Focus on politics in both the US and Italy

Market movers today

Focus on politics in both the US and Italy. While we will likely have to wait before anything new happens in the US deadlock, today Italyâ€™s prime minister is expected to win a vote of confidence in parliament. Italian markets rallied strongly yesterday as Silvio Berlusconi â€“ the man who has been the main cause of trouble in Italian politics the past years â€“ faces a major defeat.
ECB will also be in the limelight today. We do not expect a rate cut or new measures from ECB but focus will be on signals on how high the bar is for ECB to provide new stimulus, such as a new 3Y LTRO. See ECB preview.
On the data front the US ADP employment report is the main focus. However, since Fridayâ€™s non-farm payrolls report is likely to be delayed due to the government shutdown, it may have less market impact than usual. Weekly jobless claims have been strong lately and point to decent job growth in September. Consensus is for a rise of 175k in ADP employment.

Selected market news

Despite the US government shutdown stock markets rallied yesterday. S&P500 finished up 0.8% and the market has hung on to the gains in Asian trading where the S&P future is broadly flat. The relief in the Italian political situation helped underpin the market and it seems the market was prepared for a US shutdown following the declines last week. We still see risk for stock markets on the downside in coming weeks, though, as the fight over the debt ceiling draws closer and increases uncertainty again. Higher risk appetite also drove US and German bond yields higher and the USD gained some lost ground.

In Italy bond yields fell more than 15bp and Italians stocks soared as expectations increased that Enrico Letta would gain support for his government following the internal revolt against Silvio Berlusconi from some of his closest associates within his party Forza Italia. The positive move also had spill-over to Spain where yields declined around 15bp to 4.16% - the lowest level in five months.

Asian stock markets are mostly higher except Japanese stocks, which are partly suffering from yen strengthening over the past weeks.

US vehicle sales released last night disappointed declining to 15.2m in September (consensus 15.6m) from 16.0m in August. It does not bode too well for US consumption, which was already on the soft side in Q3 tracking a 1.5% increase.

US president Barack Obama yesterday said that the person he nominates to lead the Fed will maintain â€˜the smart policiesâ€™ of Ben Bernanke. Likely a hint that he will soon nominate Janet Yellen as widely expected.

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