Allan von Mehren
Danske Bank A/S
Market Movers
In Sweden focus turns to Prospera inflation expectations, see Scandi Markets.
The UK unemployment rate (3M average) is expected to be unchanged for September at 5.4%. Despite the unchanged print, the labour market is still tightening, albeit at a slower pace than in 2013-14. As a result, wage growth as measured by average weekly earnings excluding bonuses (core AWE) has accelerated so far this year. This said, we estimate the annual growth rate in core AWE (3M average) to have declined to 2.6% y/y in September, from 2.8% y/y in August, due to base effects explained by a very large jump in wages in September 2014.
ECB president Mario Draghi speaks at a Bank of England event in London. We expect him to strike a dovish tone repeating that more stimulus measures are on the table at the meeting in December.
Selected Market News
Both stocks and bond markets have been treading water overnight with little change in indices and yields. EUR/USD has climbed a bit after falling below 1.07 yesterday.
Chinese data released this morning were mixed. Industrial production undershot expectations once again with October production up 5.6% y/y (consensus 5.8% y/y), down from 5.7% y/y in September. It is back to the low in March, which was the lowest level since 2008. The monthly increase in October was 0.5%, slightly up from 0.4% but still low. Hence, so far we only see stabilisation in industrial production on a m/m basis but no recovery yet as hinted at by PMIs lately. Asset investment growth (fixed investment) increased 10.2% y/y in line with expectations. On a brighter note, retail sales beat expectations, up 11.0% y/y from 10.9% y/y in September. Since inflation has been going lower lately, the improvement is bigger in real terms and suggests consumption growth has picked up slightly. In that sense the data today fit well with China’s goal to rebalance from investment to consumption.
According to China Daily Chinese premier Li Keqiang promised to a business audience in China to use several powerful policy weapons to boost growth. Li said that the economy is experiencing a lingering slowdown and a historic transition. He hinted that China will launch initiatives to lift growth through lower taxes for businesses, help upgrade businesses, improve competition and invest in infrastructure in central and western China. Finance was also mentioned, which suggests that interest rates might be cut further to ease the burden of companies. As in the new Five-Year Plan he said innovation should be at the core of the national strategy.
Yesterday Minneapolis Fed named Neel Kashkari to replace Narayana Kocherlakota as of 1 January 2016. With Kocherlakota leaving the Fed it will lose its most dovish member. Kashkari is a former PIMCO executive and has also worked for Goldman Sachs previously.
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