Market movers today
In the euro area, PMIs are released. Manufacturing PMI has been on a rising trend since August 2016, getting close to the post -financial crisis peak of 59.0 in February 2011. In October, we expect manufacturing PMI to remain around the current level of 58.1, as the stronger euro may have started to affect new export orders adversely. After four straight months of decline, services PMI recovered in September to 55.8 and we believe services PMI will increase further in October to 56.2. Overall, the high PMIs support our expectation of robust growth for H2 in the euro area.
In the US, preliminary Markit PMIs for October are due. The service index shows that the service sector remains the main growth driver but we are puzzled about the large gap between ISM manufacturing and Markit PMI manufacturing and expect Markit PMI manufacturing to close the gap a little by increasing this month.
In China, the Congress of the Communist Party ends today with the new Standing Commit tee (SC) of the Politburo being presented Wednesday morning. Early news reports suggest Xi Jinping is choosing a moderate path in setting the new Standing Committee. South China Morning Post reports that there will be members from different factions, which in our view will bode well for political stability in China. It still remains unclear whether Xi Jinping will choose a successor.
Selected market news
The Asian equity markets move modestly higher this morning despite a modest decline in US equities on Monday. The US equity markets are awaiting a string of earnings results as well as more news regarding the process on the US tax reform.
In the currency markets we have seen modest movements in the major crosses this morning while we wait for the ECB meeting on Thursday.
The US bond market also closed with modest movements. Here, the market is also awaiting the announcement from US President Trump about who is going to be the next Fed president as well as several members to the FOMC committee. T he market is looking towards ‘Fed-proof’ trades such as a flatter US Treasury curve even though the curve is very flat already.
The Spanish government bond market has been fairly resilient to the recent escalation of the Catalan political crisis. Yesterday, Spanish 10Y government bond yields outperformed the core markets. The Catalan independent movement plans to make a ‘human shield’ in order to stop national authorities from taking over regional government buildings.
