Market movers today
Today is slightly more interesting than the past two days with inflation data out of Germany and Spain ahead of the euro inflation release tomorrow. In Europe , we also get consumer and business confidence indicators across countries today. In the US, the second estimate of GDP growth in Q3 is due out and the Fed is due to release its Beige Book.
Also in the US, Fed Chair Janet Yellen is due to appear before the Joint Economic Commit tee of Congress. However, given that markets have already priced in a December rate hike and Yellen is leaving the Fed soon, it is not really a market mover.
In the UK, BoE Governor Mark Carney and t he BoE’s Dave Ramsden are due to speak today.
In Sweden, the FSA is due to publish its Financial Stability Report , which is likely to mirror t he message from the Riksbank’s report published recently. We will also get consumer confidence where we will look for signs of whether the recent development in the housing market is spilling over to confidence.
Selected market news
Fed Chair nominee Jerome Powell’s confirmation hearing yesterday supported the view that he will stick to Yellen’s monetary policy strategy by continuing the gradualhiking cycle and ‘quanti tative tightening’ although admitting tthere may still be more slack left in the labour market. It was interesting that he was more vocal about his own target for the future level of the Fed’s balance sheet , which he thinks is between USD2,500 -3,000bn and should be reached within three to four years. In our view, this may be too optimistic, as we wrote in March earlier this year (see Research US: Fed’s regulatory hurdle for starting quantitative tightening, 13 March 2017).
As expected, the US Senate Budget Committee passed the Senate tax bi l l yesterday, meaning that there can be a full Senate vote as soon as Thursday. This is likely to be a very complicated process, as the Republicans can only afford to lose two votes (see e.g. Bloomberg).
Yesterday, The Telegraph wrote that EU and UK have agreed on the principle of the divorce bill , meaning that the UK is going to pay EU between EUR45-55bn after Brexit due to long-term liabilities, leading to a fall in EUR/GBP. Still, this may not be enough for the EU leaders to say there has been ‘sufficient progress’ in phase 1 of the negotiations (citizens’ rights, the divorce bill and Irish border) due to the increasing tension about the Ireland border issues. So, while the likelihood of a deal at the EU summit has increased, it is still not a given that the negotiations will move to phase 2 (future relationship). We st ill think it is st ill too early to price out Brexit risk premiums, as there are still many unresolved issues about what Brexit really means even if (when?) phase 1 is concluded. We st ill see EUR/GBP within the 0.8650- 0.90 range incoming months with risks becoming more balanced. In the absence of any further posit ive news today, we could see EUR/GBP climbing back above 0.89 again.
Risk sentiment in global financial markets has been mixed overnight following the advance in the US tax bill and North Korea launching another test missile.
