US equities gained

Market Movers

• Today Fed Chair Yellen will testify on bank regulation before the House panel. Given the topic we doubt that there will be much talk about monetary policy. Later in the evening, New York Fed President Dudley (voter, dovish) is scheduled to speak on income variance in the US but he might also comment on the current state of the US economy and give his views on the timing of the first rate hike.

• In terms of US data releases, the ADP private employment estimate for October will likely attract some attention ahead of the October employment report due on Friday. Consensus looks for a 180,000 gain in private employment.

• The US non-manufacturing ISM has held up much better than its manufacturing counterpart in recent months. This underlines the current divergence in global weakness which, in tandem with the stronger USD, is weighing on the more exportexposed manufacturing sector and solid domestic demand which is benefiting the service sector. We forecast the US ISM non-manufacturing to decline modestly to 56.5 in October but this would still be a healthy level.

• In the euro area, the final revisions for October service and composite PMIs are due along with the first release of the Spanish and Italian service PMI and the final revisions of the French and German figures. We do not expect any changes in the figures relative to the recent estimates and thus forecast October composite PMI for the euro zone at 54.0.

• In the UK, the service PMI index has declined by 5.2 index points in the past three months. We think that it has come down too far and in line with consensus, we expect a rebound to 54.5 in October from 53.3 in September.

Selected Market News

Risk appetite has returned to markets and US equities gained yesterday, while all regional Asian markets trade higher this morning. In particular, the ECB’s indications of more easing in December and not least the latest rate cut from the People’s Bank of China have helped improve sentiment. Yesterday, ECB President Mario Draghi reinforced the signals that were given at the latest ECB meeting on 22 October, namely that the ECB is willing and able to act in December. Moreover, fears of a hard landing in China appear to have eased substantially, especially after Chinese PMI manufacturing for October, released on Sunday, showed clear signs of bottoming. At the same time, it now seems more likely that a US rate hike might be just around the corner and after the relatively hawkish statement from the 28 October FOMC meeting, the market-implied probability of a December rate hike has increased from around 30% before the FOMC meeting to currently around 50%.

With the ECB expected to cut its deposit rate and expand its bond purchase programme in December, focus on the Danish peg could re-emerge. Yesterday, Danish currency reserve data showed that the pace of FX intervention slowed further in October and with EUR/DKK below the central rate, there is no imminent need for continued FX intervention purchase of DKK. We expect DN to stay on hold and EUR/DKK to trade at 7.4550 in 3M-6M. Should downward pressure on EUR/DKK return, we expect DN to cap EUR/DKK downside around 7.4500 using FX intervention.

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