The bond sell-off continued yesterday
|Market movers today
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It’s a busy day today on the data front with a focus on the US. Most important is US GDP data for Q3 as it’s an important input to the Fed’s rate hike decision. We have a belowconsensus estimate of 2.0% q/q AR (consensus 2.6% q/q AR), which would be disappointing given the low growth in the previous three quarters (has averaged 1.0% AR). The US GDP report will also provide news on core inflation pressures with the Q3 core PCE print.
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The US Employment Cost Index (ECI) for Q3 – also released at 14.30 - will also be important for the Fed. ECI has hovered around 0.6% q/q over the past two years corresponding to around 2.5% on an annualised basis. Consensus is for an unchanged rate but any increase from this level could add to the Fed’s inclination to hike rates in December. Some wage pressure measures (job openings, jobs hard to get versus jobs plentiful etc.) point to rising wage pressures.
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In Europe, eyes will be on preliminary German inflation data for October starting with the first regional länder data at 9.00CET and the release for all Germany at 14.00CET. Inflation is set to rise above 0.5% y/y for the first time in more than a year. We look for inflation to be on a rising trend globally over the coming quarters due to the rise in commodity prices this year.
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Other global events to follow will be EU data on economic sentiment for October and the rate decision from the Central Bank of Russia (expected unchanged at 10.0%).
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In Scandinavia, Norway releases retail sales and unemployment and retail sales is also due in Sweden, see next page.
Selected market news
The bond sell-off continued yesterday as markets started to expect gradual rates increases from the Fed starting in December while hawkish comments from some ECB members caused anxiety in euro bond markets (see below). The sell-off is having a negative effect on equities which closed slightly lower in US yesterday. Asian stock markets are mixed this morning with the Nikkei higher but Chinese stocks lower in the offshore market.
In commodity markets oil prices recovered a bit yesterday rising above USD50 per barrel again. But the big move has been in iron ore where prices have been spiking to the highest level since early 2015. Stronger steel demand from China this year due to the boost in infrastructure and residential construction is lifting prices. The rise in iron ore and metal prices is having a positive impact on emerging markets assets, not least Brazil which is a big producer of iron ore. Brazil’s stock market is up 48% this year (85% in USD as the real has strengthened as well).
In Japan, deflation continued with the CPI at -0.5% y/y (CPI ex fresh food) in September. The strengthening of the JPY over the past year is making it hard for the Bank of Japan to get inflation up.
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