Regional Macro Comparison: US, Europe and Asia

Report date: 29 October 2026. Market prices as of 15:20 UTC on 29 October 2026.

Executive Summary

The three regions are in the same energy shock but sit at very different points in the policy cycle. The US combines the strongest growth with the stickiest inflation: Q3 2026 GDP came in at 3.4% annualized (preliminary, released 29 Oct 2026) against 3.2% expected, while September CPI ran at 3.7% 1. The Fed held at 3.75%–4.00% on 28 Oct 2026 after a September hike, with two members voting for another hike 2. Europe has the weakest mix: euro-area inflation at 3.8%, growth near 1%, an ECB that also hiked in September and held on 29 Oct 2026, and a French bond sell-off that pushed the 10-year OAT above 5% 3 4. Asia is split: Japan has the best equity market of the three developed regions (Nikkei 225 +28.5% YTD) and a BoJ still normalizing, Korea and Taiwan are up more than 60% YTD on the AI build-out, and China and India are down double digits 5.

The allocation call: overweight the US and Japan, overweight North Asia selectively, underweight the euro area, China and India. The main risk to the call is a renewed oil spike from the Middle East that pushes the Fed into more hikes and breaks the US earnings premium.

Regional Scorecard

Equity YTD for the US, euro area and Japan uses local index levels. China, India, Korea and Taiwan use the US-listed MSCI country ETFs, which include the currency move. Scores are this note's judgment, combining growth, inflation, policy direction and market momentum.

Regional Deep Dives

United States

• Growth: The economy is running hot. Q3 GDP grew 3.4% annualized in the preliminary estimate, above the 3.2% consensus. The October flash S&P Global composite PMI was 57.6, and September industrial production rose 0.7% m/m 1. The weak spot is hiring: September nonfarm payrolls added only 29,000 against 90,000 expected, and unemployment rose to 4.2% 1.
• Policy: The Fed held the funds rate at 3.75%–4.00% on 28 Oct 2026 by a 10–2 vote. Governor Lisa Cook and Cleveland Fed President Beth Hammack wanted a further 25 bp hike 9. The statement said inflation "remains elevated" and growth is "strong" 2. The September dot plot raised the median projection for the current year to 4.1% from 3.8% 1, and MIDF reads it as one more 25 bp hike by end-2026 10. The next decision is on 8–9 Dec 2026 9.
• Markets:
• Equities: The S&P 500 is up 12.8% YTD 5. The forward P/E has fallen to 19.0 (FactSet, 16 Oct 2026), below its five-year average of 19.8, because earnings grew faster than prices 11. Forward EPS reached a record US$414.41 in the week of 22 Oct 2026 12. Leadership is narrow: energy (XLE +52.4% YTD) and technology (XLK +31.1% YTD) lead, while communication services is down 13.8% 5.
• Rates: The 10-year Treasury yields 5.05% and the 2-year 4.67%, so 2s10s is +37 bp (28 Oct 2026) 1. Long Treasuries have lost money this year (TLT −6.5% YTD) 5. The view: hold short-to-intermediate duration, where the front end is anchored by a Fed near the end of its hikes; avoid the long end while term premium rises.
• FX: The US Dollar Index is at 101.81, above its 200-day average of 99.59 1. Rate leadership supports the dollar against the euro.
• Key risk: A further oil spike that forces the Fed to hike more than one more time, compressing multiples again. The 3 Nov 2026 midterm elections are a near-term event risk 1.

Europe (euro area)

• Growth: Weak and slowing. Euro-area GDP grew 1.2% y/y in Q2. The October flash composite PMI fell to 51.9 from 53.1, and August industrial production fell 1.1% y/y 1. The October ZEW sentiment index dropped to 18.5 from 25.8 1.
• Policy: The ECB held the deposit rate at 2.50% on 29 Oct 2026 after a 25 bp hike in September. Headline inflation is 3.8%, its highest since September 2023. Money markets price a 67% chance of a December hike 3. The ECB said energy prices pose "upside risks to the inflation outlook and downside risks to the growth outlook", and that financing conditions have tightened 13. President Christine Lagarde also announced on 29 Oct 2026 that she will step down early, which adds leadership uncertainty in the middle of a hiking cycle 14.
• Markets:
• Equities: The Euro Stoxx 50 is up 7.3% YTD and the STOXX 600 9.6%, but France's CAC 40 is down 2.0% 5. In US-dollar terms the German and French MSCI ETFs are down 0.4% and 5.7% YTD 5.
• Rates: The 10-year Bund yields about 3.36% and the 2-year about 3.07% (29 Oct 2026). The OAT–Bund spread is 153.5 bp after a peak of 177.7 bp the week before, the widest since November 2011 15. France's 10-year yield went above 5% on 21 Oct 2026 for the first time since 2002 4. The view: prefer Bunds to OATs; peripheral and French spread risk is not yet paid for.
• FX: EUR/USD is at 1.117, down 5.0% YTD and below its 50-day and 200-day averages 5 1. ING stays bearish on the euro and warns that sensitivity to French risk could return quickly if the spread nears 200 bp 16.
• Key risk: A French budget or rating event that pushes the OAT–Bund spread toward 200 bp and spills into the euro and bank equities.

