Market movers today
Focus this week will turn to the 13th round of high-level trade talks between the US and China taking place in Washington on Thursday and Friday . If we get an interim deal we expect a short-term relief in equity markets, see US-China Trade – 60% probability of an interim deal , 2 October 2019. On the other hand, a failure to reach such a deal should put risk appetite under pressure again as US tariffs on USD250bn of Chinese goods are then set to move up from 25% to 30% on 15 October (next week).
Minutes from the latest Fed meeting will be scrutinized on Wednesday as will a number of Fed speeches . The Fed is set to meet again on 31 October and markets price around 75% probability of a rate cut following the weak data last week. We expect the Fed to cut rates at the next four meetings to counteract the current downward pressure on growth and inflation expectations.
Another important topic to follow will be the development in the Brexit drama. French President Macron has said negotiations must be concluded by the end of this week (same signals were sent by EU ambassadors last week).
ECB minutes on Thursday will give more insights into the ECB easing package, which as it turned out came with significant disagreement within the ECB Governing Council.
On the data front we will get German factory orders this morning followed by US core CPI tomorrow and US consumer confidence for October from University of Michigan on Friday.
In Scandi, focus turns to inflation data from Sweden and Norway, both released on Thursday. Today, the Norwegian government releases its budget proposal for 2020.
Selected market news
Ahead of the high-level trade talks between the US and China, media report that China is not willing to discuss its industrial policy or government subsidies , something which is very important to the US government. China believes that its hand has strengthened with Trump facing an impeachment process and with the US economy slowing. This highlights why there are still many obstacles for reaching a real deal, even if we get an interim deal this week, as we anticipate.
Portugal’s socialist Prime Minister Antonio Costa won the general election gaining more seats, but fell short of an absolute majority.
With respect to Brexit, this is a crucial week , as the EU wants a solution by the end of the week if the EU leaders are to accept any deal at the EU summit 17-18 October. The UK government has said that it will “consider” publishing the full legal text of its proposal – something it has been reluctant to do so far – if it will be “helpful” for the negotiations. PM Johnson also seems willing to take the Brexit Delay Bill to the court in order to avoid asking for an extension (or at least be forced to do it).
