Market movers today
Today, market focus will be on Brexit negotiations ahead of a working dinner kicking off the EU summit over the next two days. In our view, the likelihood of a deal on the withdrawal agreement at the summit remains low, see 1Selected Market News . In the UK, CPI inflation will probably slow in September, but given accelerating wage growth and a weaker currency, upside risks to the inflation outlook remain.
In the euro area , the final September HICP figures are due out. We do not expect any revisions, but it will be interesting to see whether the downside surprise in core inflation at 0.9% was again due to one-off factors or more permanent headwinds.
In the US, the FOMC meeting minutes are on the calendar. The Fed remains on autopilot in terms of hikes, but we will look out for comments on balance sheet reduction plans and what the future monetary policy framework is going to look like.
Selected market news
Global risk appetite has rebounded strongly over the past 24 hours, with most notably the three big US equity indices, S&P500, Nasdaq Composite and Dow Jones, posting the largest single day gains since March. Key to the moves have been the US earnings season start where Monday delivered encouraging news and gains for financials, healthcare and the recent heavily hit technology sector. This morning, most Asian indices are following suit in green territory. The US 10Y Treasury yield is little changed, highlighting how it was primarily the pace of the fixed income sell-off last week that triggered the equity rout.
In commodity markets, the oil price has edged higher on a drop in US inventories and renewed diplomatic tensions between Saudi Arabia and the US in the Khashoggi case. Notable US politicians such as Republican Senator Lindsey Graham have been increasingly vocal in their criticism of not least Crown Prince Mohammed bin Salman’s involvement in the likely killing and the need for US punitive measures. The comments follow a Saudi press release that any US punishment would be followed by ‘stronger ones’, triggering speculation on the oil market that the Saudis could use the oil price as a means. So far, Trump has backed the Saudi regime’s alleged innocence, see tweet , and drawn accusation parallels to the Brett Kavanaugh case, see FT
In an interview yesterday, Donald Trump repeated his latest critique of the Fed’s tightening of monetary policy by stating, ‘ my biggest threat is the Fed’ . Trump added he is not speaking to the Fed governors because of their independence but reiterated that he was unhappy with the recent pace of interest rate hikes.
On the recent Brexit headlines, our UK economist Mikael Milhøj thinks that while a deal seems increasingly likely, the probability of a UK withdrawal agreement with the EU today or tomorrow is low. This is not surprising given that we are too far away from the deadline for the politicians to make compromises and it is not unlikely we will have to wait until December or maybe even January before we get a deal. Indeed, a delay may make it easier for May to get the Brexit agreement through Parliament. Also, we probably need to get passed the UK budget on 29 October, as May’s supporting party, the DUP, has threatened to vote against the budget, as they are opposed to what is on the table with regard to the backstop agreement right now.
