Market movers today
Today, European markets will digest yesterday’s FOMC messages with the Fed giving clear indications of being on hold.
In terms of data, October flash inflation prints and the advance Q3 GDP figure are due for release in the euro area. Headline inflation is expected to fall to 0.7% due to base effects in the energy component. However, based on yesterday’s country releases there are upside risks to the estimate. We expect the core print to come in at 1.0%, unchanged from the September release. We will also get the preliminary Q3 GDP print where we expect a 0.2% q/q reading. In Q2 we already saw signs that domestic demand is slowing. PMIs took a further plunge in September, pointing to almost stagnant Q3 growth. We still think though, that the service sector can compensate for some of the weakness from the ongoing industrial recession and hence look for a quarterly growth rate of 0.2% q/q.
In Denmark we get the unemployment figure. It will be especially interesting to see whether the early signs of a slowdown seen lately in the labour market have fed into the unemployment data.
In Japan, we get September industrial production figures. The manufacturing sector has slowed down recently and we are unlikely to see a rebound in the hard figures anytime soon.
Selected market news
Bank of Japan kept its QE with yield curve control unchanged at a meeting ending this morning. It changed the wording of the forward guidance that used to promise low rates until at least through spring 2020 and now pledges to keep rates at ‘…present or lower levels as long as it is necessary to pay close attention to the possibility that the momentum toward achieving the price stability target will be lost’.
In line with expectations, the Fed delivered another 25bp cut at yesterday’s meeting, taking the target range down to 1.50-1.75%. Again, Esther George and Eric Rosengren voted against the cut, while James Bullard, who voted for a 50bp cut in December, voted for the 25bp cut in line with the rest of the FOMC this time.
A bigger surprise, at least to us, was the change in the forward guidance in the statement, as the Fed has removed its easing bias without pre-commitment. The statement now says that the committee ‘assesses the appropriate path of the target range’ (versus ‘act as appropriate to sustain the expansion ‘ previously). Fed chair Jerome Powell made it clear during the press conference that the Fed now believes the current stance of monetary policy is ‘appropriate ‘.
It seems as though the Fed now wants to stay on hold, at least for a while, to see how things play out and the bar for another cut in December seems high to us. This also means our call for three additional cuts at the next three meetings (including December) is stretched at this point.
