UK inflation seen stabilising in October

Good morning,

• Another batch of disappointing Chinese data fails to weigh on sentiment;

• Chinese markets fall for second day since Monday's Hong Kong-Shanghai connect debut;

• RBA could cut rates next year as data deteriorates and concerns around Chinese property market rise;

• UK inflation seen stabilising in October but PPI still points to further disinflation going forward;

• Latest ZEW readings seen stemming the decline but current situation remains dire.

European futures are pointing to another positive start on Tuesday despite data overnight providing further evidence of China's slowing economy, as investors continue to turn a blind eye to the weaker data coming from the world's second largest economy.

Once upon a time, there would be turmoil in the markets at the sight of some less than appetising Chinese data but it appears that is no longer the case, at least for now. The markets appear to have accepted that China's economy is cooling off a little and have fully priced it in. What's more, with inflation so low at 1.6% and other indicators such as the PPI readings pointing to further disinflation going forward, the data actually increases the possibility of more monetary stimulus from the People's Bank of China. So in fact, as long as the data continues to just disappoint, it could actually be seen as a positive for the markets.

Chinese markets appear far more downbeat at the data at first glance but I think Tuesday's decline has more to do with the Hong Kong-Shanghai stock connect than the economic data. Yesterday's debut was also met with declines on the session which is nothing to be concerned about. The markets have had months to price this in, it's only natural that we'll see some profit taking. It's a similar idea to buying the rumour, selling the news but in this case I guess it's buy the announcement, sell the debut.

The release of the Reserve Bank of Australia minutes from the previous meeting highlighted the fear among policy makers about the Chinese property market and its impact on the economy. With the property market likely to deteriorate further for the foreseeable future and other Australian economic data pointing to difficulties ahead, some are already speculating the rates could be cut next year, rather than rise which is what the consensus view currently is. Credit Suisse has highlighted falling inflation expectations, rising unemployment and deteriorating confidence as being some of the reasons why the RBA may be forced to consider a rate cut next year.

Disinflation is seen as a serious risk to a number of major economies at the moment, including that of the UK, where we'll get the latest batch of figures this morning. The headline CPI reading for October is expected to show inflation actually rising marginally to 1.3%, which may have suggested that the decline is stabilising, had Bank of England Governor Mark Carney not warned last week that it's likely to fall below 1% and remain there for some time. Assuming he is correct, that would suggest this is only a temporary lift and the decline will continue in the coming months. This is supported by the latest PPI readings, with the latest year on year output reading seen showing prices falling by 0.2%.

Also being released this morning is the latest ZEW economic sentiment surveys for the eurozone and Germany. In both cases, we're expecting an end to the 10-month long decline, with both numbers seen creeping higher in what is hopefully a sign of a stabilising economy and more positive economic outlook, but more likely just a one time blip. The German current situation survey is still seen falling to 1.8, the lowest since June 2010.

The FTSE is expected to open 16 points higher, the CAC 8 points higher and the DAX 20 points higher.