In focus today
Focus today is on the ECB meeting, where we expect the ECB to deliver yet another rate cut of 25bp, bringing the deposit rate to 3.25%. Our expectations are supported by the recent weaker-than-anticipated growth indicators, as well as a decline in inflation. We expect that the ECB sticks to the ‘meeting-by-meeting’ and ‘data dependent’ approach that it has been following in the past few quarters. Ahead of the meeting, we receive the final HICP inflation data, which will allow us to see how the LIMI measure of domestic inflation fared in September, which is an important input for the ECB.
US September retail sales and industrial production data as well as the weekly jobless claims are due for release in the afternoon. Retail sales will provide the markets with the latest hard evidence of the strength of the US consumer. Initial jobless claims from the week ending 12 October will for the first time include the impact of Hurricane Milton, which likely distorted the data upwards especially in Florida.
The Central Bank of Turkey will announce their rate decision after their monetary policy meeting. Markets consensus is an unchanged decision of 50%.
Overnight we get, the September inflation in Japan. The figure likely declined sharply from 2.8% in August as an early Tokyo release also indicated. BoJ’s preferred measure of inflation (CPI excl. fresh food) stood at 2.8% in August and should remain above the 2%-target. Core price pressures have largely aligned with 2% inflation recently and with the October yen slide in mind, we still see an opening for another BoJ hike in either December or January after the dust has settled upon the general election on 27 October.
Tomorrow morning at 4:00 CET, China releases its monthly data on home sales, house prices, retail sales, industrial production etc. as well as Q3 GDP data. We expect it to still paint a weak picture of China highlighting the need for the increased stimulus we are now seeing.
Economic and market news
What happened overnight
In Japan, trade figures for September came in lower than expected with exports at -1.7% y/y (cons: 0.5%), and imports at a small rise of +2.1% y/y (cons: 3.2%).
In China, it was announced that they are expanding their “white list” of housing projects eligible for financing, and increasing bank lending for these developments to USD 562bn from USD 313bn, according to Housing Minister Ni Hong. These initiatives are part of efforts to stabilize a sector that has faced a crisis since 2021, impacting the broader economy.
What happened yesterday
In the UK, inflation surprised sharply to the downside with headline at 1.7% (cons: 1.9%, prior: 2.2%), core at 3.2% (cons: 3.4%, prior: 3.6%) and services at 4.9% (cons: 5.2%, prior: 5.5%). This means that Q3 service inflation stands at 5.2%, which is notably lower than the BoE forecast at 5.6% from the August MPR. The decline was broad-based across categories with core services easing. The downside surprise should give the BoE more confidence that underlying inflationary pressures are easing and by extension, make a November cut a done deal. Going forward, we forecast the BoE will maintain its gradual approach delivering quarterly cuts until next year, where we expect a cut at every meeting for the first half of the year, leaving the Bank Rate at 3.25% at year-end 2025.
FI: Yesterday’s decline in rates with very limited volatility was mostly a waiting game ahead of this week’s big event, namely today’s ECB meeting. The initial rally was supported by a benign UK inflation report. The 10y German point drifted 3bp lower to 2.18%.
FX: The Scandies had a poor session yesterday amid USD strength and US asset markets outperforming European equivalents. EUR/NOK rose close to 11.89 before trimming gains while the initial SEK losses kept EUR/SEK above 11.40 also during the US hours. EUR/USD continues to grind lower while GBP only partly erased losses following lower-than-expected UK CPI figures. USD/JPY continues to trade just below the 150-mark.
