vote split and forward guidance as the key focus; a 7‑2 hike vote is consensus but the tone will dictate whether 4.25% pricing holds. US initial jobless claims are due at 08:30 ET (consensus 196K vs 194K prior), testing the labour‑market resilience signalled by yesterday's ADP print of 86K. ECB's Isabel Schnabel speaks later today — watch for any nuance on the December hike path after Zigman's comments. Earnings reactions today include Toyota (which rallied despite lowered guidance), Arm, ConocoPhillips, Sony, Deutsche Telekom, Airbnb and Cloudflare. Key levels: EUR/USD 1.1207 resistance, GBP/USD 1.3434 breakout, Brent US$ 96.15 support, gold US$ 4,144 momentum. The open question: will the ECB's December hike conviction survive if the Iran conflict de‑escalation proves durable and oil stays sub‑US$ 100?