Market movers today
Key market themes continue to be Brexit and US-China trade talks . Markets will also be looking ahead to the Fed meeting on Wednesday. While a rate hike is widely expected, focus will be on signals on monetary policy in 2019. In the Scandies, an expected rate hike from the Riksbank on Thursday is likely to take centre stage.
In terms of data today, we will get final euro area inflation for November and the US Empire index , which is the first regional US business survey for December. We expect euro inflation to be unchanged from the initial release, which showed headline inflation at 2.0% y/y and core inflation at 1.0% y/y. The US empire index is still at very high levels but is estimated to show a small decline in November.
The US NAHB housing index for December is also due today. It dropped sharply in November and added to signs of a slowdown in the housing market.
Selected market news
Risk markets struggled on Friday as poor economic data arrived first from China and then Europe, sparking renewed anxiety over global economic growth. US and European equity markets fell and government bonds rallied. The dollar rose against developed and emerging market currencies. Consequently, the US dollar index flirted with year-high levels. This morning, S&P 500 futures are slightly up along with most Asian equity indices.
Friday’s Chinese industrial production data confirmed that growth is weakening further into year-end and adds to expectations that we will see more easing from China soon. Industrial production growth dropped from 5.9% y/y to 5.4% y/y, whereas consensus expected the growth rate to remain unchanged. Retail sales growth slipped further from 8.6% y/y to 8.1% y/y, with consensus expecting 8.8% y/y. Fixed asset investments increased slightly, however, from 5.7% y/y to 5.9% y/y.
The data is broadly in line with our expectation that it will get worse before it gets better from around Q2. It also underlines why China would like to make a trade deal with Trump soon, to ease some of the downside pressure on the economy.
Euro area December flash PMIs were weak overall and do not point to a reversal of the growth slowdown this quarter, which began in Q3. The usual culprits remain in place, i.e. Brexit, politics, the global trade/China slowdown and have been accompanied by other downside risks such as the Yellow Vest protests in France.
Manufacturing PMI edged down slightly to 51.4. There were some signs of stabilisation in the subcomponents such as in new export orders and output indices. However, new orders at 48.6 are at the lowest level still since 2013. Service PMIs registered a marked fall from 53.4 to 51.4, likely to be driven mainly by France. New incoming business was at the weakest level in four years, but still in expansion territory at 51.4.
The disruption to French activity is particularly disappointing, as France was one of the key euro area growth drivers in Q3. In addition, judging from survey and car registrations data, it seems likely that the car sector will continue to act as a drag on growth in Q4.
