This morning most Asian equity indices are slightly down

Market Movers

Today’s main event is the US retail sales data for September. The US economy is currently split between solid domestic demand driven by private consumption spending and weak exports that hurt the manufacturing sector. Signs of weakness in the main US growth engine, personal consumption, would support the current dovish pricing of future Fed rate hikes. Consensus is looking for an 0.3% m/m increase in the important control group component (excluding sales of autos, gasoline, food and building materials) but we see downside risks to this as we estimate that the control group increased a more modest 0.1% m/m.
In the UK, we estimate that average weekly earnings ex bonus (3M average) increased to 3.0% y/y in August from 2.9% y/y in July. We believe wage growth will accelerate further as the labour market tightens with unemployment close to NAIRU. Our calculations suggest the unemployment rate (3M average) was unchanged at 5.5% in August.
The German ZEW expectations index declined more than expected in October and today we will get hard data on euro area industrial production growth for August, which we expect to show an 0.6% m/m decline.

Selected Market News

The higher-than-expected Swedish CPI yesterday sent EUR/SEK to its lowest since June. The inflation print seems more supported by volatile components than underlying price pressure and we continue to expect further easing from the Riksbank this year.

Chinese CPI data for September released this morning showed inflation moderating to 1.6% y/y from 2.0% in August falling below consensus expectations of a 1.8% print. The drop in inflation was primarily driven by lower food price inflation. With inflation a good deal below the 3% government target this year, the central bank has room to ease policy further after cutting interest rates five times since November last year.

FOMC board member Daniel Tarullo in an interview with CNBC yesterday said that he did not find it appropriate to raise interest rates this year as he would like to wait for more solid evidence that inflation is moving higher. He thereby stroke the same more dovish tone as Lael Brainard (voter, FOMC board member) who Monday advocated for patience due to uncertainty and downside risks.

US bond markets were closed on Monday but saw support on Tuesday from the dovish Fed speak with treasury yields down 2-5bp across the curve. EUR/USD has held stable overnight while the S&P500 closed 0.7% lower yesterday. This morning most Asian equity indices are slightly down.

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