Market movers today
Today is relatively quiet in terms of scheduled data releases in an otherwise busy week. We will get US PCE core, where we expect 1.90% y/y – a number that will fit nicely with the Fed’s narrative of hiking in December. The UK budget will also draw attention as PM May’s supporting party DUP has previously threatened to vote it down.
This week, the main events include Bank of Japan and Bank of England meetings. We also have the US jobs report, euro area GDP and inflation data as well as the Italian budget negotiations.
In Scandi, the Danish FX reserve is being released on Friday – particularly interesting this time as the krone has been hovering on the weak side of the central parity rate.
Selected market news
Markets in Asia are mixed this morning while US equity futures are trading down . This comes despite numbers in the US on Friday showing solid expansion in the US economy, which grew 3.5% in annualised terms in Q3. The expansion continues to be driven mainly by strong private consumption, while investment growth remains below par. Despite the shaky market environment, we expect the US expansion to continue given strong consumer and business optimism.
In Italy, there were two pieces of supportive news out over the weekend . First, S&P kept the rating unchanged for Italy and only lowered the outlook to negative. The three major rating agencies have now given their verdicts and Italy is still ‘well above’ the junk line. Also noteworthy is that the Italian newspaper Il Messagero reports that PM Giuseppe Conte is working on a proposal that should cut spending slightly in 2019 – the first sign that Italy might be about ‘to blink’ in the dispute with the EU commission. We should expect a positive opening for Italian government bonds today.
Despite the positive news from Italy over the weekend, the euro is under pressure given the outcome from the latest German state election in Hesse , which showed flagging support for Chancellor Angela Merkel’s coalition. Notably, the Social Democrats witnessed a slump in voter support, recording the worst election result in the state since the Second World War. The poor readings in the state election could spill into national politics and weaken the ability of Merkel’s government to advance important political reforms.
Yesterday in Brazil, right wing candidate Jair Bolsonaro swept to power in the second round of the presidential election , beating the leftish candidate Fernando Haddad from the Labour party. Financial markets are likely to respond positively to the election of Bolsonaro (who has also been deemed the ‘Tropical Trump’), as he has promised to open up the resource rich economy to private investment, strengthen ties to the US and unleash an aggressive crackdown on epidemic crime.
