US personal spending is expected to drop to 0.1%

Market movers today

• We now expect euro-area HICP to remain unchanged at this cycle low of 0.3% in October. Our updated forecast followed after German inflation surprised by declining to 0.7% in October. The weaker-than-expected figure seemed to reflect a decline in inflation on clothing and shoes, whereas the impact from the decline in the oil price was more modest.

• The unemployment rate in the euro area should stay unchanged at 11.5%. In Germany the latest weakness in economic activity has not dragged down the unemployment rate and we expect the euro-area figure to remain unchanged.

• In the US PCE for September is released and our model predicts 0.1% m/m for core PCE, meaning the yearly change continues to be 1.5%. Last week core CPI rose less than expected, which might contribute to a downside risk to the PCE. US personal spending is expected to drop to 0.1% (m/m) in September from 0.5% in August. In line with the GDP figure for Q3 released yesterday, this would confirm some moderation in consumption growth after strong spending in the past months.

• In Norway it is time for labour market numbers and the credit indicator - see page 2.

Selected market news

Bank of Japan had its policy meeting overnight and it surprised the market by saying it will lift its monetary-base target to JPY80trn from previously JPY70trn. The main reason for the step up in asset purchases is the continued downward pressure on inflation. The jump in asset purchases from BoJ has at the time of writing pushed Nikkei up by 4.5% and USD/JPY is now trading at the lowest level in six years. The BoJ move highlights the divergence between BoJ and Fed monetary policy and underlines that the cross has more upside going forward. Yields on JGBs have turned lower.

Another big story in Asia overnight has been that Japan’s public Pension Fund, GPIF, later today will announce its new asset allocations. According to media reports the target for stocks will be raised to 25%, the domestic debt allocation will be reduced to 35% from 60% and overseas holdings will be increased to 15%. All in all, foreign investments are to be lifted from 23% to 40% according to the Japanese newspaper Nikkei. If the media reports are correct, the foreign holdings are somewhat higher than expected in the market.

The market in the US continued to digest the new message from the Fed but also focused on the stronger-than-expected Q3 GDP report that showed a 3.5% annualised growth rate in the quarter (3.0% expected). The weekly claims data also pointed towards a further improvement in the labour market. The news was in line with the Fed view that the economy is improving, however, the move in US yields was modest. From the beginning of the session US treasuries were supported by the low inflation data out of the euro area that pushed German 10-year yields 5bp lower during the day.