Market increasingly sensitive to ECB stories
Market movers today
-
Swedish household lending data is due to be released today. Lending for housing purposes will be of particular interest, as the latest print (September) of 8.2% y/y was a bit lower than the peak in May at 8.7%. Depending on which stance you take, you could either point to the fact that lending growth is slowing down a bit, or go with the Riksbank’s view that lending continues to outpace income growth.
-
In the UK, we look forward to the release of the second estimate of GDP growth in Q3. While we do not expect any revision to the first growth estimate of 0.5%, we will focus on the GDP subcomponents. Most interesting is how investment performed in the first quarter after the EU vote. We think private consumption growth continued, broadly speaking, at the same pace as before the EU vote.
-
The week concludes with the preliminary US Markit PMI service index for November on Friday. The index has been right about lower growth in H1 and has been less volatile than the ISM non-manufacturing index, which has jumped up and down recently. The index increased to 54.8 in October, which together with solid levels for the ISM nonmanufacturing index is a good sign that growth will be solid in H2. We believe the Markit PMI service index will stay around its current level in November, suggesting that the service sector is growing at a solid pace.
Selected market news
As the December ECB meeting in fast approaching, the market has become increasingly sensitive to the ECB ‘sources’ story. After the European close, another story hit the market, with Bloomberg reporting ‘unnamed officials’ suggesting that ‘there is no longer a sense of urgency to adjust the parameters of quantitative easing’ and ‘some policy makers would also consider postponing a decision on whether to extend QE, though most still see a need to send a dovish message’. The sell-off seen in the European bond market since the end of September has made a substantial amount of German bonds eligible for QE purchases and thereby provides the ECB with more leeway going into the meeting on 8 December.
In relation to the ECB securities lending story, ECB Vice President Vítor Constâncio commented yesterday that ‘all national central banks…should also offer securities lending to help the liquidity in the repo markets and so we hope and we provide our guidance’. However, the implications of such a move still remain very much up in the air, and rely on implementation technicalities and the alignment of national central banks.
The Japanese economy seems stuck in a deflationary cycle with October CPI prints once again adding to the deflationary picture of the ‘Land of the Rising Sun’. The -0.4% published overnight adds to the string of mostly negative inflationary prints we have seen since 2009. As expected at slightly above the -0.5% September print, the market reaction was limited, with JPY depreciating slightly relative to USD and EUR and Nikkei, moving slightly into the green.
Author
Danske Research Team
Danske Bank A/S
Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.
