Stock markets are lower overnight following new highs in S&P500

Market movers today

• In the euro area, ECB president Mario Draghi will testify before the European Parliament’s Economic and Monetary Committee at 15:00 CET. In addition, ECB chief economist Peter Praet will today participate in a panel discussion about the future of the global monetary system in Berlin starting at 12:30 CET.

• In the US, the main event today is the release of existing home sales for August. Recent data suggests that the headwinds from the housing market earlier in the year have eased considerably and we expect existing home sales to have improved further in August, reaching its highest levels since September last year.

• In the US, New York Fed president William Dudley will also be speaking at 16:05 in connection with an interview with Bloomberg.

• In the week ahead, the most important event will be euro and Chinese flash PMIs tomorrow, German IFO on Wednesday and euro money supply and credit on Thursday.

• There is no important news due out of Scandi today.

Selected market news

At the G20 meeting in Cairns over the weekend, finance ministers and central bank chiefs said that they were close to the growth goal but that Europe remained the stumbling block. There was pressure on Germany to do more to lift growth through fiscal policy but the German finance minister Wolfgang Schäuble instead emphasised the need for structural reforms and strict budget control.

The ECB’s Governing Council member Ignazio Visco said in an interview over the weekend that the ECB may not need to add further stimulus. He added that “there has been some misunderstanding about the TLTROs because it has been conceived as a major failure. The second tranche is more important than the first.... banks postponed borrowing until December. As far as the Italian banks are concerned, it was exactly what we expected”. It may take a while for the ECB to decide on the need for more easing as it will probably await the results of the already announced measures yet to be implemented.

Moody’s maintained the rating of both France and the UK on Friday evening. There had been speculation of a downgrade of France but both the Aa1 rating and negative outlook were unchanged. Given that there is positive excess liquidity in the coming five weeks and we are beyond both the Scottish referendum and FOMC meeting, we expect another round of spread tightening between the periphery and the core-EU markets.

Stock markets are lower overnight following new highs in S&P500 on Friday. The S&P future is down 0.5% in overnight trading and Asian stocks are down 1-2% in most markets with China worst hit. Stocks are awaiting Chinese flash PMI tonight which will likely head lower following the recent weak signals from manufacturing and credit growth. The risk off sentiment has taken US bond yields back to the levels ahead of the FOMC meeting where the Fed increased its rate projections.