October 28, 2022 7:32:18
Asian equity markets are mostly lower this morning following on from a decline in the US S&P index yesterday. Disappointing earnings reports by tech companies may be at least partially tempering the recent bullish mood in global equity markets. Reports that US Treasury Secretary Yellen said that US inflation was “unacceptably high” and that she was not seeing any signs of a US recession may have dampened of an early ‘pivot’ on interest rate policy by central banks around the world. Hopes on this had been boosted earlier yesterday by what was seen as a more ‘dovish’ than expected European Central Bank policy update despite its latest 75 basis points interest rate hike.
There are no UK economic releases today but elsewhere it’s a busy end to the week. For the Eurozone, data on October business confidence will provide a further update on near-term trends. October PMI data released earlier this week suggested that activity in both the industrial and service sectors has fallen this month and consistent with that we expect confidence to have slipped in both.
Also in the Eurozone, October CPI and Q3 GDP releases for some of the larger countries will provide hints on the likely outturns for Monday’s data for the overall region. Inflation is expected to be a mixed bag with the annual rates expected to be up from September in France and Italy, down in Spain and little changed in Germany. Overall, they are likely to show that inflationary pressures remain elevated. GDP outturns may also be mixed. France and Spain are forecast to have grown modestly in Q3, but German GDP likely fell. Moreover, its contraction is predicted to accelerate in Q4 suggesting that Germany is falling into recession.
In the US, September consumer spending data will have been included in yesterday’s GDP release. That saw a rebound in GDP in Q3 after falls in Q1 and Q2, partly driven by a pickup in consumption, which should be confirmed in today’s numbers. The report will also contain the Fed’s preferred inflation measure, the PCE deflator, which is expected to show a rise in both annual headline and core inflation in September compared to August. That will likely reinforce expectations of another 75 basis points rise in US interest rates at next week’s Federal Reserve policy update. Also, of particular interest to the Fed will be the Q3 employment cost index, which is expected to show wage pressures remaining a concern.
Global bond yields continued to fall yesterday with UK yields again down particularly sharply. However, US Treasury yields have risen overnight. Sterling has slipped against both the euro and the US dollar overnight but is still up on the week.
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