Asia

Japan

• Growth: Moderate. Q2 GDP grew 0.4% q/q (1.4% annualized). The Q3 Tankan large-manufacturer index was 24 1.
• Policy: The BoJ raised its rate to 1.25% on 18 Sep 2026 and decides again on 30 Oct 2026 1. Most forecasters expect a hold with a hawkish tone. Standard Chartered calls December "a live meeting" but keeps January 2027 as its base case 17. September national CPI was 2.1%, and Tokyo core-core CPI (ex food and energy) jumped to 3.0% 1.
• Markets:
• Equities: The Nikkei 225 is up 28.5% YTD, the strongest of the major developed indices 5. A hawkish BoJ could weigh on tech valuations and exporters but help banks 18.
• Rates: The 10-year JGB yields about 2.83% (29 Oct 2026) 19, down from 3.11% earlier in October, its highest since 1996 20. Japanese banks are selling foreign bonds and buying JGBs, which is a slow repatriation flow 21.
• FX: USD/JPY is at 157.85, up 0.7% YTD 5. Traders watch 160 as the level where intervention risk rises 22. BoJ hikes and repatriation are the yen's upside catalysts.
• Key risk: A sharp yen rally after a hawkish BoJ, which would hit exporter earnings in yen terms.

China

• Growth: Q3 GDP grew 4.5% y/y, above the 4.4% consensus, with 4.6% for the first nine months against a 4.5%–5.0% target. Exports driven by AI demand offset weak spending; fixed-asset investment fell 7.2% in January–September 6. Capital Economics estimates actual Q3 growth at about 2% 23.
• Policy: The PBoC held at 3.00% on 20 Oct 2026 1. Support comes through quasi-fiscal channels: about Rmb101.9bn of new policy-bank instruments had been disbursed by late September 24. CPI is 0.9%, while PPI rose to 5.0% on energy and raw-material costs 1.
• Markets: Equities: MSCI China (MCHI) is down 18.6% YTD and the Hang Seng 10.4% 5. Rates: Not available from this run. FX: The yuan has gained against the dollar this year (USD/CNY −4.9% YTD) 5.
• Key risk: Domestic demand and property stay weak once the export boost fades.

India

• Growth: The finance ministry expects 7.3% growth in FY27 (year to March 2027), above the RBI's 7.1% 7.
• Policy: The RBI raised the repo rate 25 bp to 5.50% in October and moved its stance to "calibrated tightening" 8.
• Markets: Equities: The NIFTY 50 is down 12.3% YTD 5. Foreign portfolio investors took Rs441bn out of Indian equities in October alone and more than Rs3tn in 2026 25. FX: The rupee is under pressure from oil and outflows, even with US$721bn of reserves (16 Oct 2026) 7. Rates: Not available from this run.
• Key risk: Oil above US$100 widens the trade deficit and keeps foreign money away.

Korea and Taiwan

• The AI capex cycle drives both markets. J.P. Morgan Private Bank notes Korea and Taiwan delivered about 60% YTD in US-dollar terms while China offshore and India fell about 15%, and that the two markets are now more than half of the MSCI EM index 26. The KOSPI is down 13.6% over the last month, so the trend is volatile 5. The broad MSCI EM index traded at 9.9x forward earnings in late September 2026 27.

Allocation Recommendations

Stances are relative to a neutral global equity weight. Current portfolio weights were not given, so the table shows the direction and size of the tilt.

Why, per region

• US overweight: Strongest growth and earnings, a multiple that has already compressed to 19.0x 11, and less exposure to the energy shock. Morgan Stanley stays overweight the US for the same reason 28, and BNP Paribas Wealth Management upgraded the US to overweight in October 29. In fixed income, prefer the front and belly of the Treasury curve.
• Euro area underweight: Stagflation risk, a hawkish ECB, French spread stress and a weakening euro. Raymond James, Morgan Stanley and BNP Paribas are all underweight the euro area 30 28 29. In fixed income, hold Bunds rather than OATs.
• Japan overweight: Equity momentum, positive real growth, and a BoJ that supports banks and the yen. Raymond James and BNP Paribas are overweight Japan 30 29. Consider a partial yen hedge only above 160.
• EM: overweight North Asia, underweight China and India: Earnings revisions favor the AI supply chain. T. Rowe Price raised its EM overweight in October 31; Invesco prefers developed over emerging markets 32, which supports keeping the EM tilt small.

Key Differentiators

1. Growth: The US (3.4% annualized in Q3) leads developed markets by a wide margin. The euro area is near 1%. China's 4.5% depends on exports, and India's 7%+ is the fastest but is not reaching equity returns 1 6 7.
2. Policy: The Fed, ECB, BoJ and RBI all hiked in 2026, while the PBoC held. The Fed, ECB and BoJ all lean toward another hike 10 3 17. The difference is the trade-off: the Fed hikes into strength, the ECB into weakness. That divergence favors the dollar over the euro.
3. Valuations: The S&P 500 forward P/E (19.0x) is below its five-year average 11, and MSCI EM traded at 9.9x in late September 27. Comparable forward multiples for Europe and Japan were not available from this run.
4. Currency: The euro (−5.0% YTD) and the rupee are weak; the yuan is strong; the yen is flat for the year with event risk on 30 Oct 2026 5.

Risks by Region

Context for all regions: the Middle East conflict keeps energy prices high. Brent was US$109.53 on 29 Oct 2026, up 79% YTD 5, and the Economist Intelligence Unit expects disruption in the Strait of Hormuz to keep prices elevated for the rest of 2026 33.

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