In China, the flash manufacturing PMI fell to a six-month low of 50.0 in November (from 50.4). The factory output sub-index fell to 49.5, the first contraction since May. This didn’t come unexpectedly as authorities had suspended industrial and construction activities in provinces surrounding Beijing during the APEC meeting in mid-November. Asian equties were down, whereas the Euro Stoxx 50 ended the session marginally up. 10-year Bund yields rose 4 bp to 0.84%.
Minutes from the latest FOMC meeting indicate that Fed officials were not overly concerned about turbulence in financial markets, weaker foreign growth, a stronger dollar and risks that inflation expectations might become unanchored. We expect the first Fed rate in June 2015 with fairly balanced risks to this call.
Salvatore Rossi, deputy governor of the Bank of Italy, sees the Euro area “on the brink of deflation”. That sounds clearly more worried than official ECB speak. No matter how one actually defines deflation, Italy is certainly closer to it than the Euro area as a whole. As we see it, the Euro area headline inflation rate could well fall to 0.2% y/y (or even lower) in November due to the lower oil price.
The inflation outlook is more difficult to judge in the UK. MPC members are split on the outlook, the minutes revealed. For the fourth meeting in a row, two of the members voted for a 25bp rate hike. Our forecast is that the BoE will start to hike rates in June 2015. Given the low inflation pressure there is a risk that the first rate hike will come later.
Today: Euro-area PMIs and US CPI
For the Euro area, we expect a slight increase for the manufacturing and the composite PMI (10:00 CET). After the rise in ZEW expectations, that would be the second sign this week that slow growth is more likely than recession.
In line with consensus, we expect US CPI headline inflation to dip to 1.6% in October on lower energy prices .The continued weak CPI data imply that the Fed is still in no hurry to start hiking rates.
Also on the agenda today: Labour market numbers from Sweden and Q3 GDP from Norway.
Bond supply from France and Spain
France will sell 3- and 5-year nominal bonds for a total of EUR 6.5 to 7.5bn as well as inflation-linkers maturing in 2023, 2027 and 2040 for EUR 0.8 to 1.3bn. Spain, in turn, will sell bonds maturing in 2017, 2020 and 2041. There will also be a 2042 inflation linker from the UK.
Nordea