Market movers today

In Europe , final PMIs and euro area unemployment rate for August are due out . We estimate the unemployment rate declined from 9.1% to 9.0%. Despite the decline, there is still some slack, which together with low inflation expectations and slow productivity growth is weighing down on wage growth.

In the US, the main release is the ISM manufacturing index for September. Given that regional PMIs have increased, there is also room for ISM manufacturing to increase to around 60 despite PMI manufacturing being stable at a much lower level in September. This big gap between PMI manufacturing and ISM manufacturing is still puzzling and we think the truth is likely somewhere in the middle, but note markets tend to focus more on ISM.

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In the UK, the Conservative Party conference began yesterday and ends on Wednesday. The Conservative Party remains hugely divided on Brexit and PM Theresa May’s position has been clearly weakened since the general election in June. May is expected to deliver a speech on Brexit and reiterate that the UK will leave the single market and the customs union.

In the Scandies, focus turns to PMI manufacturing releases in Sweden and Norway.

Selected market news

In Spain, a constitutionally declared illegal vote on Catalan independence took place on Sunday. Catalan authorities reported several injuries from clashes with police forces. Given the legal status of the ‘leave’ result and lack of external support , the markets seem to expect calmer days going forward even with the EUR weakening slightly. For more details see e.g. Reuters.

On Friday, US PCE core inflation disappointed market expectations by printing a yearly rate of 1.3% (down from 1.4%). Headline PCE also fell short of expectations, which overall leaves the PCE contradicting the strong CPI reading in August . However, given the Fed’s focus on a tight labour market , we do not think it will change the Fed’s view on monetary policy for now.

Having said this, future Fed monetary policy will depend on who President Trump’s nominates as board members (it is said he will pick two nominees). On Friday, several news agencies ran stories that Trump had met with possible candidates for the job as Fed Chair. According to Bloomberg, Trump has so far met with current Fed Chair Janet Yellen, National Economic Council Director Gary Cohn, Fed Governor Jerome Powell and former Fed Governor Kevin Warsh. According to Trump, a decision will be made ‘over the next two or three weeks’.

In Sweden, the Riksbank has extended current governor Stefan Ingves’ mandate by five years. Also, First Deputy Governor Kerstinaf Jocknick’s mandate was extended by six years. Both decisions were unanimous by the General Council. Much speculation had preceded the announcement , which is why EUR/SEK rose on the announcement .

Over the weekend in China, the Caixin and the official manufacturing PMI painted slightly different out looks for the manufacturing sector. While the former suggested a slightly slower acceleration pace (still above 50) by dropping to 51.0 (from 51.6) the latter rose to 52.4 (from 51.7). Going forward we project a slowdown in the Chinese economy on the back of a tightening in financial conditions, a cooling housing market and infrastructure spending slowing. Importantly, we do not expect a hard landing, as we pencil in solid external demand (exports) and fairly low housing inventories to cushion the slowdown.

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