Market movers today
Today, the most important release is the Swedish housing price data from Maklarstatistik. We think the release is likely to show a decline in housing prices
Otherwise, markets will focus on the ongoing Italian budget negotiations with the final 2019 DEF document still to be released and what happens with the Brexit negotiations now the Conservative Party Conference is over.
Selected market news
10Y US Treasury yields soared to the highest level since 2011, breaching 3.19% on the back of growing US economic optimism and upbeat comments from Fed Chairman Powell. US stock futures still point to a lower opening today, while USD/JPY rose to its highest level in more than a year. Japanese 10Y yields surged past 0.145%, a level that previously triggered inventions from the Bank of Japan. Brent oil remained above USD86/bl, despite the biggest US crude stock build in more than 18 months.
Italian government bonds and stocks rallied for the first time in five days following reports that the Italian government will scale down its 2020-21 deficit targets. PM Conte said the government will set the budget deficits at 2.4%, 2.1% and 1.8% for 2019, 2020 and 2021 respectively, lowering the targets partially on the back of pressure from the EU side. Markets still await the publication of the Financial and Economic Document (DEF), outlining the details of the governments new budget plan.
Turkish inflation surged to 24.5% in September, the highest level since 2003, indicating that the weaker Turkish lira continues to put upside pressure on producer and consumer prices. USD/TRY moved back above the 6.00 level on the news. Further inflation rises in the coming months will put pressure on the Turkish central bank to hike, but our base case remains that the benchmark rate will stay unchanged until end-2018. Meanwhile, the Brazilian real strengthened on the back of polls showing growing support for right wing candidate Bolsonaro ahead of Sunday’s election. For more details on the outlook for Emerging Markets, see our new Emerging Markets Briefer – Switching slowly from red light to yellow, 4 October.
Theresa May’s speech at the Conservative Party Conference brought little surprises and tried to paint a positive vision for the UK after leaving the EU. May again stressed that Britain is not afraid of leaving without a deal. Overall, the congress still left the impression of a divided conservative party over the Brexit issue and Theresa May is likely to continue to struggle to find support for her Brexit plan. That said, we maintain our view that May’s room for manoeuvre is bigger now the conference is over. The UK and the EU are expected to restart negotiations as soon as this Friday and EU leaders will discuss Brexit over dinner on the eve of the EU summit on 18 October
