German industrial production has some downside risk today

Market Movers

• Another quiet day on the data front. German industrial production has some downside risk today after the weak factory orders yesterday. That said, the correlation between industrial production and factory orders has not been that great lately. The weak orders were pulled lower by export orders outside the euro area, suggesting a rising impact from the slowdown in China and other emerging markets (EM). Germany has quite a large exposure to EM and the recent VW scandal could add to the headwinds for the export sector, as car exports are 20% of total exports.

• US crude oil inventory statistics may get some attention this afternoon as oil production has started to come down in the US. Lower inventories would give support to the oil price.

• In Denmark, it is ‘comeback’ time as the DMO will resume issuance of DGBs. Today’s tap is in the 2Y and 10Y benchmark bonds – DGB 2.5% 11/16 and DGB 1.75% 11/25.

• There are several releases in Scandinavia today, see Scandi Markets.

Selected Market News

FOMC member John Williams (dove/neutral, voter) said that he still think it makes sense to raise rates this year and that the FOMC has ‘to make the right decision’ regardless of market expectations. He also said that the September job report was ‘decent’ and no obstacle for the Fed raising rates this year. We believe the weak job report has pushed the first hike to next year, see also Weak labour market pushes first Fed rate hike to next year.

Oil climbed more than 5% overnight ahead of today’s US crude oil inventory statistics, as the American Petroleum Institute is said to have reported that inventories fell -1.23m bbl last week. In addition, the Energy Information Administration increased its forecast for global oil demand and at the same time decreased its oil production forecast. Brent oil is currently trading around USD52.4/bbl.

As expected, Bank of Japan did not add further stimuli and thus the monetary base is still increasing JPY80trn per year. USD/JPY dropped back to 120. Initially the Nikkei 225 declined but the index has gained since and is currently up +0.75%. The pressure on BoJ is increasing due to the combination of very low inflation and weak economic data. While some analysts expect further easing, we continue to expect BoJ to stay on hold at the next meeting on 30 October.

Chinese FX reserves fell by a further USD43.3bn in September following the USD93.9bn drop in August. In total this was the biggest quarterly drop in FX reserves recorded. The PBoC has sold dollars to support the yuan following the shift in monetary policy regime in August but the pace slowed in September. Note that the Chinese domestic stock markets will reopen on Thursday following the Chinese holiday.

IMF has cut its outlook for global growth to 3.1% this year and 3.6% next year, down from 3.3% and 3.8% previously, due to the slowdown in emerging markets.