The German trade balance figures for October

Market Movers

• The German trade balance figures for October are published this morning. Focus will be on export growth, which rebounded somewhat in September after the August figure showed the largest monthly decline since 2009. The signs of stabilisation in the Chinese industrial sector should support German exports but the weakness in US manufacturing remains a headwind.

• Q3 German labour costs are also due for release. In line with the very low unemployment rate the labour costs recovered in 2014 and H1 15 but so far it has not resulted in higher German core inflation. On the other hand, very low inflation implies real wage growth is high and supportive of private consumption.

• In Scandi markets focus is on Swedish household consumption, which should post a pronounced rise on the back of strong retail sales.

Selected Market News

The oil price is still very low with Brent trading just below USD41/bl after dipping below USD40/bl yesterday. The final push below the USD40/bl mark was delivered by an OPEC in disarray as illustrated at Friday's meeting. The lack of consensus on how to best serve the joint interest of the cartel has left OPEC conducting the oil equivalent of QE: each country is largely pumping as much as current facilities allow.

In the short term, it is difficult to see what should fundamentally lift the oil price particularly going into next week’s FOMC meeting where a first Fed hike would likely result in a hit to risk appetite. A list of possibly necessary – but not individually sufficient – conditions for what will set the bottom (or even fuel a rebound) in the oil price include: (1) USD rally coming to a halt (we expect this in 3-6M), (2) non-OPEC supply cuts (we see this as likely in 2016), (3) OPEC coordination to cut (in our view, this is doubtful in 2016), (4) positive growth surprises in China/EM region (we also consider this doubtful in 2016), (5) oil production costs stop plunging – watch shale costs (in our view, if oil production costs are unchanged from here we should get notable US supply cuts in 2016).

The lower oil price has hit commodity-exporting countries and in particular the NOK was the big loser. EUR/NOK broke above 9.50 in a very thin market yesterday and given the risk that the oil price will fall further we would be careful in trying to catch the falling NOK-knife. The weakening of the currency is a strong argument against a December Norges Bank cut and we expect it to keep rates unchanged but admittedly the risk of Norges Bank delivering another 'insurance cut' has significantly increased with Brent crude trading USD8/bl below Norges Bank's latest projection.

In China, People’s Bank of China has reduced the yuan reference rate to 6.4140, which is the lowest since August 2011. The CNY weakened just 0.1% to 6.425 following the new fixing but has declined 0.4% since the IMF decided to include the currency in the SDR basket. The weaker CNY could also reflect bets being placed on a weakening as the Fed is expected to hike next week.

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