Market movers today
It is a fairly thin data calendar today with most focus on the US Republican tax bill amid the House and the Senate being on the verge of passing the bill.
In the euro area, the wage growth figures for Q3 are due for release today. Wages have been increasing steadily since Q3 16, reaching 1.8% y/y in Q2 17. Although wage growth has increased, it is still well below the pre-crisis average (from 1996 to 2008) of around 2.4% y/y. We do not expect wage growth to catch up to the pre-crisis average in the near future, as inflation expectations and negotiated wages (especially in Germany) do not show an upward trend. We expect wage growth to remain around 1.8% y/y in H2 17.
The German Ifo expectations are also released today. Ifo expectations have been on the rise since we entered 2016 and this measure of German business sentiment might not have reached its peak yet , although ZEW expectat ions dropped to 17.4 in December.
Other: In Sweden, the National Institute of Economic Reasearch will release macro forecasts. In South Africa, markets will watch closely any signals from the newly-elected ANC leader, Cyril Ramaphosa. Finally, the central bank (MNB) meeting in Hungary will reveal more details on its new exceptional quantitative easing programme.
Selected market news
The global equity rally has continued amid rising expectations that the Republicans will get through a bill to overhaul the US federal tax code before year-end. In the US, the major indices have reached new highs and this morning most indices in Asia are trading in ‘green’ territory. In comparison, US rates and the DXY index are little changed since Friday, which might underline a market belief that the total growth impact of the proposed tax bill should prove limited. We have made the last scheduled revision this year to our FX projections. In short, we have made few changes and still pencil in a weaker USD next year despite the US tax reform.
In South Africa, Cyril Ramaphosa has won the ruling African National Congress’ leadership contest . The election of Ramaphosa, the current deputy president of South Africa and a former successful businessman, is clearly market positive as he has run on a pro-business and anticorruption campaign, trying to dist inguish himself from President Jacob Zuma.
In terms of China, yesterday we published our leading indicator update. In short , our favourite indicators in the likes of home sales, credit impulse and commodity price inflation still point to a moderate slowdown but the downturn is cushioned by solid export indicators. The financial implications of this are less tailwind to equities (all else being equal), lower global inflationary pressures and support to global fixed income markets at the beginning of 2018.
In a blogpost, the Fed’s Neel Kashkari explained why he dissented against last week’s US interest rate hike. In short, he based the decision on the same arguments for his previous dissents – e.g. that labour market slack is underestimated, that low inflation expectations are becoming self-fulfilling – but this time he added that the US yield curve flat tening was worrying to him. Importantly, Kashkari and the other dissenter Charles Evans will not be voting members in 2018.
