Market movers today
Today, focus is first and foremost on the ongoing Brexit negotiations, as the deadline for reaching a deal before the EU summit is tomorrow. There was ‘no breakthrough’ over the weekend and the rest of the EU seems less upbeat than the Irish. It was also a blow for Johnson that DUP’s deputy leader Dodd said ‘no’ to the current proposal. We now think the probability of a deal is 20% (from below 10% previously) but our base case remains another Brexit extension followed by a snap election. For more details see our Brexit Monitor: 20% probability of a deal but another extension followed by snap election remains our base case, 13 October.
Markets will also focus on the ongoing trade negotiations between the US and China after they completed ‘phase one’ of the negotiations on Friday. Despite the renewed optimism, in particular from the US side, we think there are still significant hurdles for a more comprehensive deal see US-China Trade: Phase 1 trade deal not a gamechanger for the global economy, 12 October.
Today we have a thin calendar in terms of economic data releases. The euro area industrial production in August will likely attract attention given the weak PMIs. We do not expect the data to bring any cheer, showing the industrial recession dragging out in Q3.
Otherwise this week, focus is on US retail sales, which will be vital for the Fed’s decision whether to cut again later this month or not. We have plenty of FOMC members speaking this week ahead of the Fed’s blackout period beginning on 19 October.
In the Nordics, we are in particular interested in the Swedish unemployment data for September due out on Thursday. We have seen an unexpectedly hefty rise in unemployment over the past months. We feel that unemployment data may be a bit exaggerated. We were wrong about a correction last month but we make another attempt this time around.
Selected market news
Risk sentiment improved late on Friday as rumours circulated on a potential US-China agreement. While markets were slightly less optimistic before closing, the positive risk performance (Dow Jones +1.2%) has carried over to Asian markets this morning, which is up by a similar magnitude. Added to the trade talks, optimism about Brexit is expected to support risk sentiment today.
On Friday, the Fed sent a strong signal to the short end of the US curve as it announced a balance sheet expansion via bill purchases at least into Q2 next year, with an initial pace until mid-November of USD60bn. This is not to be seen as a restart of QE, but as an offer of sufficient liquidity in the short end of the curve.
