Market movers today

Key focus in European markets continues to be on Italy and the ongoing budget fight with the EU.

The UK and the EU are likely to negotiate heavily on Brexit in the coming week, ahead of the EU Summit on 18-19 October.

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On the data front, today we will get German industrial production for August. Production has been weak in recent months, and a further decline in factory orders data on Friday points to continued headwinds to in production, as the car sector has been hit by new emission test procedures in Q3.

In the US, Fed member James Bullard (non-voter, dove) is set to speak.

In the Scandie markets, it is time for the Norwegian budget for 2019 (see next page).

Later this week, key data will be US inflation data, Chinese trade numbers and Swedish inflation.

Selected market news

Asian stocks came under pressure this morning, after China’s central bank eased its monetary policy further over the weekend. The PBOC cut the reserve requirement ratios for most commercial banks by 1pp, freeing up capital in the banking system to assuage concerns about slowing economic growth. Recent months have already brought similar measures and we expect China to continue easing its monetary policy to cushion the adverse effect of further escalation in the ongoing US-China trade spat.

A weaker-than-expected US jobs report on Friday dampened some of the recent optimism regarding strong momentum in the US economy. Both payrolls (+134K) and earnings growth (2.8% y/y) disappointed, but we do not expect this to have a material impact on the Fed’s hiking cycle. 10Y US Treasures pulled higher, topping 3.24%, while EUR/USD continues to trade around 1.15 this morning.

The Italian government released its new fiscal strategy, which probably left investors with more questions than before. Political tensions between the European Commission and Italy are growing as Deputy PM Di Maio dismissed concerns on Sunday that the current budget pointed to a significant deviation from the agreed fiscal path. The current stand-off between Italy and the Commission has led to renewed pressure on Italian government bond yields as well as the Italian equity market. The next focal point for markets will be 15 October, which is the deadline for the budget draft to be presented to Brussels, and our base case is now that the Commission will give a negative opinion on the Italian budget.

Brazil’s presidential race goes into the second round, after far-right candidate Jair Bolsonaro came out on top, but at 46.3% failed to get an absolute majority. On 28 October he will face Workers’ Party candidate Fernando Haddad (who got 28.9%) in a run-off.

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