Danske Research Team
Danske Bank A/S
Market movers today
Main release will be US CPI for September. Inflation has been subdued in the past months with monthly changes in core CPI being low. However, the flat reading m/m last month was partly due to some one-off factors and core CPI is expected to have risen 0.2% m/m in September. Inflation pressure has come down recently and the recent decline in commodity prices is adding further to this picture. This is giving the Fed plenty of flexibility to delay the first hike if necessary.
Minutes from the latest Bank of England meeting are due for release. Following weaker data for housing as well as manufacturing lately, the tone is likely to have softened somewhat.
Selected market news
US stocks followed the strong European session with the S&P500 extending its four-day rally to more than 4.2% - the largest four-day gain in the index in 21 months. The strong performance in risk assets was sparked by strong earnings figures and by speculation that the Fed may boost stimulus if growth slows. In addition, market sentiment was supported by unconfirmed media reports that the ECB will look to buy corporate bonds on the secondary market, possibly as early as next year. The ECB entering the corporate bond market would be a substantial step in its efforts to boost its balance sheet towards 2012- dimensions.
Positive risk sentiment has also been supporting Asia this morning with the major equity indices (e.g. Nikkei and Hang Seng) trading higher. Better-than-expected Japanese trade data contributed to this with export growth in September accelerating to 6.9% y/y (consensus: 6.5% y/y) from -1.3% y/y in August and import growth also accelerating substantially to 6.2% y/y (consensus: 2.7%) from -1.4% y/y in the previous month. Particularly the improvement in Japan’s imports was stronger than expected. The foreign trade data for September are encouraging, as they show some signs of improvement in exports in the wake of the weaker yen. The improvement in Japan’s imports also suggests that domestic demand has started to recover after the slowdown due to the consumption tax hike in April. Looking at Japan’s export destinations, there was particularly strength in exports to the rest of Asia (+8.1% y/y), exports to the US were resilient (+4.4% y/y) and exports to EU subdued (+0.7% y/y).
Q3 inflation figures for Australia came out broadly in line with expectations with the increase in consumer prices dropping to 2.3% y/y from 3.0% in Q2. Lower inflation leaves room for the Reserve Bank of Australia (RBA) to leave the cash rate target unchanged at a current historical low in the attempt to steer the economy through a transition phase from a commodity-based to a more diversified model. We expect the RBA to leave the monetary policy rate unchanged in the coming 12M but highlight that risks are to the downside.
The gas deal negotiations between Russia and Ukraine experienced a setback as Russian energy minister Alexander Novak questioned the Ukrainian source of funding. The parties meet again on 29 October and any failures to close the deal will raise fears of supply disruptions to the EU over the winter.
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