Final German inflation is expected to be unchanged

Market movers today

• In Italy, Prime Minister Enrico Letta will present his new government’s programme ahead of a confidence vote in the Lower House and Senate. The government should be able to survive the confidence vote even though it only has a slim majority after Berlusconi’s party Forza Italia withdrew its support for the government.

• Final German inflation is expected to be unchanged. However, the data is more interesting than usual as details on sub-indices affected by methodological changes are released. These details will give more insight about what to expect for the figure in December.

• ECB Vice President Vitor Constancio is scheduled to speak in Frankfurt today and comments about the ECB’s toolbox will again be in focus.

• In Sweden, Prospera publishes its quarterly inflation expectations survey which could be a potential market mover ahead of the Riksbank, see more on page 2.

Selected market news

In the US, a bipartisan compromise on a budget deal, which covers the next two fiscal years, has been reached. The deal needs to be approved by Congress and, if it is accepted, it would likely avert a government shutdown in mid- January and at the start of the next fiscal year in October. The top lawmakers on budgetary issues in their respective chambers were optimistic the framework would pass the House and Senate. Republican leaders seemed optimistic about the deal and John Boehner said the agreement represents a positive step forward. On the other hand, Democrats were unhappy that the deal did not extend expiring jobless benefits, but Chris Van Hollen, the top Democrat on the budget committee, said that even though the agreement was not perfect, it was certainly better than no agreement at all. The deal does not increase the US debt limit and new borrowing will have to be approved by Congress early next year.

If the budget deal is approved by the Congress this week, it will remove some uncertainty for Fed in connection with its meeting on 17-18 December, where we believe the Fed is likely to start tapering.

In Europe, the finance ministers set out a banking union framework but the crucial details of sharing bank failure costs was postponed until a meeting next week. The biggest point of friction among member states is details of how the system of rescue funds operates. A key German demand has been rules to impose hits on senior bondholders in failing banks, which will likely ensure a smaller capital gap for rescue funds to cover. In the draft compromise this has been brought forward from 2018 to 2016. Germany conceded slightly and agreed to accept the eventual establishment of a single resolution fund in 10 years’ time, paid for by an industry levy. At the final emergency meeting next Wednesday, the financing details including the issue of what happens should the bank resolution funds be exhausted will be discussed.