Market movers today
The German IFO-indicator will give more clues to whether the German business cycle is bottoming out. The expectations index has improved in recent months and the December German ZEW index jumped higher. However, Flash PMI for December disappointed a bit so the signals are mixed.
We also have a couple of inflation prints out from the UK and the euro area (final number). The Flash release for euro CPI showed a rise in core CPI from 1.1% y/y to 1.3% y/y but this was mostly due to transitory effects from prices on German package tours. We will get more details in the final release for inflation. We believe core inflation will fall back again in December when the effect from package tours is likely to drop out. UK core inflation is expected by consensus to be flat at 1.7% y/y.
Overnight Bank of Japan will meet but no change is expected. We expect the BoJ to keep the current QQE with yield-curve control framework in place and Governor Haruhiko Kuroda to iterate his commitment to ease without hesitation if inflation momentum is lost
In Scandi markets Sweden will release consumer and business survey, see page 2.
Selected market news
Asian stocks are mixed this morning after US equity markets reached new highs yesterday. Equity markets are hence taking a pause after edging higher on the back of the in-principle trade deal between the US and China last week. We are still waiting for further concrete signs that the two sides are indeed moving on to finalise the deal. Yesterday, US trade representative Lighthizer said that the phase one deal is ‘totally enforceable’, but apart from that new information on negotiations has been scarce and we remain cautiously optimistic about the deal being finalised early January, seeing possible bumps on the road.
Overnight, the People’s Bank of China cut the interest rate on 14-day reverse repo by 5 basis points to 2.65%, as it added liquidity to the banking system ahead of possible tighter liquidity in January ahead of Lunar New Year due to demand for cash before the holiday and banks buying newly issued local government debt.
The Trump administration is set to bolster enforcement of Iran sanctions with a plan to increase pressure on global shippers, Chinese state-owned enterprises and exporters of raw materials used in metal production, two officials said according to Bloomberg news . The plan involves guidance warning ship insurers, banks, charter companies, port owners, crews and captains that they face sanctions if they cannot account for the legitimacy of their cargoes.
Yesterday, two regional Fed presidents said the central bank should hold rates next year, given the solid growth outlook. Boston’s Eric Rosengren called the economy ‘well positioned’ for 2020, given a healthy labour market and inflation moving toward target. Dallas chief Robert Kaplan was less upbeat, citing weak manufacturing and business investment, but noted that consumer spending remains strong.
