Today, we await the release of Germany’s ZEW index for October, which will shed light on how investors view the nation’s economic situation. In September, the index showed a decline, with the current situation hitting its lowest level since the COVID-19 pandemic, signaling ongoing weakness in the German economy.
Sweden’s Inflation and Labour Market Data
In Sweden, the final inflation figures will be released at 08:00 CET. These numbers are expected to align with earlier estimates, showing CPIF at 1.1% and CPIFxE at 2.0%. The focus, however, will be on the specifics behind these headline figures. Additionally, Sweden’s Public Employment Service will provide labour market data for September, where recent trends indicate a rise in unemployment. Furthermore, at 09:00 CET, the Riksbank board members are set to testify before the Riksdag Finance Committee. Since the last policy meeting, Swedish growth and inflation data have matched or slightly exceeded the Riksbank’s forecasts. Consequently, the board is likely to reaffirm the expectation of a 25bp rate hike in November.
UK Labour Market Report Expected to Show Easing
The UK labour market report for August/September will be released today, with expectations of a general easing in both job market activity and wage growth. Wage growth, excluding bonuses, is forecast to slow to 4.9% 3M/YoY (down from 5.1%), while the unemployment rate is projected to remain steady at 4.1%. A cooling labour market may provide grounds for a potential rate cut from the Bank of England in November.
Monitoring CPI Data in Canada and New Zealand
In addition to the above, market participants will also be keeping an eye on the Consumer Price Index (CPI) reports from Canada and New Zealand, which could offer further economic insights.
Overnight Developments
China Plans Significant Fiscal Stimulus
In China, a Caixin Global report revealed that the country may raise USD 850 billion over the next three years to finance its anticipated fiscal stimulus package. This news follows Chinese Finance Minister Lan Fo’An’s recent announcement that the government plans to significantly increase debt to bolster the economy.
Caution on US Interest Rate Cuts
In the United States, Federal Reserve Governor Christopher Waller called for caution on future interest rate cuts. He emphasized that the US economy is in a favorable position, with a healthy labor market and inflation nearing the 2% target. While the Fed has already cut rates by 50bp, Waller stressed that any further reductions should proceed cautiously. Meanwhile, Fed’s Neel Kashkari signaled openness to modest rate cuts, noting that inflation is close to the target.
Key Updates from Yesterday
OPEC Lowers Global Oil Demand Forecast
OPEC revised its global oil demand forecast for 2024 and 2025 downward. The cartel now expects daily demand to increase by 1.93 million barrels in 2024, a reduction of 106,000 barrels from previous estimates, and for 2025, demand has been lowered by 100,000 barrels per day. Some market analysts attribute this adjustment to weak demand from China. Additionally, reports surfaced that Israeli Prime Minister Netanyahu assured the US government that Israel’s response to Iran’s October 1 attack would target military installations, not energy infrastructure. Oil prices, which ended last week near USD 79 per barrel, dropped to around USD 75.3 per barrel this morning.
China’s Export and Credit Growth Slow
China’s latest data on exports and credit growth showed a significant slowdown. Export growth fell to 2.4% year-on-year in September from 8.7% in August, missing expectations of 6.0%. Credit growth remained weak as well, underscoring the need for further stimulus to boost the economy.
Israel Expands Operations in Lebanon
In the Middle East, Israel extended its military operations in Lebanon, targeting the northern town of Aitou, resulting in at least 21 deaths. Until now, Israeli strikes had primarily focused on southern cities and Beirut’s suburbs.
Market Movements
European Rates Stay Steady Amid Quiet Trading
European bond markets experienced a narrow trading range yesterday, with only a slight upward trend of 2bp across the curve. The US market was closed for Columbus Day, and with no major data releases, traders are eyeing Thursday’s ECB meeting. The front-end pricing for the ECB remains unchanged, predicting a 23bp increase for October and a cumulative 150bp by the end of 2025. Meanwhile, Bund-ASW spreads hit new lows at 22.3bp.
US Dollar Outperforms, ZAR and NOK Weaken
The US dollar had a strong start to the week, outperforming other major currencies, while the South African rand (ZAR) and the Norwegian krone (NOK) traded weakly. EUR/USD dipped below 1.09, and EUR/NOK approached 11.80. USD/JPY remained just below 150, while EUR/GBP set new weekly lows amid speculation of an aggressive rate-cutting cycle from the Bank of England. Finally, the EUR/SEK exchange rate continues to hover in the mid-11.30s, maintaining itsrecent range.
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