RISK ON IS BACK. Better than expected US data yesterday boosted stocks (S&P 500 +0.4%) offsetting Chinese growth concerns. Asian stock markets are extending the rally in lack of any market moving data and news releases overnight (Nikkei +1.1%). The euro is gaining, yields are rising and commodity prices are rebounding slightly. Market is eyeing BOE and ECB’s rate announcements today (see below) while the FOMC minutes are likely a rather non-event.
OBAMA VS. ROMNEY. Little news in the first out of three live TV debates for the US Presidential election; sloping/raising taxes remain the Achilles heel. Romney came out the strongest and according to polls Obama’s rating dropped from 78% to 68%.
ECB: RATE CUT LOOMING. While we, and the market, expect the ECB to cut rates to 0.50% by year-end, the timing is more uncertain and we admit that October is a close call. Nevertheless, as the transmission mechanism has improved somewhat recently lower rates may be back on the agenda. A rate cut would also, on the margin, help reducing the large differential in financing costs between core and peripheral countries. A surprise cut today clearly risk to weigh on the euro while developments in Spain are likely more important for the 3 month outlook.
BOE: WAIT AND SEE. BOE is likely to stick with its current 0.50% rate and keep the APF-target unchanged at £375bn. As indicated by the previous Minutes we think the majority will wait advocating further monetary easing until the new Inflation Report in November (we expect an additional £50bn). This is in line with consensus and hence, the impact on GBP should be modest.
SEB