Danske Research Team
Danske Bank A/S
Market Movers
It is a relatively quiet day in terms of data releases with only secondary data being released today.
US factory orders are expected to drop 0.9% m/m in September following the decline of 1.7% in August. This would be consistent with the development in durable goods orders, which was released one week ago and showed a decline of 1.2% in September after a 3% decline in August.
UK construction PMI is expected to fall back a bit to 58.8 in October after an unexpected big increase last month when the index jumped from 57.3 in August to 59.9 in September.
In Scandinavia, Danmarks Nationalbank will publish October’s FX reserve and balance sheet figures. In Sweden, Riksbank Deputy Governor Martin Floden is scheduled to speak at 9.15 CET. See Scandi Markets.
Selected Market News
The details of the US manufacturing ISM survey for October were better than the headline (50.1) with both new orders and new export orders increasing and while the order-inventory balance suggests that ISM is likely to hover around the 50 level in the coming month, the bottom is likely behind us now. A turn in the global manufacturing cycle in the coming months would bolster the Fed’s outlook for US growth above trend next year and we continue to believe that the first rate hike will come in January. For more details see Flash Comment: US manufacturing ISM is bottoming, 2 November.
US markets rallied yesterday supported by the positive sentiment from the European session and the better-than-expected US ISM survey. The SP500 index gained 1.2% and thereby erased its losses from the global sell-off in August, which was ignited by the People’s Bank of China’s devaluation of the renminbi. Yields on US government bonds rose around 3bp across the curve as the market priced a higher probability of a December rate hike from the Fed. In Asia this morning all regional equity indices also trade higher with markets in Japan being closed due to public holiday.
The October 2015 Senior Loan Officer Opinion Survey on Bank Lending Practices, which was released last night, showed that a modest fraction of bank tightened lending standards on commercial and industrial (C&I) loans in Q3 15. However, some banks also reported having eased some loan terms, such as spreads and loan maturities, while also indicating that they increased premiums charged on riskier loans for larger firms. On the demand side, banks reported that demand for C&I loans was about unchanged.
The Reserve Bank of Australia (RBA) kept its cash rate target unchanged at 2.00% this morning. We maintain our call for no more rate RBA-cuts but importantly we do not see a RBA rate cut as a prerequisite for further AUD/USD-weakness. We forecast AUD/USD at 0.71 in 1M, 0.69 in 3M, 0.68 in 6M and 0.68 in 12M.
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