Market movers today
In the euro area, the final October HICP inflation figures are due to be released, likely confirming that headline inflation fell back to 1.4%. Focus will be on what items caused the unexpected fall in service price inflation, bringing core inflation down to 0.9%. Judging from the country figures released already, we expect the drop to be due mainly to volatile items such as package tours and hence not point towards the start of any sustained downward trend in service price inflation.
In the US, industrial production data for October is due for release. We believe that the current development in industrial product ion broadly reflects the strength of the economy and henceestimate industrial production increased 0.25% in October.
In the UK, we will get retail sales excluding fuels for October. Retail sales growth has slowed due to negative real wage growth and is one of the reasons GDP growth has slowed this year. That said, UK retail sales is not the best indicator of actual consumption growth .
Selected market news
Who dares t o ‘buy on dips’ in the equity market? The sell-off in the US equity market continued yesterday even though both US CPI and US retail sales were stronger than expected and support the view that the US economy is not about to entera slowdown as ‘predicted’ by the flat tening of the US yield curve. This supported market expectations of a hike in December and the odds of a December rate hike by the Federal Reserve rose to 97%.
However, looking at t he Asian market s then ‘buying on dips’ in the equity market has perhaps begun already. Nikkei is 1.4% this morning after a significant slide this morning. In our view, there is simply ‘too much money chasing t oo few asset s’ for a prolonged decline in the equity market .
Furthermore, the ‘bull’ flattening of the US yield curve continued as 10Y US Treasury yields yesterday declined despite higher CPI and stronger retail sales. However, the US tax reform seems to be running into problems in the Senate, as several republican senators have reservations on the tax reform.
In the currency market , the USD bounced back against the euro and the short move above 118 was reversed as the market is being confirmed in the rate hike from the Federal Reserve. It has stayed below 118 in Asian trading this morning.
In Europe, German Chancellor Merkel is trying to form a coalition government but is facing tough discussions with the potential coalition partners – FDP and the Greens. She has made a self-imposed deadline this weekend and thus we are looking at an interesting few days in German politics as she tries to form a government .
