EU Summit starts in Brussels lasting two days, while Brexit talks will be the main focus for the markets. Both UK and EU agree on accelerating negotiations. Will EU leaders agree on parallel talk regarding the four freedoms while Phase 1 discussions continue? Here, we look into some of 19 October key market movers.
19 October, Danske Bank – With Brexit talk in focus, ex-USA President Bill Clinton is in the UK to talk about the Irish border situation. Will UK’s position of no deal jeopardize the Irish peace process?
Danske Bank Research: 19 October Key Market Movers
- Spain, back in focus as deadline for Catalan President Puigdemont to clarify Catalan’ s position on independence is at 10:00 CEST.
- UK, retail sales for September out today. Usually this economic data moves the markets, in reality it is a very weak indicator of actual consumption. Yesterday’s UK jobs data showed no change in unemployment rate at 4.3%. Weekly earnings excluding bonuses at 2.1%yoy in August down from 2.2%yoy in July.
- China, Chinese 19th Congress of the Communist Party commenced yesterday with Xi Jinping presenting the so called work report. Report contains few surprises. Overnight economic data showed Chinese growth in Q3 at 6.8%yoy in line with market expectations. Expect moderate slowdown over the next year due to financial tightening measures to cool housing. Danske Bank Research forecast GDP growth to be 6.8% in 2017.
- USA, Philly Fed Index is due to be released in the US and consensus is for moderate decline to 22.0, since meaningful tax legislation and potential for fiscal stimulus remains absent.
- EU, two day summit commences today. Market focussed on outcome of Brexit phase 1 talks.
Key 19 October Market News
Underlying trends in the Swedish labour market are strong and there are examples of labour shortages. With employment continually rising steadily at a pace of 1.5-2% y/y, difficult to see the overall shortage across sectors. Unemployment remains high and is declining slowly. The reason for the labour force growing is a reflection on the migrants entering the labour market.
It must be noted the time lag between migrants arriving into the country and migrants entering the labour market. As for September, Danske Bank Research expects unemployment to print 6.5%, down slightly from 6.6% compared to the previous month
Fixed income markets outlook
A reversal in market sentiment yesterday stopped and even reversed some of last week’s rally in EUR FI. Germany yield in 10Y increased 3bp while Spain lost 4bp. The political developments in Spain is back in focus as the deadline for Puigdemont for clarifying the Catalan leader’s position on independence followed by a response by PM Rajoy later in the day. The option is for the Spanish Government to take charge of the region.
Spain is in focus in the primary market with a EUR4-5bn tap in the Jan-21, Jul-25, Sep-27 and Oct-46. The auction is quite duration heavy, note having four bonds gives the issuer some degree of freedom when it comes to the distribution.
France also is in the market with a EUR 7.25-8.75bn tap in the 21s, 23s and 24s plus in linkers the 25s, the 27s and the 32.
Swedish unemployment is due to be released today. Underlying trends in the Swedish labour market are strong and there are examples of labour shortages
19 October Forex markets Overview
Danske Bank Research do not expect any significant reaction in EUR/USD on the ECB’s announcement, as there has already been a substantial repricing of the ECB in the FX market over the summer. Expect EURUSD around current levels on 1-3M basis with risk skewed to downside. Danske Bank Research…
“..the Fed to hike interest rates in December and as speculative accounts look stretched on EUR/USD longs according to IMM data. We target 1.17 in 1M and 1.18 in 3M.”
Yesterday EUR/NOK rose to the high end of the 188.8.131.52 range. While the rise supports our bullish EUR/NOK position , the move seems slightly overdone given the coinciding moves in not least the oil price. Danske Bank Research do not expect EUR/NOK to break above the range in today’s session.
Danske Bank Research still think EUR/SEK is a 9.509.65 range play. EUR/DKK started to fall back slightly yesterday after the test of the 7.4440 level at the beginning of the week. The outlook for tighter DKK liquidity at the beginning of next year, with the Italian election due. Expect EUR/DKK to find it difficult in sustaining the recent highs.
JPY weakened yesterday and USD/JPY rose to 113 supported by risk appetite and an increase in 10Y US yields. Financial markets remain complacent that Japanese PM Abe remaining as PM after the general election on Sunday. Hence, while USD/JPY could bounce higher after the election if Abe secures a two-thirds majority, market pricing indicates that a possible relief rally should be short-lived.
This research report “19 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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