Significant front-end gains in US treasuries

Market Movers

Focus is on US CPI inflation for September. The headline figure should move into deflation but core CPI is expected to be unchanged at 1.8% y/y. Yesterday’s US PPI numbers were low showing deflation in the core PPI for September of -0.3% m/m. This suggests that the strong USD continues to hold down price pressure in the goods producing industry.
US initial jobless claims are due for release and should stay within recent ranges.
A number of Fed speeches today including comments from Bullard (non-voter, hawkish), Dudley (voter, dovish) and Mester (non-voter, hawkish).
Norwegian foreign trade data and Swedish unemployment figures are the Scandi highlights today, see Scandi Markets.

Selected Market News

Weak earnings and data raise concerns about the strength of the US consumer. Yesterday a downbeat earnings forecast from Wal-Mart weighed on overall sentiment. The US retailer predicted a 12% decline in profits next year, due to investments, higher wages and lower prices. Earlier in the day, the September retail sales report had disappointed, showing an increase of 0.1% (consensus: 0.2%, Danske Bank: 0.0%). Furthermore, the slight increase was driven by auto sales; excluding the latter, retail sales declined by 0.3% in September and August’s reading was revised down to 0.0% (0.2%). We look for private consumption growth around 2.5% q/q AR in the current and coming quarters.

ECB’s Constancio talked about a potential spill over from the ECB/Fed monetary policy divergence. Speaking in Hong Kong, the ECB vice president said that the diverging monetary policy between the US and the euro zone could have greater global repercussions than in the past. Furthermore, a Fed hike would have a bigger impact due to emerging markets being integrated in the global economy to an unprecedented degree.

Significant front-end gains in US treasuries. Apart from the weak sentiment and the retail sales report, the gains were also driven by yesterday’s PPI report showing deflation in the core figure for September of -0.3% m/m (consensus: +0.1%, August: +0.1%). Treasury 2-10Y yields declined 6-7bp, causing the 10Y to break back below 2%.

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