Market movers today
Politics remain a hot topic in financial markets with the Italian-EU budget clash ahead of the official budget submission to the EU on 15 October and the ongoing UK Conservative Party Conference , which ends today. PM Theresa May is scheduled to speak today. Italy’s finance minister Tria is due to speak at 11:30 and Deputy PM Salvini at 15:00 CEST.
In the US , we get the ADP employment report and the ISM non-manufacturing index for September today, both tier-2 releases. In the euro area , we will get retail sales in August. In the UK , the important PMI service index is due out at 10:30 CEST. We expect it to show that growth remains subdued.
Several FOMC members including Fed Chair Powell are scheduled to speak today but they are unlikely to send any new signals, as the Fed has indicated that it is on autopilot until the neutral rate of 3.0% is reached.
Selected market news
Yesterday was another tough day for Italy in the bond market. While we are still awaiting the official document with the underlying assumptions behind the government’s 2.4% deficit plan, Deputy VP Di Maio confirmed the already announced 2.4% deficit. The 2Y Italian yield rose yet again by almost 20bp and is often used as a gauge as a debt restructuring measure. The 10Y yield rose to a four-year high. Overnight, Italian newspaper Corriere reported that the deficit would be cut to 2% in 2021, which could mean slight market support this morning in a volatile session. We are still awaiting the technical document, including the assumptions behind the headline deficit.
Danmarks Nationalbank has published September’s FX reserve data and central bank balance sheet. FX reserves were DKK468bn in September, the same as in August.
Yesterday, the UK’s Boris Johnson spoke on the conservative party congress, which proved to be a non-event for markets, and tail risks related to a potential leadership challenge within the Conservative Party can probably be priced out now, leaving upside risks to EUR/GBP less dominating near term. Today, PM Theresa May will speak as the conference ends. Expect GBP to remain volatile and sensitive to Brexit-related news.
Yesterday, the Riksdag speaker gave the Moderate leader Ulf Kristersson the task to form a government. He has been given two weeks, but it may go faster. Market-wise, nothing has changed with this announcement. Parties are still stuck in trench warfare.
US Fed President Jerome Powell welcomed the wage dynamics recently observed as well as low unemployment, which shouldn’t cause prices to warrant quicker than currently expected rate hikes.
