TMGM Presents the Daily Market Breakfast for 26 October 2026

Markets Respond to Brazil’s Election and Shifting Rate Expectations

• With 51.8% of the runoff vote, Brazilian President Luiz Inácio Lula da Silva won a fourth term; a Tokyo-listed Brazilian equities ETF meanwhile lost around 15%, according to Deutsche Bank.
• September’s 25-basis-point increase left the target range at 3.75–4.00%, with federal funds futures putting the likelihood of an October rate rise at just 10%.
• Against the Bank of Japan’s current policy rate of 1.25%, Japanese interest-rate swaps implied a 75% likelihood of a December increase to 1.50%, Brown Brothers Harriman reported.
• September headline inflation of 3.1% was followed by Canadian swaps pricing an 85% likelihood of a rate rise this week, according to Brown Brothers Harriman.
• President Donald Trump’s rejection of an immediate strike on Iran saw WTI crude retreat from its five-month high of $103.28 towards $100.
• Bloomberg reported Chinese opposition to a U.S. Treasury proposal extending restrictions on U.S. investment in China to cover areas including biotechnology.
• Despite Saudi Arabia announcing the resumption of flights, Yemen’s Houthis said attacks on Riyadh’s King Khalid Airport would continue, according to Reuters.
• A European-session advance of 0.32% in Dow Jones futures accompanied a gain in S&P 500 futures of 0.14%; Nasdaq 100 futures fell 0.13%.
• A break beneath $4,000 left gold at around $3,995 in early Asian trading, still near its lowest level since July.

Equity Futures Trade Mixed as Gold Weakens

Dow and S&P Futures Advance as Nasdaq Futures Slip

Monday’s European session took Dow Jones futures around 52,560, up 0.32%, alongside a rise in S&P 500 futures of 0.14% to approximately 7,670. By contrast, a 0.13% decline left Nasdaq 100 futures around 29,080.

Gold Falls Through $4,000 Ahead of Fed Meeting

Trading around $3,995 after dropping beneath $4,000, gold remained near its lowest level since July during Monday’s early Asian session. The decline came ahead of the Federal Reserve’s policy meeting, against a backdrop of high energy prices and concern about inflation.

Brazilian Assets React to Election Result

Brazilian Equity ETF Sells Off Following Lula’s Fourth-Term Victory

Overcoming his first-round deficit, Brazilian President Luiz Inácio Lula da Silva won the presidential runoff against Flávio Bolsonaro with 51.8% of the vote to 48.2%. In the first round three weeks earlier, Bolsonaro had led with 47.0%, compared with Lula’s 45.1%. Since the return of direct presidential elections in Brazil in 1989, no candidate placed second in the first round had previously secured victory, Deutsche Bank said.

According to Deutsche Bank, Asian trading saw around 15% wiped off a Tokyo-listed ETF tracking Brazilian equities. The bank’s report also cited derivatives signalling a fall of around 10% in the real, rather than a confirmed decline in the spot market.

Lula now faces a Congress with a more conservative balance. Deutsche Bank reported that the first round lifted the Senate share of right- and centre-right parties to 63%, from 47%. Although he has committed to a fiscal adjustment, Lula has provided no details on its implementation. For Deutsche Bank and Société Générale, the make-up of Congress limits both his legislative agenda and the scope for fiscal expansion.

According to Société Générale, Bolsonaro’s challenge to the result concerns an extension of voting hours. Unresolved worries about debt were also highlighted by the bank, together with the obstacles to fiscal consolidation posed by the new congressional balance.

Central Banks Assess Inflation & Economic Growth

Fed Futures Indicate Limited October Hike Prospects Following September Increase

An increase at the December 9 meeting was almost entirely reflected in market pricing, whereas federal funds futures assigned only a 10% likelihood to a rise at this week’s Federal Reserve meeting, according to Elias Haddad of Brown Brothers Harriman. After September’s increase of 25 basis points, the target range stands at 3.75–4.00%.

In predicting unchanged rates this week, Haddad referred to several key Fed officials’ calls for patience. He drew attention as well to October’s composite purchasing managers’ index: strong private-sector growth was accompanied by a sharp rise in selling prices. During Asian trading on Monday, the U.S. Dollar Index declined.

