Danske Research Team
Danske Bank A/S
Market movers today
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Swedish inflation is in focus today. We expect a new high in y/y terms (2.5% y/y for CPIF), though we expect the y/y rate to moderate in coming months. A relatively high print is probably expected at this point , and rates in the short end of Swedish curves have traded up in anticipation. In Norway, the budget for 2018 is revealed (see next page).
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On the global front , the euro area is due to release industrial production for August . Following a st rong German print for August , we should expect a decent increase. If confirmed, it will point to another robust quarter for euro area growth.
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In the US, PPI and initial jobless claims are due for release. The Fed's Brainard (vot er, dovish) and Powell (voter, neut ral) are due to speak today.
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With respect to Brexit, the fifth negotiation round concludes today with a joint press conference. As the EU leaders at the EU summit later next week are likely to conclude there has not been ‘sufficient progress' to begin discussing the future relationship, more negotiations are needed in November and early December.
Selected market news
In our view, there was nothing new of great importance in the FOMC minutes, as we already know the different positions among the FOMC members . This also explains why markets did not react to the minutes. It remains our base case that the Fed will hike in December, as the core voting FOMC members put more weight on labour market data than current inflation data, although we agree with the dovish camp that low inflation may not be temporary due to low inflation expectations. Also, there was no news on what level the Fed targets for its balance sheet , as the Fed is likely to want to keep its flexibility, adjusting the target along the way. ‘Quant it ative tightening' is new to the Fed, so it is unlikely to see any benefits from precommitting. For more see FOMC minutes: Core members still want to hike in December, 11 October 2017.
Trump is set to meet with John Taylor (professor at Stanford University and the man behind the so-called " T aylor rule") lat er this week about the Fed chair, see Bloomberg, 11 October 2017. Taylor has indicated previously that he thinks the Fed funds rate is too low and that he wants a more rule-based approach to monetary policy. Trump has said previously that he will make an announcement on his nominat ion for Fed change in a couple of weeks.
President Trump has also said he will soon make an announcement on an Iranian deal. The US is pushing for condemning Iran but allies are pushing back and defending the nuclear deal, see Washington Post, 11 October 2017.
Yesterday in Spain, Prime Minister Mariano Rajoy gave Catalan leader Carles Puigdemont five days to clarify whether he has declared independence from Spain while threatening with article 155, which would suspend the authority of the Catalonian local government. Today is a national holiday in Spain and Rajoy is due to at tend a military parade in Madrid alongside King Felip VI.
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