Main focus this week will be on ECB, Risbank and Norges Bank on Thursday. A ECB QE extension is expected. Risbank meeting no news on QE programme expected. How will markets react to PM Shinzo Abe’s election victory? Read on for some of 23 October key market movers.
23 October, Danske Bank – With the week light on economic data releases, Brexit talks will continue to be in focus. Developments in the Spain will be followed closely. PM Abe’s victory despite waning public support helped rally the Asian equity markets, whilst the Yen weakened. Focus will also be on the conclusion of the Chinese Political Congress.
Danske Bank Research: 23 October Key Market Movers
- Spain, focus remains on the development regarding the control of the Catalan region and activation of Article 155 this week
- UK, Brexit continues to be the key focus
- China, Chinese 19th Congress of the Communist Party ends this week and will a key market mover
- USA, FOMC minutes, core members still want a December hike in rates
- EU, Expect ECB to announce QE extension of nine months at a pace of EUR30bn, with no change in forward guidance expected either.
- Japan, PM Abe wins election, key market mover to watch is Tuesday’s Japanese PMI manufacturing data for October. Yen weakens, Asian equities rise following Abe’s election win
- Portugal, DBRS review on Portugal this Friday has been postponed until 3 November. DBRS recently published positive comments on the Portugese economy and fiscal results.
Key 23 October Market News
No major events or key economic data releases.
Fixed income markets outlook
ECB decision week has arrived with monetary policy decisions expected in Sweden and Norway on Thursday. Policy decisions expected in Canada on Wednesday. ECB members have already indicated that a QE extension will be “lower for longer” with concensus on 30bn for nine months (Bloomberg survey). Danske Bank research expects a mildly bearish reaction with modest curve steepener, if QE continues as expected.
PM Rajoy’s weekend statement that the government will activate Article 155 this week and later dissolve the Catalonia’s parliament and call for regional elections. Spain recovered against Germany last week. It should be noted that the spread between Spain and Italy has tightened to a new YTD low (25bp over the past months).
There is limited scheduled supply of just EUR10bn in the coming week, with this week’s supply kicked off today with Belgium tapping 6Y, 9Y and 30Y. EUR49bn is coming to the market in coupons and redemptions, primarily from France.
This week focus is on the Riksbank and Norges Bank meetings. In Sweden, Danske Bank Research expect an unchanged inflation and rate path and no news on the QE programme. The Norges Bank meeting is an interim meeting and not new signals are expected, in particular taking the limited new information into account.
23 October Forex markets Overview
Danske Bank Research believes that the EURNOK will fall marginally on a messAGE OF “we’ll wait for December” message from Norges Bank. EURNOK trades at the upper end of the constituted trading range benefiting Danske Bank Research EURNOK seagull position placed last Tuesday. While a break to the upside of EURNOK range is expected, for now Danske Bank Research would probably have to see a oil drop below October lows.
Danske Bank Research expects to see a repetition of the EURSEK price action from the 7 September meeting. In other words, EURSEK would rise somewhat (3-5 figures) as a ‘wait and see’ message, prior to the ECB meeting. This would be interpreted as a bias towards ‘low for longer’ and also ‘weak SEK for longer’.
Danske Bank Research continues to see EURSEK as a near-term 9.50-9.65 range play. It favours expressing this view by selling short-dated NOK/SEK straddles as a EUR- ECB alternative to selling EUR/SEK straddles. Danske Bank Research entered a 2W NOK/SEK straddle strike 1.0275 – a trade we still like.
This research report “23 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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