Market movers today
In the US, the labour market report for October is due out . We estimate employment growth in October was 300,000, as other indicators have shown the labour market has recovered following the hurricanes. Note the very strong wage growth of 0.5% m/m in September was due partly to compositional effects, as the ‘leisure and hospitality’ sector (typically low wage growth jobs) was the sector most severely hit by the hurricanes. This could potentially have added up to 0.1pp to wage growth and we expect this effect was reversed in October. Hence, we expect a correction, now people have returned to their jobs, so we think wages rose 0.1% m/m in October.
In the UK, PMI services for October will give us more information about economic growth at the beginning of Q4. We estimate the index was more or less unchanged at 53.6 but see risks skewed on the downside as the index is a bit higher than suggested by the most recent business confidence indicators.
In Norway, house price data are due out today (see overleaf).
Selected market news
Asian shares and US equities were mixed after yesterday’s announcement of the House Republican’s tax plan in the US. The plan was in line with details leaked earlier. The tax plan costs USD1,500bn (in line with what the Republicans have made room for in the budget ), implying higher government deficits and public debt if passed. It means there is little room for disagreement on changes to tax revenues/cuts. House Republicans hope to pass the plan quickly so it can move to the Senate later this month. Senate Republicans are working on their own tax plan, which they hope to unveil next week. The aim is still to have tax reform done by year-end, which is probably a bit optimistic (for more detail see POLITICO). The USD has weakened and Asian currencies were generally stronger overnight, as traders are sceptical the tax plan will pass in its current form without being watered down.
Furthermore, yesterday Donald Trump nominated Jerome Powell (current Fed governor) as the next Fed chair. He is still subject to Senate approval (simple majority) but we think this will happen relatively easily – this is also the signal Senate majority leader Mitch McConnell has sent . Powell is considered a centrist in terms of his views on monetary policy stance (much like current Fed chair Janet Yellen) and will therefore most likely continue the current monetary policy strategy of hiking Fed rates gradually. Also Mr Powell may be more dovish on financial sector regulation, in line with Trump’s wish and the new Fed vice chair for supervision Randal K. Quarles.
Yesterday, the Bank of England (BoE) raised the Bank Rate by 25bp from 0.25% to 0.50%, with the vote count 7-2 in line with our expectation but against consensus of a 6-3 vote count (see Bank of England Review: BoE keeps its flexibility on further rate hikes, 2 November). The BoE has stopped commenting on current market pricing (two hikes over three years), maintaining its flexibility on further rate hikes. Overall, the signal is neutral, which was more dovish than expected by the market but in line with our expectation. We believe the BoE will stay on hold in 2018 and not hike again before 2019, while the market is more hawkish, expect ing the next hike in November 2018.
Yesterday, it was announcd Danish foreign reserves remained DKK464bn in October. This is the seventh month in a row that Danmarks Nationalbank refrained from intervening in the FX market
