Market movers today
In the euro area, we are due to get the final HICP figures for September. We do not expect any changes from the preliminary release with regard to headline and core inflation, which reported a decline to 1.1% y/y. However, it will be interesting to see which components caused the fall in service price inflation and whether they point towards any sustained upwards or downwards trend in core inflation, which will be important for ECB policy normalisation going forward.
In the UK, we are due to get the CPI inflation print for September but the release should not alter the Bank of England’s members’ views on the economy significantly and hence we still expect a 25bp Bank Rate hike next month.
Bank of England Governor Mark Carney, Deputy Governor Sir David Ramsden and MPC member Silvana Tenreyro are due to testify before the UK’s Treasury today. We will look for any hints on whether they have changed their mind on a November hike.
In the US, we expect that the relatively muted growth in industrial production continued in September although the recent hurricanes increase uncertainty around the release.
We will also have the ECB’s Vitor Constancio speaking at a conference in Lisbon and German ZEW expectations for October are due to be released.
Selected market news
Yesterday, in US fixed income markets, yields climbed slightly higher after the Fed’s Janet Yellen reiterated over the weekend that ‘my best guess is that these soft (inflation) readings will not persist’, which supports our view that the Fed will hike in December despite another lowerthan- expected US CPI inflation print published on Friday last week (see FOMC minutes, 11 October 2017). The main argument is still that strong growth will tighten the labour market further, which will eventually push wage growth higher and hence inflation. The bearish sentiments in US fixed income markets were also supported by a strong US Empire manufacturing PMI release, which rose to 30.2 in October from 24.4 in September. This is the highest level since 2014.
According to Bloomberg, John B. Taylor (professor at Stanford University), a candidate for Fed chairman, was said to have impressed President Trump in an interview last week.
In EUR fixed income markets, the week started where last week ended, with yields edging lower awaiting next week’s ECB monetary policy meeting.
Yesterday, we saw a sharp rally in copper prices with three-month LME copper breaking firmly above the USD7,000/MT level. Brent oil traded close to this month’s high, currently around USD57.8 per barrel. Tensions around the Kurdish region in Iraq have spurred concerns in the market that supplies from that region may be disrupted.
