Market movers today
After a very hectic day yesterday with key central bank meetings and releases, we are looking for a quieter day on the data release front.
In the euro area, we get the German Ifo print today. We are looking out for whether the latest stabilisation in the current business climate has continued and if the expectation component has fallen further.
On the Brexit saga, the EU ambassadors are expected to grant the UK a three-month extension of Article 50, making room for the UK to likely hold parliamentary elections on 12 December if two-thirds of the UK parliament support the Johnson government’s motion on Monday.
Today Bank of Russia (CBR) will hold its monetary policy meeting. We expect a 50bp cut to the key rate, while Bloomberg and Reuters consensus expect a 25bp cut. This time all major factors support a firm cut and a further 25bp cut in December 2019: the RUB has stabilised on comfortable oil price levels, which has put Russia’s headline inflation back to the 4% CBR target.
Selected market news
Yesterday the Riksbank took us, and the clear majority of forecasters, by surprise by not only keeping the short end of the rate path unchanged but also clearly indicating that rates will be hiked to zero in December, regardless of the MPR highlighting the weaker growth outlook and the global uncertainty. It turned out that ending negative rates is a goal in itself for the Riksbank, in a sense switching from inflation to rate targeting, for more discussion see our take here . The rate path was lowered after the December hike. It now points to a policy rate at zero for an extended period of time. Meanwhile, not much news to report from the small Norges Bank meeting. We stick to the view that the policy rate will be lifted once again in March next year.
Yesterday, the ECB meeting did not provide many new signals. The most important piece of news was Draghi indicating that ISIN limits are self-imposed, implicitly suggesting that they can be eased if there is a need to expand the eligible pool of securities that can be bought under the QE programme, for more details see our review here .
The US Markit PMI manufacturing rose slightly to 51.5 in October from 51.1 the month before, while the service part was more or less unchanged. However, the employment index dropped further and now signals job growth of just 50,000 next week. Overall the PMI points to relatively subdued GDP growth in early Q4 and supports our call that the Fed will cut rates at its weekend next week, see FOMC preview -Divided Fed is likely to cut again without pre-commitment , published this morning.
Yesterday, China signalled that it is willing to purchase USD20bn of US farm goods in a year if the two sides sign a partial trade deal (phase one) over the next month. Furthermore, it signalled that additional purchases could be considered in the case of future (phase two)
