The market continues to monitor the Spain-Catalonia situation and impact on the Euro area. Today’s primary focus will be on the FOMC minutes and FED speeches by Evans and Williams and ECB’s Peter Praet speaking later tonight. Which other 11 October key market movers will we see today?
11 October, Danske Bank – Tonight’s FOMC minutes are probably going to confirm the rate hike in December, with a market pricing it at around 70% chance. Fed speeches from Evans and Williams throw any further clarity? Will ECB’s Praet confirm recent signals of a ” lower for longer” QE extension?
Danske Bank Research: 11 October Key Market Movers
- In Spain, Catalonian President Carles Puigdement stopped short of making a formal declaration of independence and leaned towards more dialogue with the Spanish government. Focus is on the reply from Madrid as PM Mariano Rajoy meets the cabinet today.
- IMF global growth projection, was lifted for 2017 to 3.6% from 3.5% and to 3.7% for 2018, the highest it has been since 2010. US forecast raised to 2.3%; Euro zone growth to 2.1% from 1.9%; China growth lifted to 6.8% (+0.1%).
- In USA, President Trump said last night that changes to his tax plan will be made in the next few weeks, with no specific details.
Key 11 October Market News
Catalan President Puigdemont Speech
The focus is on the response from Madrid to the inconclusive speech by the Catalan leader last night. After declaring independence then immediately suspending it. With a deferred declaration of independence, PM Rajoy response will be the primary definer as to what happens next.
There is doubt if the Prospera inflation expectations will move the Swedish market, with market focus more on the inflation release tomorrow.
Fixed income markets outlook
With uncertainty in the air (Spain/Catalonia), the Bund future sold off slightly last night. Netherlands launches a new 7Y (Jan-24) with issuance size of 5 to 7bn. The spread guidance is +10.5-13.5 vs the NETHER Feb24 (ref – DSTA 10 October 2017).
QE story for EUR sovereigns approaching 33% is in restriction like NETHER market. QE purchases biased towards new bonds in these markets. ECB QE cannot be a participant at the auction. Danske Bank Research expects strong demand on the anticipated upcoming QE demand.
Portugal will also be in the market with a EUR1.00-1.25bn tap in the 5Y and 10Y bonds. Germany is tapping 3bn in the 5Y. Finlad will be issuing USD bills today. In Sweden, Nordea set to introduce a new covered bond (SE0010442731) maturing on 20 September 2023 and will be part of the SEK benchmark programme.
11 October Forex markets Overview
EURUSD hardly moved after the Catalan leaders speech last night. The speeches by ECB’s Praet and FOMC minutes tonight to shake the EURUSD very much.
Expect EURGBP to remain within a 0.89-0.90 range ahead of the September CPI figures out on 17 October and labour market report on 18 October.
In FX options, we see value in a bearish view, selling EURGBP above the 0.8950 via a bearish seagull towards the 0.87 going into the 2 November BOE meeting.
Current Brexit negotiations end tomorrow and focus remains on what progress has been made prior to the EU leaders summit meeting next week.
EURNOK respected the 9.25-9.40 range following yesterday morning’s poor Norway inflation release. Although recent data out of Norway has been disappointing, Danske Bank research view is that this adds another argument to put a bullish EURNOK position with a long EURNOK option trade on dips in the 9.25-9.40 range.
EURDKK floating close to 7.4430 helped by easier liquidity situation in DKK, resulting in increased negative carry on short EURDKK. This is not expected to change significantly in the short term and EURDKK remains in the 7.4400 – 7.4425 range.
EURSEK expected to continue to trade sideways in a narrow range of 9.5150 -9.55, with the Sewdish inflation data to be released Thursday. Danske Bank Research CPIF forecast at 2.5%, above Riksbank’s forecast of 2.4%.
This research report “11 October Key Market Movers” has been prepared by Danske Bank A/S (‘Danske Bank’). The author of the research report is detailed on the front page.
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