Market movers today
In the euro area, today’s November PMIs will be keenly watched by markets after last month’s downside surprises and yesterday’s continued decline in November consumer confidence data. Due to the still negative order-inventory balance, we see scope for another decline in manufacturing PMI to 51.5, but service PMI will probably be even more interesting, to see whether the weaker activity in October was of a temporary or more persistent nature. We expect the former and hence see scope for a small rebound in service PMI to 54. German and French PMIs will also be released.
In the US, Markit PMIs for November are also due. Overall, manufacturing growth seems to be strong but points to a softer expansion, so we expect manufacturing PMI to stabilise around its current level of 55.7.
Selected market news
Market sentiment remains on a weak footing as fears of a trade war and weaker macro momentum prevail. Asian equity markets are mixed this morning, rounding off a third week of losses, with Chinese stocks leading regional declines. US equity futures point to more declines ahead when trading begins again following the Thanksgiving break. Oil prices continued to dip, with Brent falling below USD63/bbl following a report of higher output in Saudi Arabia and an increase in US crude inventories adding to the recent bearish mood.
Yesterday, the UK and EU agreed on a draft political declaration on the future relationship, which is expected to be approved by EU leaders at the summit on Sunday (see Financial Times article (subscription only). We think this is going to be relatively easy despite some concerns among some member states, most notably Spain on Gibraltar. A strong qualified majority (i.e. 20 out of 27 member states representing 65% of the population) is needed to pass the deal. GBP rallied on the news as investors gained confidence that the final negotiation stage is falling into place and sterling kept its gains overnight (see FX section). But the risk of a leadership challenge for Theresa May continues to linger and the real test for the Brexit deal still looms with the vote in the House of Commons (see Brexit Monitor , 16 November 2018).
The ECB minutes from the October meeting proved relatively uneventful, without any new guidance on the growth or inflation outlook, although a remark was made on the maturity of some of the TLTROs falling below one year in 2019. However, ECB Chief Economist Peter Praet said in an interview yesterday that ‘it is premature to decide on a new TLTRO now.’ We still expect another TLTRO round to be announced in Q1 19 (see ECB Research – TLTRO3: Italy to be main beneficiary , 9 November) .
Officials acknowledged ‘uncertainties and fragilities’ affecting the economy, but this was not enough to alter the balanced growth risk assessment. The void of new information in the October minutes confirmed that the 13 December meeting will be pivotal, with the ECB formally ending QE as part of its ‘dovish tightening’, new staff forecasts on growth and inflation released as well as updated guidance on the reinvestment strategy, including the capital key update.
