Yesterday’s market moves ended up rather limited. German yields saw very little moves, and the 10-year yield ended the day essentially flat. The picture was largely similar in the US, where the 10-year yield fell by around half a bp.
Intra-Euro-area spreads continued to contract, but the moves were rather small. Greek yields saw the biggest moves, with the 10-year one falling by some 35bp.
Core bonds are likely to gain again today and yields fall, as risks remain to the downside in Euro-area economic data (see more below).
European equities gained some more, with the Stoxx 600 advancing by 0.73%, but US equities lost momentum and S&P 500 ended the day lower by 0.73%. Asian equities are trading with some losses this morning as well despite a small rise in the Chinese Markit manufacturing PMI (from 50.2 to 50.4, a 3-month high). Also European equities are set to open lower.
US inflation pressures remain muted
US inflation excluding food and energy stayed put at 1.7% y/y, in line with expectations, while the 3m/3m annualized rate fell from 1.8% to 1.3%, the lowest since early 2011. Underlying inflation pressures thus remain rather limited, implying the Fed will not be in any hurry to start raising rates, though no quick hikes are in prices either. The fed funds futures are currently pricing in the first 25bp rate increase for the last quarter of 2015.
Speculation about bank stress test results on the increase
A media report claiming at least 11 banks had failed the ECB’s stress tests caused some short-lived volatility yesterday. The ECB warned against any such speculation, since the final results had not been submitted to the banks yet. No doubt there will be failures, since otherwise the tests would lack credibility for sure, but the scale and scope of the failures should be manageable and the final results are unlikely to cause any larger shocks to the markets. The results of the exercise will be out on Sunday.
Euro-area PMIs: down we go again
Euro-area PMIs are likely to have lost further altitude. A drop in the manufacturing PMI to below 50 for the first time since mid-2013 would increase talks of another recession and further boost ECB easing hopes. Euro-area flash PMIs for October will be out at 10:00 CET, while French data will be released already at 9:00 CET and German numbers at 9:30 CET.
Elsewhere in the calendar, UK September retail sales will be out at 10:30 CET, US jobless claims at 14:30 CET, the US FHFA house price index for August at 15:00 CET, preliminary Markit US manufacturing PMI at 15:45 CET and Euro-area consumer confidence at 16:00 CET. The ECB’s Hansson will speak at 9:00 CET and Linde at 19:30 CET.
In addition, EU leaders will gather to yet another summit today and on Friday. Although the main topic is the 2030 climate and energy policy framework, the economic and employment situation will be discussed as well (on Friday). Euro-area leaders will have their own session tomorrow, and differences of opinion regarding fiscal policy and budget rules are set to feature in the discussions.
On the issuance front, the US will offer USD 7bn of 30-year TIPS.
Nordea