Allan von Mehren
Danske Bank A/S
Market movers today
Spanish and German inflation will provide information about the impact of the decline in the oil price during October. In line with our above-consensus forecast for euro-area inflation, we forecast both the German and Spanish figures to increase 0.3pp in October despite the significant oil price decline.
We expect Spanish GDP to grow 0.5% q/q down from 0.6% q/q in Q2. Including our forecast for Q4 this should imply a growth rate of 1.3% in 2014, which will be the highest since 2007.
German unemployment is expected to stay low at 6.7% but the latest weakness in activity carries a risk of an increase in the unemployment rate.
In the US we will get the first release of Q3 GDP. After strong Q2 GDP data (4.6% y/y), the expectation for Q3 is a slight decline to 3.0%. We expect some moderation in US growth but lower gasoline prices should make sure the economy stays on a positive path, albeit at a slightly slower pace.
US PCE is also released and our model predicts 0.1% m/m for core PCE, meaning the yearly change continues to be 1.5%. Last week core CPI rose less than expected, which might contribute to a downside risk to the PCE.
Danish unemployment and manufacturing confidence are due for release. For more on Scandi markets see page 2.
Selected market news
Stock markets sold off and bond yields shot higher last night on the back of a hawkish statement from the Fed. Especially 2- and 5-year bonds, whereas 10-year bonds recovered a bit overnight in Asian trading. Although stocks took a hit immediately after the statement, the market calmed down again and finished with only minor losses. The USD got a strong boost and EUR/USD moved back below 1.26, while USD/JPY climbed above 109.
The Fed statement was surprising in several respects, see Flash Comment: The Fed rocks the boat, 29 October. The Fed removed the ‘significant underutilisation’ characterisation of the labour market and did not soften the inflation language as much as expected. The ‘considerable time’ forward guidance was left but the fact that neither Fisher nor Plosser dissented to this decision as they did in September suggests that the discussion is moving in a more hawkish direction. Finally, the Fed concluded the asset purchase programme without any comments that this would be used again as an instrument if the outlook deteriorates. Instead the Fed said that the first hike could be delayed if progress towards its objective is slower than expected, showing that the bar for asset purchases is very high as we also highlighted in the Fed preview, Softer on inflation but the bar for QE4 is high, 28 October.
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