Stocks Slip on U.S. Tax Cut Delays

Bund and Gilt futures continue to head south, stock markets tried to move higher in early trade, but both FTSE 100 and DAX are in negative territory again, after already selling off yesterday. The 10-year Bund is up 1.3 basis points at 0.39% and the Gilt yield up 3.1 basis points at 1.29%. The dollar has found its feet after yesterday’s tumble on new of a U.S. tax cut delay and more limited scope of some planned cuts. China outperformed and stocks had the best week in three months, after an announcement that limits on foreign ownership of Chinese banks and asset managers will be removed. And while Chinese investors also propped up Hong Kong markets, elsewhere in Asia equities mostly declined, with Japan leading the way, following on from declines on Wall Street in Europe on Thursday.

The UK’s trade deficit narrowed in September data, by GBP 700 million, to GBP 2.75 billion. August’s trade gap was also revised lower, to GBP 3.45 billion. The data are better than expected. An increase in exports to Europe, predominantly of cars, offset a drop in exports to non-EU economies. The total trade deficit for Q3 still widened, to GBP 9.5 billion, although the underlying trend, ex erratic goods, is improving as a consequence of improving global growth and the weaker post-Brexit vote pound.

UK Production Data Beat Expectations

UK September production data beat expectations for the second successive month, with the headline industrial output figure rising 0.7% month over month and by 2.5% year over year. The respective median forecasts had been for 0.2% and 1.8%, and August data were revised upward, to 0.3% month over month and to 1.8% year over year. This is the fourth consecutive month of rising output. The narrower manufacturing production also rose by 0.7% month over month, easily beating the median forecast for 0.3% expansion. Production rose by 1.1% quarter over quarter in Q3, driven by strong production levels of cars and medical equipment.

ECB guidance doesn’t allow rate hike before 2019 according to Nowotny. The Austrian central bank had stressed that the ECB’s guidance to keep rates low until well after the end of asset purchases, means that “realistically speaking, from this perspective, there will only be a change in interest rate policy in the year 2019”. Nowotny also said that he “absolutely” agrees with Weidmann on the need to net asset purchases, saying that officials should center their attention on ending net purchases.