Market movers today
Focus continues to be on US-China trade talks and the tentative signs of a bottoming in the global business cycle. Today, the German ifo index will provide more clues to the state of the euro area economy. A rise in manufacturing PMI new orders on Friday points to some upside risk to the ifo expectations index. Overall we expect the euro business cycle to stay soft in the short term but a gradual recovery in early 2020.
Over the coming week, the main indicators to watch will be the core durable goods orders (a good capex indicator) and inflation data out of both the US and the euro area.
In Scandi, focus this week turns to consumer and business surveys and Q3 GDP in Sweden as well as unemployment and retail sales in Norway.
Selected market news
In Hong Kong, voters turned out in record numbers on Sunday for local district council elections and, for the first time, all 452 council seats were contested. The council elections usually see limited turnout as they don’t carry much political influence. This time around, however, the elections were seen as a test of the general public’s support of the recent protests led by the city’s students. The turnout rate at 71.2% is the largest on record, as voters seemed to take advantage of one of the few democratic and representative elections, but even so, the elected local council members will comprise only 117 of the 1,200 electors choosing the city’s chief executive, with the remainder being pro-Beijing. The almost final results show that the pro-democracy movement obtained 86% of the council seats – a number that was just 25% four years ago, when the previous elections were held. The Hang Seng index is up 1.7% this morning, with real estate leading the way. Note that Donald Trump on Friday showed reluctance to signing a bill supporting the Hong Kong protesters despite the bill having passed congress with strong bi-partisan support.
The new overnight risk-free rate (rfr) benchmark in the Euro Area, ster, spiked on Thursday to then fall back down to Wednesday’s level on Friday (note that the new rfr is published at t+1). ster is based on unsecured overnight money market deposits at Euro Area deposit-taking institutions. It seems that the spike is occurring with seasonality around the 21st in the months of February, May, August and November and is likely down to a single large institution in need of liquidity on these days. Spikes in money market fixings could, however, be something that we need to get more used to even in the current situation of large excess reserves in both the US (the new US rfr, SOFR, spiked on the days around 17 September) and the Euro Area, as Benoīt C uré alluded to in a recent speech (see here ). Specifically, regulation, which has increased the demand for high-quality liquid assets (LCR), and the distribution of excess reserves among sectors and institutions (which are highly concentrated both in the US and the Euro Area) are both factors that will increase fixing volatility going forward. Note that the new risk-free rates will become fallback rates for existing contracts referencing IBORs.
