Note modified Sweden call: after the surprisingly high Swedish September inflation numbers last week, we have revised our inflation forecast. It now runs very close to the Riksbank for the coming quarters. As a result, we have changed our call on the Riksbank from ‘one hike in December and done’ to ‘one hike in December AND another 25bp hike in July next year’. For more information see here .
Market movers today
Brexit remains in focus also today: extended discussions around the Brexit strategy are likely to dominate today’s UK cabinet meeting after negotiations with the EU broke down again over the weekend. Markets will keep an eye on any indication that signal a softening stance of the DUP party on the Irish border issue ahead of the EU’s Brexit working dinner tomorrow.
Furthermore, risk sentiment in global markets remains shaky, not least due to rising geopolitical tensions around Saudi Arabia and Italian risks simmering in the background. The Italian government will start holding first discussions on the budget law today after having submitted its budget proposal to the EU yesterday evening.
German ZEW expectations for October will give a first indication of the economic momentum in Q4 and we will watch out for whether the recent recovery in the forward looking expectations component continues in October, despite lingering headwinds from the external and political side.
The UK labour market report for August is due out. We expect annual earnings growth to stay around the 3% mark, with the unemployment rate remaining stable at 4.0%.
Selected market news
Global risk sentiment got off to a nervous start this week as investors evaluate whether the recent sell-off marks the beginning of a bear market or just a temporary correction. Yesterday, the big US equity indices ended the day in the red amid a late session selling with most notably the S&P500 staying below the psychologically important 200-day moving average. As of now, Asian indices are posting small yet fairly consistent gains across the board this morning. As has been the case over the past week, the USD continues to follow global risk appetite and is slightly stronger in the early session. Long US yields – the key catalysts behind the souring risk sentiment, in our view – are little changed.
While it is still too early to call this a turning point – indeed we still pencil in choppy trading near term – our view remains that this is not the beginning of a persistent bear market, as among other things, underlying growth remains too strong. For more colour on the outlook for global equities we recommend listening to the latest podcast edition of Macro Strategy Views , where our global head of Research Thomas Harr discusses the equity outlook with our equity strategist Mattias Sundling (duration 17 minutes).
The Brent crude oil price has crept back up to USD81/bbl on improved risk sentiment. Yesterday, Donald Trump signalled a preparedness to accept Saudi Arabian denials of responsibility in the disappearance of Khashoggi in Istanbul. The recent rise in US-Saudi tensions have prompted Mike Pompeo to visit Riyadh today and any headlines on the matter are likely to stir volatility in front-dated oil contracts.
