Market movers today
The US jobs report for September is today’s highlight. We estimate non-farm payrolls rose 190,000 in line with the recent trend, which may be sufficient to lower the unemployment rate to 3.8% from 3.9%. Most focus will be on average hourly earnings, where the monthly growth rates have been on the high side for a few months now, indicating that wage growth has begun to move higher due to the tight labour market. We estimate average hourly earnings rose +0.25% m/m, which would lead to a decline in the annual growth rate to 2.7% (close call between 2.7% and 2.8%) from 2.9%. The Fed is likely to continue hiking at a gradual pace.
Otherwise, focus in the markets remains on politics, not least the EU-Italy budget clash and the Brexit negotiations, which are about to restart now the Conservative Party Conference is over.
In Scandinavia, we are due to get production data for August in Denmark and Sweden (see next page).
Selected market news
Asian equity markets followed US ones lower, after US-China tension flared up again following remarks from US Vice-President Mike Pence accusing China of trying to sway the outcome of the mid-term elections through propaganda and influence operations. US Treasuries held steady, while Brent oil fell back below USD85/bl.
ECB sources yesterday suggested that a flexible application of the capital key for the QE reinvestments from next year was being discussed on a technical level. Further, more flexibility on the maturity of the reinvestments was discussed. This is a highly technical and political discussion about the detailed implantation of the ECB’s purchases per country. We expect ECB to come up with new guidance on the reinvestment at the December meeting, which includes a flexible implementation around the capital key. The ECB’s Draghi has continually said that the capital key is the ‘guiding principle’.
A week after the initial deficit target was released, the Italian government finally also unveiled some of the underlying assumptions (see here). GDP growth is expected at 1.5% in 2019, 1.6% in 2020 and 1.4% in 2021. This is slightly higher than the previous government’s forecast and significantly more optimistic than current consensus forecasts. The government believes that the expansionary fiscal measures will stimulate growth, but in light of signs of an economic slowdown, this view is not shared by investors and the European Commission, which will be especially concerned by the envisioned weakening in the 2019 structural balance.