Asian equity markets are generally up this morning following gains in European and US markets yesterday. Minutes from the November US Federal monetary policy confirmed that policymakers now favour slowing the pace of US interest rate increases. China signalled the likelihood of more monetary policy stimulus including a probable cut in banks’ reserve requirement ratios. US markets will be closed for the Thanksgiving holiday today.
Yesterday’s November UK PMI data showed both manufacturing and services headline indices still stuck below the key 50 level that signals a contraction in activity. Manufacturing output declined at a faster pace than services and with overall volumes of work down for the fourth month in a row and export orders particularly weak there appears little prospect of a near-term rebound. Today’s November update for the CBI industrial survey will provide another timely update on the factory sector and the message is expected to be the same. Orders are predicted to have slipped for a fourth successive month signalling continued downside risks for the sector.
The German IFO survey for November is expected to have posted another weak reading for the current situation index with its level likely to remain close to October’s nineteen month low. However, on a more optimistic note it will be interesting to see if the expectations component improves for a second successive month, on the back of the recent fall in wholesale gas prices which offers hope of an easing in energy prices.
Sweden’s Riksbank is likely to raise interest rates for the fourth successive time this morning, following up on September’s 100 basis point hike with a 75bp rise. The central bank is also expected to raise its forecast for the level at which rates will peak but more positively it may signal that the end of the tightening cycle may not be far off.
The minutes of the European Central Bank’s October policy meeting will be watched for any clues on what is planned for the next update in December. The market expectation is that after two successive interest rate increases of 75bp it will next opt for a smaller rise of 50bp. However, ECB policymakers face a major dilemma because while the weakening activity picture certainly points in that direction still elevated inflation numbers certainly do not. In the UK, three Bank of England policymakers are scheduled to speak, and their comments may provide new clues on how much further UK interest rates are likely to rise.
US bond yields continued to slide yesterday helped by mixed economic data and the confirmation in the Fed minutes that the pace at which interest rates are hiked is now likely to slow. UK gilt yields also fell with 10-year yield touching below 3% for the first time since early September. In currency market the US dollar depreciated further against both the euro and sterling.
