Arne Lohmann Rasmussen
Danske Bank A/S
Market Movers
Today it is time for the euro area HICP inflation numbers for October. After the drop back into deflation territory in September, we expect the figure to reverse back into inflation and forecast a rate of 0.1% y/y. Gasoline prices declined again in October and we forecast the energy price component to be broadly unchanged. Instead we look for an increase in core inflation to 1.0% y/y from 0.9% y/y in September due to both higher service and goods price inflation. Our forecasts are above consensus and after the higher-than-expected German numbers yesterday the risk might be skewed towards even higher numbers.
Fed’s preferred measure for wages, the employment cost index, for Q3 will be published today. Consensus is looking for a rebound in wage growth to 0.6% q/q after the dip to 0.2% in Q2. The Fed’s preferred inflation measure, PCE inflation, is also released. We expect core PCE to increase 0.2% m/m taking annual core inflation to 1.4%. We look for another monthly decline in headline inflation of -0.1% m/m and annual PCE inflation of 0.2% y/y. University of Michigan consumer confidence and Chicago PMI are due for release as well.
Norwegian labour market data and daily purchases in November of NOK by Norges Bank, see Scandi Markets.
Selected Market News
Bank of Japan did not add extra stimuli at the monetary meeting policy overnight. Hence, the current programme that implies that the BoJ purchases government bonds at an annual pace of about JPY80trn is unchanged. The board voted 8-1 for the unchanged continuation of the programme. The market was basically split before the announcement. The market seems to conclude that the easing has just been postponed considering that e.g. USD/JPY and Nikkei are now higher than before the announcement.
We share the view of further JPY weakness ahead against the USD as US and Japanese monetary policy are still on a divergent path. Before the BoJ announcement CPI data revealed zero inflation in September and that core inflation in Tokyo dropped 0.2% y/y in October. Hence, further BoJ easing is certainly still possible.
Yesterday the market digested the latest news from the FOMC and global fixed income markets came under renewed pressure. 10Y Germany ended the day higher 9bp higher at 0.53% and in the US the money market continued to bring forward the first rate hike so basically the market is pricing a 50/50 probability of a December cut. Historically, the FOMC does not like to surprise the market, so if it intends to move in December or January the current market pricing is probably satisfactory. Note that the US curve 2Y10Y actually steepened some 6bp yesterday as the losses were concentrated in the long end of the curve. The prospect for higher rates also weighed on global equity markets with both European and US indices ending the day in red.
The US economy grew 1.5% q/q AR in Q3, marginally below consensus. However, the details revealed a significant drag from inventories of 1.4 percentage point, so below the surface the numbers were actually stronger and the outlook for Q4 is promising.
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