Market movers today
Yesterday we published a presentation on the Swedish housing market: What if Swedish house prices dropped 15-20%? While SEK has adjusted we believe Swedish rates have yet to adjust to the weaker housing market in Sweden.
In the euro area the PMI figures for November are due for release. Manufacturing PMI rose steadily throughout 2017 and reached 58.5 in October from 58.1 in September. It is now st rikingly close to the 59.0 post -crisis peak reached in February 2011. While survey expectat ions indicators point towards further increases with rising consumer confidence and high Ifo and ZEW expectat ions, we expect only a moderate increase as the euro appreciation in 2017 could have started to act as a drag on export orders. Thus, we expect manufacturing PMI to increase to 58.7 and service PMI to increase to 55.2.
The ECB minutes from the October meet ing are also due for release today. At the October meet ing, the ECB extended its QE programme for another nine months in 2018 but scaled down the monthly purchases to EUR30bn (see also ECB Review: ECB opts for ‘lower-forlonger’ QE extension, 26 October). In the minutes, focus will be on the Governing Council’s discussions regarding whether to put a definite end date to the QE programme, which might give insights regarding the likelihood of a possible tapering start ing in Q4 18.
In addit ion, German revised Q3 GDP are due for release today.
In Norway the Q4 oil investment survey could t urn out t o be t he week’s most important release.
Selected market news
US bond markets rallied strongly last night following dovish minutes from the latest FOMC meet ing. The USD also weakened pushing EUR/USD above 1.18 again. The minutes revealed that the Fed is on t rack to deliver the third hike this year at its meeting next month. However, the minutes were a bi t dovi sh in th e sense th at ‘several’ FOMC participants are becoming increasingly concerned about inflation running below 2% target, which, in our view, is a dovish signal that the Fed might not hike as much as they indicate themselves (3 hikes). We st ick to our view that the Fed is going to deliver two hikes next year although uncertainty is high given that we get a completely new FOMC next year with new Chair and new members. The FOMC members cont ribute the lower-than-expected inflat ion to a flat ter Phillips curve, more slack left in the labour market and possibly also lower inflat ion expectations (we have argued for the lat ter for a while).
In China the crackdown on shadow banking and renewed deleveraging push continues to hi t the bond market. Corporate bond yields (AAA) yesterday rose to the highest level in three years and is now up more than 200bp since late 2016. The fight on financial risks is posit ive in the long run but poses short term downside risk to Chinese growth.
Euro consumer confidence (released yesterday afternoon) rose to the highest level since 2000 point ing to cont inued strong private consumption growth.
