Market movers today

The overarching market focus today will be the November PMI releases in the US and the euro area, including Germany. Last month, both the German and the euro area PMIs stabilised around the previous levels and this month’s print will show whether this was an actual trough or whether further slowdown lies ahead. Recent further increases in indicators such as ZEW and Sentix seem to support the trough view. However, external demand is still the main driver of the euro area manufacturing sector and due to lingering global political uncertainties we do not expect a real trough in the euro area manufacturing cycle until early 2020 (see Euro Area Research: Manufacturing cycle: recession or recovery? , 10 October). For November, we expect the euro area manufacturing PMI to hold stable at 45.9 and the service index to fall slightly to 51.9 in light of the recent deteriorating business expectations.

In the US, we expect the preliminary manufacturing PMIs for November to be broadly unchanged. Markit PMI orders-inventory balance suggests stronger PMI manufacturing in November, but ISM manufacturing has been below 50 the past couple of months. We believe that both PMI and ISM surveys should be monitored together in order to get a clear picture of the manufacturing activity.

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We think UK flash PMIs for November will remain rather weak and in turn support our call for a cut by BoE in January and thus for a higher EUR/GBP.

New ECB President Lagarde will give a key note speech at 9:00 CET, which may reveal more about her view on the euro area economy and monetary policy. In Sweden, Riksbank’s Vice Governors Per Jansson and Henry Ohlsson will also speak about the economic outlook and monetary policy.

Selected market news

Yesterday brought some signs of easing tensions on the US-China trade talk front, after China invited US trade negotiators for a new round of face-to-face talks despite the recent diplomatic spat over Hong Kong and South China Morning Post reported that the US may delay tariffs even if a phase 1 deal is not reached by 15 December. Although German and US yields retraced from this week’s lows, the news has not been enough to lift equity market sentiment more broadly with Asian stocks only seeing muted gains this morning. Japanese inflation rose marginally to 0.4% in October despite last month’s VAT hike, illustrating the difficulty for Bank of Japan to achieve its inflation target.

The ECB meeting minutes from October confirmed that the ‘patience, prudence, persistence’ mantra is back. While ECB policymakers voiced increasing concerns about sliding inflation expectations, there was broad agreement that patience is warranted to let the new easing package work its effect on the economy and the inflation outlook, supporting our call that the ECB will be on pause in the near future. Mario Draghi also ended his last meeting with a strong call for unity in the Governing Council in light of the recent division over the September package.

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