Danske Research Team
Danske Bank A/S
Market Movers
Focus will be on the release of euro area PMIs. So far, the manufacturing PMI seems broadly unaffected by the weakness in emerging markets, even though we have had a couple of months with falling financial sentiment indicators (Sentix and ZEW). In line with the financial sentiment we expect a decline in the manufacturing PMI, which would also be consistent with the lower order-inventory balance and the recent weak German data. The German PMIs should decrease the most as the Volkswagen exhaust scandal is likely to add to the negative sentiment, whereas the French PMIs are set to be less affected as suggested by the recent improvement in French business surveys.
US manufacturing PMI is also released and consensus is for a broadly unchanged figure of 53 from 53.1 in September. Despite the fall in September the manufacturing PMI was still much higher than the manufacturing ISM, which came out at 50.2. The question, then, is whether there will still be a big gap between the two indices or whether they will converge. Weak export data for September suggest that the manufacturing sector is still under pressure from reduced global demand and a stronger dollar, so we see a slight risk of the PMI falling to a level closer to 50.
In the euro area the inflation expectations in the Survey of Professional Forecasters are released and although we expect a decline in the longer-term inflation expectation it should not have a large market impact following the very dovish comment at yesterday’s ECB meeting (see below).
Selected Market News
ECB president Draghi had a surprisingly dovish stance at yesterday’s ECB meeting and even opened the door for a deposit rate cut. Draghi described the meeting as a ‘work and assess’ rather than a ‘wait and see’ meeting and explained that the ECB had tasked relevant committees to work on different instruments. He clearly signalled that the ECB is considering further easing at the upcoming meeting in December, where it will release updated inflation projections. We have changed our view and now expect the ECB to cut the deposit rate by 10bp at the meeting in December, to keep the door open for further rate cuts and at the same time announce an extension of the QE purchases beyond September 2016, see more in ECB to cut the deposit rate further.
We have also changed our view on Danmarks Nationalbank (DN) on the back of the dovish signal from the ECB. We now forecast DN to keep its policy rates unchanged on a 12M horizon – previously we expected it would hike the rate of interest on certificates by a total of 20bp on 6M. This also implies that we do not expect DN to mirror the expected interest rate cut from the ECB, see Dovish ECB to keep Danish central bank on hold.
The outlook for more ECB stimuli has supported risk sentiment and Asian stocks are higher this morning in line with the general rally in global equities.
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