Market movers today
Today’s highlight is the advance euro area GDP figure. Quarterly growth rates slowed to 0.4% q/q in H1 18 and we expect to see a similar pace of expansion in Q3 18. We will not yet get a component breakdown, but we estimate growth in Q3 was driven mainly by domestic demand. Some country GDP figures, such as France, are due out.
Spain and Germany will release their CPI figures ahead of the euro area HICP tomorrow, which will give an indication of whether we are in for a negative surprise, which has been the case recently.
In Scandi, we get Danish business confidence as well as Norwegian retail sales, which have been very volatile, especially with the abnormal weather this summer and autumn.
In the overnight session, the Bank of Japan will meet and Chinese PMIs are due. We do not expect any new policy signals from the BoJ. We look for how close the Chinese PMI will be on the 50 threshold.
Selected market news
US equity market futures and Asian equity markets are trading in the green following US President Trump saying he expects a ‘great deal’ with China. The mood was distinctly dissimilar to yesterday, as major equity markets whipsawed following a Bloomberg story that Trump will announce tariffs on the remaining USD257bn worth of Chinese imports if his talks next month with China’s premier Xi Jinping fail.
Flirting with correction territory. The flagship S&P 500 equity index rallied at open, tumbled on renewed trade war fears and closed at a moderate loss. The blue-chip index closed just shy of a technical correction, defined as a 10% drawdown, from its September peak high. We think we are indeed witnessing a correction rather than the end of the longest equity bull market since World War 2. Before the next leg up, brace for more volatility. For more on our view on equity markets, listen to our weekly podcast .
Yesterday marked the end of an era, as Angela Merkel announced she will step down as head of her political party, the CDU. The dismal election results in the state of Hesse were the last straw for the G7’s longest serving head of state. Although Merkel will not seek re-election as the head of her party CDU in December, she will remain Chancellor until the end of her term in 2021. Mirroring pan-European political developments, large German mainstream political parties have witnessed eroding popular support. On the right, the CDU and CSU have been under pressure from the right-wing populist party AfD. At the other end of the political spectrum, SPD has been hurt by the rise in popularity of the Green party. German government bonds underperformed on worries concerning the sustainability of Germany’s government. We do not think Merkel’s decision will undo Germany’s solid fiscal stance.
