Hurly burly month ends on positive note

October 31, 2018

Hurly burly month ends on positive note

Market movers today

In the UK, we do not expect any policy changes at today's Bank of England (BoE) monetary policy meeting. However, attention will be on the accompanying Inflation Report, the minutes and Governor Mark Carney's press conference.
In Sweden, PMI manufacturing numbers for October are due.The index stood at 55.2 last month and we expect the number to fall below that, especially in light of falling export orders and last week's decline in both Germany and euro Area PMIs.
In Norway, we will also get PMI manufacturing numbers , where contrary to Sweden, we expect a small increase to 56.0 from 55.7 last month due to positive signals from other leading manufacturing indicators and a positive outlook on ICE Brent.
Finally, in the US, ISM manufacturing data is due. We flag that this number has been too high compared to reality for the past couple of years. Therefore, focus should be on Markit PMI, which rose to 55.9 in October compared to 55.5 in September, to gauge US growth.

Selected market news

Stock markets ended a miserable month firmly in the black. Stoxx Europe 600 gained 1.7% and the S&P 500 closed up 1.1%, with tech stocks in the vanguard. Asian equity markets followed suit, Treasury yields edged up slightly and the dollar traded flat.

Positive Brexit news. Overnight, UK Brexit Secretary Dominic Raab posted a letter, stating that UK banks will continue to have access to EU markets post Brexit and that a deal may be reached as soon as 21 November.

Eurozone core inflation rose back to 1.08% in October , driven by higher service price inflation. Headline inflation rose to 2.21% from 2.07% in September, much of it again driven by higher energy price inflation. On balance, yesterday's stronger core inflation print is encouraging news for the ECB after recent inflation and growth downside surprises, although underlying inflation pressures still fail to show Draghi's 'vigorous' pickup despite accelerating wages. Therefore, we continue to hold the view that the ECB s core inflation forecast especially for 2019 (1.5%) and 2020 (1.8%) remains on the optimistic side that and downward revisions for 2018 are in store.

China's leadership pledged to act after China's economy exhibited further signs of weakness as the official manufacturing PMI fell to its lowest level in two years. See the article in Xinhua . The official manufacturing PMI dropped to 50.2 (consensus: 50.6) in October from 50.8 in September. Especially new export orders were very weak highlighting the negative effect of the trade war with the US. We look for more weakness in coming quarters before a rebound next year when the stimulus kicks in more, and we expect to see a trade deal at some point in 2019.

US ADP came in strong at 227,000 jobs. However, the historical relationship between ADP and non-farm payrolls has deteriorated in recent years.