Market movers today
Market focus will continue to be on Italy and the official release of the Italian growth, debt and deficit projections for 2019 , which were supposed to have been released yesterday. Last night, the Italian government said that they have reached an agreement that the budget deficit will be 2.4% of GDP in 2019, which is well above market consensus and in the upper end of our 2.0-2.4% of GDP range.
In the euro area , HICP figures for September are due today. In August, headline inflation fell to 2.05% y/y and we expect the September print to slow further to 2.01% y/y, still driven by a lower contribution from both food and energy prices. Although we saw negotiated wages pick up in Q2, core inflation disappointed at 0.96% y/y in August from 1.07% y/y in July and we expect September's figures to linger at 0.97% y/y, as the feed through from higher wages materialises only gradually. However, there might be upside to today's number after the higher-than-expected German inflation number yesterday.
In the US , PCE core inflation numbers for August are due today. Based on CPI, which rose less than expected last month, we expect PCE to rise +0.1% m/m, which leaves y/y unchanged at 2.0%.
Danmarks Nationalbank will release data on foreign portfolio investments and securities statistics for August.
Selected market news
The Italian government said last night that it has reached an agreement that the budget deficit will be 2.4% in 2019. It is well above market consensus, which was probably around 2% or maybe even lower after the comments over the last week from FM Tria. It was also in the upper end of our own 2.0-2.4% range.
Importantly, it is also above the assumption used by Fitch when Italy was put on negative outlook. A one-notch downgrade by Fitch will now be difficult to avoid. Moody's also has a lower assumption and has Italy on 'negative watch', and could come out anytime (deadline end of October) with a potential downgrade. At the time of writing we have few details, but it seems that several of the many election promises have been fully or partly fulfilled. Hence, it might indicate that the 2.4% estimate is in fact too optimistic. We will probably get the official Economic and Financial Document today.
2.4% is of course well below the important 3% EU limit. But few expected that Italy would dare to breach the 3% level. Hence, we should expect quite a negative opening for BTPs this morning. Adding to the negative sentiment will be that it is hard not to see this as a clear sign that the 'market-friendly' FM Tria has been pushed aside.
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