• ECB officials hint lower interest rates. It has become almost certain that the ECB will ease further at its December monetary policy meeting, extending the size or the duration of its QE program and even lowering further the deposit rate. ECB President Mario Draghi signaled at the Bank’s latest policy meeting that they stand ready to undertake further stimulus measures to counter downside risks to the outlook for growth and inflation. The question the markets faced at that time was which of the available instruments the Bank would use. However, according to a Reuters exclusive released on Monday, the question the markets face now is not what instruments will be used, as probably a combination of all of tools will be exploited, but how much the deposit rates will be cut deeper into the negative territory. Even though when the ECB lowered the deposit rate to -0.2% last year it said that it had reached its floor and could not go any lower, the debate among the policymakers suggests that there is no bottom to the deposit rate and it could still be lowered quite sharply. As market expectations build-up for a rate cut by the ECB and a rate hike by the Fed in the same month, the monetary policy divergence is likely to put further selling pressure on the EUR/USD.
• China’s consumer prices slowed more than expected in October, while producer prices extended their decline. The soft data suggest persistent deflationary pressure in Asia’s largest economy. CPI rose 1.3% yoy in October compared with 1.6% yoy in the month before, well below market expectations of +1.5% yoy. As for the PPI, it fell 5.9% yoy at the same pace as in September, marginally below the forecasts of -5.8% yoy. The weak inflation data stress the need for further easing by the People’s Bank of China (PBoC) and leave the door open for additional stimulus by the end of the year. In such case, Australia and New Zealand, whose economies are heavily dependent on exports to China could see their currencies gaining on the news. The advance however, is most likely to be short-lived as the impact of the PBoC easing on AUD and NZD is becoming lesser and lesser.
• Today’s highlights: During the European day, we get the CPI data from Norway. Norway’s inflation rate is expected to have risen to 2.2% in October from 2.1% previously. In its latest policy meeting, the Norges Bank decided to leave its benchmark interest rate unchanged and noted that the weaker-than-projected NOK, along with a more expansionary fiscal policy, contributed to fuelling demand for goods and serviced. Expectations of a rise in the CPI rate, are likely to confirm Norway’s central bank decision to remain on hold and this could support NOK a bit.
• In Sweden, the Riksbank releases the minutes of its latest policy meeting, when it kept its policy rate unchanged but expanded its bond purchases program. In the statement accompanying the decision, the Bank said that economic activity in Sweden is strengthening and inflation is showing a clear upward trend. However, it stressed that there is still considerable uncertainty regarding the strength of the global economy and central banks abroad are expected to pursue an expansionary monetary policy for a longer time. We will look into the minutes to get more clarification on how concerned the Bank is over these external factors and how ready it stands to ease further in the foreseeable future, in order to determine the near-term direction of SEK.
• From the US, we have the NFIB Business Optimism Index for October. Even though this indicator is not a major market mover, it is worth watching going into the December FOMC meeting because of the Fed’s emphasis on employment. Also, small businesses employ the majority of people in the US. Following the astonishing NFP figure for October, this indicator could attract more attention than usual. Wholesale inventories for September are coming out as well.
• We have three speakers on Tuesday’s agenda. ECB President Mario Draghi, Bank of England’s Deputy Governor Sir Jon Cunliffe and Chicago Fed President Charles Evans speak.