Ukraine and Russia seems to be moving closer

Market movers today

Few things on the agenda today. No tier 1 data up for release so focus will again be on central bank talk and market sentiment. The ECB’s Coeuré is scheduled to speak but speeches from other ECB members last week do not point to any immediate action. First line of defence seems to be verbal intervention, highlighting that more measures can be taken if necessary.

Over the rest of the week focus will be on a number of speeches from Fed members to gauge where their trigger level is for continued asset purchases. On the data front US CPI, euro flash PMI and Chinese data for GDP and flash PMI will be in focus. There are few signs that activity data in the euro area or China is about to bottom so we do not expect markets to get support from this side. Technically there were some positive signs in the market on Thursday and Friday which could indicate some improvement in risk appetite in the very short term. However, we still see a risk that a short-term bounce could be followed by a further leg down in risk appetite.

Selected market news

A very volatile week with significant swings in equity markets and bond yields ended on Friday with a strong rebound in risk assets where the S&P500 index rose 1.3% while yields on 10-year US treasuries rose nearly 4bp to 2.194%. Friday’s rally was supported by some dovish comments from the Bank of England’s chief economist, Andy Haldane, saying that he favoured delayed interest rate rises given the recent evidence of a weaker global economy, lower inflation pressures and low wage growth. In Asia this morning, the rebound in risk assets extended and especially the Japanese equity market rallied and the yen has weakened against all G10 currencies as an unconfirmed story in the Japanese press has renewed speculation that a pension fund reform might be imminent and might force the state-owned pension fund, Government Pension Investment Fund (GPIF), to increase its allocation target for shares to about 25% from currently 12% and boost its holdings of foreign bonds and shares to about a combined target of 30%.

Friday’s data releases out of the US also contributed to the improved sentiment as the University of Michigan measure for US consumer confidence rose to its highest level since 2007 at 86.4 in October from 84.6 September. This was well above the consensus estimate of 84.0 and especially the forward-looking component boosts the improvement supported by lower gasoline prices and a robust job market. Moreover, housing starts also came out better than expected, rising 6.3% in September.

According to an article on wsj.com, a gas deal between Ukraine and Russia seems to be moving closer as officials from both countries yesterday confirmed an agreement on a price of USD385 per 1,000 cubic metres of gas for winter gas supplies. According to Ukrainian President Petro Poroshenko, officials from Ukraine, Russia and the European Union will meet on Tuesday in an attempt to finalise the agreement.