Market movers today
Focus today remains on Brexit, as Theresa May is scheduled to meet with her cabinet at 15:00 CET to discuss the draft Brexit agreement reached with the EU. If the cabinet nods yes, the real test will be whether the deal can survive the House of Commons, as we expect it to be accepted by EU leaders without major problems. Leading hard Brexiteers, the DUP from Northern Ireland and the Labour leadership have already given it a thumbs down, but Theresa May thinks the fear of a no-deal Brexit will make sure moderate Conservatives and Labour MPs will vote in favour of it. A possible EU summit on Brexit on 25 November and the vote in House of Commons may be as early as 10 December. Markets need more certainty before we could see EUR/GBP move even lower. For more details, see our take released this morning, Brexit Monitor: The real test is the vote in the House of Commons.
We look for US inflation to show an unchanged core rate at 2.2% y/y. Inflation has edged lower in recent months despite higher wage growth. Fed Chair Jerome Powell is due to speak overnight, where focus will be on whether the Fed will continue its hiking cycle despite recent market turmoil.
In Europe, UK inflation is due as well as preliminary German GDP for Q3 , which we expect to increase 0.3% q/q, but with clear downside risks.
In Scandi, Sweden is expected to show a rise in underlying inflation from 2.5% y/y to 2.6% y/y by both us and consensus. The Swedish Riksdag is also voting on government formation.
Selected market news
While S&P 500 initially moved higher yesterday on the back of positive signs in the US-China trade wars , where it seems the two countries are trying to restart more real and constructive negotiations, the index ended 0.4% lower, as sentiment soured during the day. This also led to a collapse in oil prices . A higher USD and weak equity market has certainly played a role in the sell-off this week, but more importantly, oil supply fundamentals have flipped from concerns over the effect of Iran sanctions to talk about supply surplus next year. OPEC+ talk about curbing output next year has done little to support prices.
The Italian government maintained the 2.4% budget deficit and 1.5% growth target in the revised budget it sent to the EU yesterday. This makes it more likely that the EU will start the Excessive Deficit Procedure soon. Remember, the EU forecast the budget deficit to be 2.9% next year and to breach the 3% limit next year in the latest projection.
In China , October data released overnight showed that industrial production and fixed investments were stronger than expected but that retail sales remain under pressure. The rebound in production and investments may be the first sign that the Chinese stimulus is working through the economy. New homes sales grew at the slowest pace in six months.
