Market movers today
Market sentiment remains on a weak footing amid Brexit uncertainties. Italy could also come into the limelight again today, with the European Commission expected to issue its final opinion on Italy’s budget draft. As Italy did not made any material changes to its budget, we expect the EC to start the process of opening an excessive deficit procedure against Italy relatively quickly. Finance Minister Giovanni Tria will also hold a question round in the Lower House of parliament in the afternoon.
In the US, core capex figures for October are released today. Due to the tax reform and high business confidence, we expect core capex to increase further today and in coming months. However, keep in mind that the print is very volatile from month to month.
In Scandinavia, Danish and Norwegian employment/unemployment figures for September are due out (see next page).
Selected market news
Another day, another sour day for risk sentiment. Global risk sentiment had another dreadful day, marking the fifth consecutive day of declines (Eurostoxx). Despite the pressure on global credit, equity and commodity markets, US treasuries moved very little last night – the front end of the curve even came slightly under pressure and the 2s10s curve flattened. It underlines that it is difficult for the market to price out more hikes from the Fed as long as it is on ‘autopilot’. However, cracks are starting to emerge. Last night, Fed member Kashkari (non-voter and dove) said that the Fed should pause its hiking campaign. That said, he is not going as far as Trump, who said he would like to see Fed rates lower.
Oil prices declined with Brent falling more than USD4/bbl, now standing at USD63.4/bbl, some USD22/bbl lower than the peak just six weeks ago The move seems to be triggered by negative sentiment in stock markets and a stronger USD yesterday. Furthermore, Trump rejected imposing sanctions on US trade partner Saudi Arabia (Khashoggi case).
US Trade Representative Robert Lighthizer presented a 53-page document accusing China of having continued its intellectual property rights theft, only 10 days prior to the Xi Jinping-Trump G20 meeting. White House Economic Advisor Larry Kudlow said that Trump ‘believes that China would like to have a deal’. Our base case is still for a deal at the meeting next week.
On Brexit, Spain said it will vote against the Brexit deal as it looks now. However, Spain cannot block the agreement in itself as it ‘only’ requires a strong qualified majority, i.e. 72% of the 27 member states (i.e. 20 member states) representing 65% of the EU27 population. Spain accounts for slightly more than 10% of the EU27 (and represents only one member state). Therefore, it cannot block the deal alone, as it would mean 96.3% of the EU member states, representing nearly 90% of the EU27 population vote in favour of the deal. Sources suggest that a lengthier document on the future relationship may not be published before the Sunday after the EU’s approval of the text.
