The drop below zero in the German ZEW expectations

Market movers today

• US retail sales for September is due for release and we expect growth in retail sales to have slowed markedly in September as both store sales and in particular auto sales were weak in September. Lower gasoline prices should also weigh on the headline figure. However, retail sales excluding autos and gasoline is still expected to show a healthy gain in September, underscoring that underlying strength in private consumption remains intact. In the US producer prices and the Empire Manufacturing survey for the New York area will also be released today.

• In the UK the September labour market report is expected to show solid gains in employment and a continued decline in the unemployment rate. But most focus will probably be on the wage development in August as the Bank of England has indicated it has no intention of hiking interest rates if wage growth stays subdued below 1% y/y.

• ECB president Mario Draghi is scheduled to speak twice today. First, Draghi will give a brief overview of supervisory issues and it is more likely he will speak about monetary policy in the evening. Focus will obviously be on how concerned Draghi is about the recent disappointing activity data and drop in inflation expectations. It will also still be interesting to see how committed he is to expanding the ECB’s balance sheet.

Selected market news

Yesterday, bond yields fell further as growth and inflation worries continued. The drop below zero in the German ZEW expectations and the lowering of the German government’s growth forecast for both 2014 and 2015 together with the larger-thanexpected decline in euro area industrial production added concerns about the economic outlook for the European economy.

The 5Y5Y inflation expectations in the euro area declined to an all-time low of 1.77%. Back in August, ECB president Draghi expressed concern as the 5Y5Y inflation expectations had declined to just below 2% and the pressure on the ECB for QE of sovereign bonds seems to increase each day. However, the lower inflation expectations have followed the drop in oil prices and when Draghi speaks today it will be very interesting to hear whether he is again worried about the latest movement in inflation expectations or whether he still thinks the ECB has done a lot.

Chinese consumer price inflation declined markedly to 1.6% y/y in September from 2.0% y/y in August and at the moment it looks as if it could decline further, see Flash comment China: Drop in inflation boost to growth, 15 October. The lower inflation in China underscores that this is a global phenomenon as also seen with the drop in UK and Swedish inflation released yesterday.

In the US the Fed’s Williams, who is considered dovish, said he would be open to another round of QE “if we really get a sustained, disinflationary forecast”.

The Bank of Korea has cut its benchmark interest rate to the lowest level since 2010.