Japan’s PMI rise – we expect euro area to follow suit

Jens Nærvig Pedersen Danske Bank A/S

Market movers today

Today is PMI day. In the overnight session we got Japanese PMI, which came in at 52.9 and later today both US and euro area PMI are due. After starting the year on a declining trend, we expect PMIs to stabilise around their current levels. We predict manufacturing PMI to rise slightly to 54.7 from 54.6 and services PMI to increase to 54.6 from 54.4, as trade war fears continue to retreat as a headwind to business sentiment and the forward-looking new orders component also rebounded in the last survey.
In Denmark, the July wage earner employment report is due out.

Selected market news

Overnight, Japan released September's manufacturing PMI and August's CPI. The former rose to 52.9 from 52.5 in August. Headline inflation was higher than expected at 1.3% y/y (consensus: 1.1%) supported by higher energy prices, while inflation excluding fresh food and energy stood at 0.4%, which was in line with expectations.

The Bank of Japan (BoJ) tapered its purchases of bonds with a longer maturity than 25 years by JPY10bn to JPY50bn - the first reduction since July.

The ECB's Peter Praet spoke yesterday and delivered some surprisingly hawkish comments, in our view. He hinted that wage growth is picking up and that a moderate pace of rate hikes is likely to follow the first rate hike.

US President Trump lashed out yesterday at OPEC, commanding the cartel cut prices. The comments ended this week's strong run for oil prices and contributed to the price of Brent crude falling back down below USD79/bbl.

The US and Canada continued talks over a new NAFTA deal yesterday without reaching a conclusion. There has been speculation that yesterday marked the deadline for a deal to include Canada. Hence, the focus will now be on whether the US will push forward with a NAFTA deal including only Mexico, or whether it will allow negotiations with Canada to continue.

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Jens Nærvig Pedersen

Danske Bank A/S

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