Allan von Mehren
Danske Bank A/S
Market Movers
We do not expect any big changes to Norwegian CPI, see Scandi Markets.
It’s a quiet day on the global agenda with only tier-2 data. French industrial production for September is set for a big drop following a strong monthly rise in August.
US NFIB small business optimism is expected to rise slightly to 96.4 from 96.1.
US import price inflation is expected to rise to -9.4% y/y in October from -10.7% y/y. The downward pressure on inflation from commodity prices will gradually ease and push up import price inflation as also indicated by the Fed lately.
Selected Market News
Chinese inflation released overnight fell more than expected to 1.3% y/y in October (consensus 1.5% y/y) from 1.6% y/y in September. The drop was mostly due to lower food price inflation, although the core inflation rate (ex food and energy) also fell from 1.6% y/y to 1.5% y/y. The data may fuel expectations of more easing from PBoC. However, if the economy continues to show signs of bottoming, we expect the central bank to be close to the end of the current easing cycle. We look for one last cut in the reserve requirement ratio of 50bp by year-end. PPI inflation stayed unchanged at -5.9% y/y in October held down by declining import prices.
In Japan the Eco Watchers Expectations index (a good leading indicator) held steady at 49.1, which is still a decent level (the long term average is 46.0.).
A new stand-off between Greece and the EU is a reminder that the Greek issue is still looming in the background, see FT. A EUR2bn tranche of the EUR86bn bailout package was withheld yesterday due to a failure from Greece to meet conditions on protection of homeowners in case of repossession. EU creditors are demanding weaker protection to avoid abuse of the system.
After a month of strong rally, US stocks turned lower yesterday falling 1%. It seems investors are taking profit as uncertainty is still looming over a December Fed hike and the effects of a stronger USD.
Despite the drop in risk appetite US bond yields held steady as comments from dovish Fed member Charles Evans (voter in 2015) added to expectations that the Fed is ready for lift-off in December. The message was echoed overnight by another dovish member of the Fed, Eric Rosengren, who said December lift-off is appropriate unless the economy slows unexpectedly.
A Reuters story yesterday that a consensus is building for a deposit rate cut at the ECB December meeting sent 2-year German yields sharply lower and pulled 10-year yields lower as well.
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