Market movers today
Today we have a busy schedule ahead of us. The FOMC meeting tonight (at 19:00 CET) is today’s highlight, where we expect another 25bp . Also today, the first estimate of GDP growth in Q3 is due out , which we expect to come out at 1.8% q/q AR. US growth has peaked, as investments are struggling in the current environment and private consumption is not growing as fast as previously.
In euro markets, focus turns to ECB’s tiering system taking effect today. So far, markets are showing little to no signs of a tiering premium. Tomorrow’s STR fixing will shed more light on this. Also, ECB could start buying bonds as part of its resumption of the APP of EUR20bn/ month, with settlement for Friday.
Overnight, Bank of Japan will hold its policy rate meeting. We expect the Bank of Japan (BoJ) to keep the policy rate and yield curve control unchanged, however, we see them making great efforts to highlight its willingness to act if needed. Markets price around 40% probability of a cut. Preview: No reason to deviate from cautious approach , 25 October.
Chinese official PMI are due over night (Caixin during night to Friday). We expect the official PMI manufacturing to land at a flat reading at 49.8.
Selected market news
Asian stock markets stepped into red territory on mixed trading following the American SP500 index ahead of today’s Fed’s rate decision, while oil slid and the USD remained steady. While investors have fully priced in a cut by the Fed, economists are evenly divided on whether the Fed will cut or stay on hold. Despite abating political risk, US data remains fragile. We expect a divided Fed will cut again without showing pre-commitment.
Reuters report on recent developments in the China-US trade war saga added to sentiment sourness: a US administration official said an interim trade agreement between Washington and Beijing might not be completed in time for signing in Chile next month as expected.
In line with our long-held view Brexit has been extended (new Brexit Day is 31 January 2020) and a general election is called (Election Day 12 December). In our view, the election is an EU referendum in disguise. PM Johnson will campaign on his “Get Brexit Done” platform arguing the public should give him the mandate to implement his Brexit deal. LibDems, SNP, Plaid Cymru and Greens are likely to campaign for a second EU referendum. We may soon get to the Brexit end game, unless we get a (very?) hung parliament without a clear/stable majority, like we did in 2017.
Overall, the tail risk of a no deal Brexit has declined substantially and investors have priced out a lot of negativity in GBP. We have sketched out our thinking including our view on EUR/GBP reaction in our Brexit Monitor published this morning, see Brexit Monitor: Election is an EU referendum in disguise – difficult to predict the outcome from polls, 30 October.
