Japanese machine orders rose more than expected overnight

Market Movers

• It’s time for Swedish inflation today. We look for a rise of 1.1% y/y in underlying inflation in line with consensus, see Scandi Markets.

• ECB president Mario Draghi will testify in the European Parliament, a good opportunity to guide market expectations ahead of the December meeting.

• Three Fed members will speak today: Lacker (voter, hawk), Evans (voter, dovish) and Dudley (voter, dovish). We expect them to reiterate the message that the Fed will raise rates in December unless data slow unexpectedly.

• US initial jobless claims should stay at a low level around 275k pointing to a continued robust labour market.

• We look for a soft number for euro area industrial production for October driven by the weakness in the German numbers last week. We expect the weakness to be temporary, though, as exports should improve towards the end of the year on a moderate recovery in China.

Selected Market News

Very quiet markets overnight with no major news out. US and Asian stock markets continue to move broadly sideways following the strong rally over the past month.

In UK the RICS housing survey surprised to the upside highlighting the underlying strength of the UK economy. The index rose to 49 in October (consensus 45) from 44 in September – a level that signals robust activity in the housing market. In combination with strong real wage gains and low unemployment, this is giving strong support to consumers and will in our view pave the way for a hike from Bank of England in Q1 next year. Yesterday’s employment report showed slightly lower wage growth but mediumterm pressures are still intact with unemployment hitting a fresh low.

ECB’s Coeure in an interview with Le Figaro made some slightly hawkish comments last night (at least compared to market expectations). He said that ‘the debate is still open’ and added that the ECB does not have to act in December. A weaker euro, higher inflation expectations and better Chinese data ease the pressure on the ECB. However, we believe ECB president Mario Draghi has set his eyes on more stimulus to defend the ECB’s credibility and to avoid the risk of a disappointment that leads to a stronger euro and a hit to sentiment at a vulnerable stage of the business cycle.

Japanese machine orders rose more than expected overnight by 7.5% m/m in September (consensus 3.1% m/m). Note, though, that the series is very volatile and the increase followed a drop in August of 5.7% m/m. Japanese PPI inflation was lower than expected in October at -3.8% y/y (consensus -3.5% y/y) highlighting the downward pressure on inflation from commodity prices.

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