Market movers today
Today, S&P may publish its rating decision on Italy. We expect that the S&P will change the outlook to negative but keep the rating unchanged. This should have modest negative impact on Italian government bonds on Monday next week.
In the US, we get the first estimate of GDP growth in Q3. Atlanta Fed’s GDPNow estimate says it was 3.9% q/q AR, while the NY Fed Nowcast indicator says it was just 2.2% q/q AR. We are believe it was probably slightly higher than 3.0% q/q AR, which is relatively strong, at least in this expansion.
Another important US release is the PCE core which we estimate rose 0.1% m/m in September and it is likely core PCE rose 1.5% q/q AR, but watch out for revisions. The figure will probably not change anything for the Fed, which is on autopilot until it reaches 3% in June next year after hikes in both December and March.
In Russia, the Bank of Russia (CBR) will have to make the penultimate monetary policy decision of the year today. Inflation has started climbing on a low base effect and fuel price increases. At the same time, the approaching VAT hike and the surge in the RUB’s volatility have pushed up inflation expectations, which are closely monitored by the CBR. While we expect Russia’s key rate to remain unchanged at 7.50% today, there is a risk that the CBR could refer to surging inflation expectations and deliver a 25bp hike.
Selected market news
Although the US stock markets rebounded yesterday and periphery spreads narrowed in Europe, Asian stocks continued to fall overnight and US futures headed lower after disappointing earnings reports from US tech giants. The risk-off sentiment in Asia sent the USD/CNY to its highest level this year. The pressure on the Chinese currency probably also comes after a news report yesterday suggested that U.S. won’t resume trade talks without firm proposal from a wary China, bringing the possible meeting between Chinese leader Xi and US president Trump in late November in danger.
Yesterday, ECB President Mario Draghi provided some interesting assessments during the press conference as he acknowledged that recent incoming data has been weaker than expected. ECB did not formally announce an end to the APP by the end of the year. We think the next ECB meeting on 13 December 2018 will be likely lead to a significant market reaction as significant decisions must be taken. For more discussion, please see our ECB Review – Steady Draghi amid disappointing data , 25 October 2018.
In the Nordic region, Norges Bank left the sight deposit rate unchanged at 0.75% as expected. This was a ‘small’ meeting, i.e. there was no monetary policy report, rate path or press conference but just a press release. As has been the case with recent interim meetings, the press release revealed little news from the Board. Norges Bank repeated its message that the ‘assessment of the outlook and balance of risks suggested that the key policy rate would most likely be increased further in Q1 19.’