Japan Swaps Signal December Tightening With 75% Hike Probability

Brown Brothers Harriman reported that Japanese interest-rate swaps implied close to 75 basis points of tightening across the next 12 months. For the December 18 meeting, they assigned a 75% likelihood to a Bank of Japan increase of 25 basis points, taking the policy rate to 1.50%.

With the BoJ still assessing its September increase of 25 basis points, Elias Haddad of Brown Brothers Harriman anticipates no change to the 1.25% policy rate at the forthcoming meeting. Governor Kazuo Ueda’s September comments warned of potential disruption to asset prices from rapid rate rises. He also said it could take time to confirm that inflation had become entrenched at 2%.

The yen stayed near a one-month high against the dollar after USD/JPY reversed its initial rise and headed lower at the start of Monday’s trading.

Canada’s Inflation Overshoot Leaves Swaps Pointing to 85% Hike Probability

Brown Brothers Harriman put the likelihood of a Bank of Canada rate rise this week, as reflected in Canadian interest-rate swaps, at 85%. Following a period without policy-rate changes since December 2025, the firm’s strategist Elias Haddad anticipates an increase of 25 basis points to 2.50%.

September’s headline consumer inflation reading of 3.1% year on year surpassed the bank’s third-quarter projection of 2.5%. Governor Tiff Macklem had recently cautioned that “the risk that inflation broadens and becomes more persistent has gone up.” At an annualised 3.3%, second-quarter real GDP growth also outpaced the bank’s projection of 2.5%.

A slightly softer picture emerged from the September average of CPI trim and median: 1.85% year on year, against the central bank’s third-quarter projection of 2.0%. At the same time, Brown Brothers Harriman reported that firms’ inflation expectations for both one and two years ahead had risen.

Oil Retreats as Trade Policy & Geopolitical Risks Remain in Focus

WTI Eases From Five-Month High Towards $100 Following Trump’s Iran Remarks

Having reached a five-month high of $103.28, NYMEX WTI crude futures slipped towards $100 on Monday. The earlier Asian session had seen oil around $101.10, following an advance of more than 4% in the previous session.

Al Jazeera reported that U.S. President Donald Trump had ruled out immediate military action against Iran on Sunday with the statement “there will not be a strike today,”. Several major central banks’ monetary-policy announcements were also approaching as oil prices fell.

China Rejects U.S. Treasury Plan for Wider Investment Restrictions

A U.S. Treasury plan to extend and tighten restrictions on U.S. investment in China, including biotechnology, prompted objections from China. According to Bloomberg, a Chinese official said Beijing “firmly opposes” the proposal.

Describing the proposed curbs as discriminatory, the official called them “a typical example of an overly broad application of national security concerns.” These were proposed measures; a final rule had not been announced.

Riyadh Airport Remains Under Houthi Threat Despite Flight Resumption

Reuters reported a Sunday statement from Yemen’s Houthis pledging continued attacks on Saudi Arabia’s King Khalid Airport in Riyadh. Only hours earlier, the kingdom had announced that flights were operating again despite repeated Houthi attacks.

Policy Decisions and Economic Releases Approach

• Federal Reserve to Announce Policy Decision — Wednesday, 28 October 2026 (United States): The scheduled announcement will set out the FOMC’s monetary-policy decision.
• Bank of Japan to Set Policy and Publish Outlook Report — Japan: This week’s schedule includes the BoJ’s monetary-policy announcement and publication of its Outlook Report.
• Bank of Canada to Announce Policy Decision — Canada: This week will bring the BoC’s announcement on monetary policy.
• U.S. to Release September PCE Inflation and Third-Quarter GDP — Thursday, 29 October 2026 (United States): Scheduled data releases cover third-quarter real GDP and September PCE inflation. Forecasts cited by Brown Brothers Harriman envisaged headline PCE rising 0.5% month on month and 3.6% year on year, up from August’s 0.3% and 3.4%. For core PCE, the forecasts were 0.3% and 3.1%, compared with 0.2% and 3.0%; annualised GDP growth was forecast at 3.2%, against 2.2% in the second quarter. Estimates from the Atlanta Fed’s GDPNow and the New York Fed GDP Nowcast were 3.5% and 2.7%, respectively.
• U.S.–Ukraine–Russia Trilateral Meeting Announced for November — United States / Ukraine / Russia: Reuters reported on Sunday that Ukrainian President Volodymyr Zelenskyy had announced a November trilateral meeting involving Kyiv, Washington and Moscow.