Market movers today
Today, German ZEW expectations. In August , the figure dropped to 10.0, due to weaker exports and the growing scandal in Germany’s automobile sect or. Together with the appreciating euro’s pressure on exports, this could cause economic sentiment to deteriorate. However, both business expectations (Ifo) and German PMIs increased in August , signalling still increasing opimism on the part of business. Overall, we expect the ZEW expectations to show a small decline to 9.5.
The Central Bank of Hungary will hold its monetary policy meeting today, where it might expand liquidity further by lowering the cap of the three-month deposit and/or cutting the O/N interest rate, despite inflation starting to pick up recently.
Selected market news
It has been a relatively quiet session overnight both in terms of news and price act ions as investors await the FOMC meeting tomorrow. In the US, equity indices ended the day higher with S&P500 and Dow Jones gaining 0.15% and 0.28%, respectively. In Asia this morning, trading is more mixed with most regional indices trading lower while Japanese equity indices are up 1.3-1.5%.
While a large part of today’s outperformance in Japanese equities can be explained by Japan catching up yesterday after returning from holiday, rising expectations of an early election might also boost the rally. Japanese equity markets have previously gained ahead of the dissolutions of the parliament on calls for elections. According to several media, it seems increasingly likely that Japan’s Prime Minister Shinzo Abe will dissolve the Lower House later this month and call for a general election. If an early election is called this month, the Bank of Japan (BoJ) and consumption taxes are likely to come to the fore of political discussions. In particular, the questions about who will lead the BoJ when Haruhiko Kuroda’s current five year terms ends in April is a theme that could induce uncertainty about the BoJ’s monetary policy , as investors will probably link the fate of the Abe administration with the current accommodative policy regime (Abenomics).
In a speech last night in Washington, Bank of England (BoE) governor Mark Carney echoed the surprisingly hawkish statement from the BoE last week and signalled that the MPC might soon hike the Bank Rate as global factors in combination wit h a decline in the economy’s potential due to Brexit have increased the chance of overheating and warrant s higher interest rates. We expect the BoE to hike in November.
There were no surprises in the minutes from the Reserve Bank of Australia’s (RBA) meeting on 5 September published this morning. The RBA expects the economy to pick up gradually but there was no signal that the RBA is about to change its policy rate. We expect the RBA to deliver one 25bp hike within the next 12 months, which is in line with market pricing.
