Politics In The Limelight‏

Market Movers ahead

The deadline for a US budget deal for FY 2014 is Monday evening, and the risk of a government shutdown from Tuesday has increased.

We expect a significant rebound in US job growth in August, which raises the question of how much is needed for the Fed to start tapering.

At Wednesday's ECB meeting focus will be on Draghi's comments on a possible new three-year LTRO.

Global PMIs will be in focus and we expect to see improvement in China and the euro area. In the US the ISM manufacturing is likely to stay flat after the spike over the past two months, while we expect a minor decline in Japan.

The Japanese government is likely to announce that the sales tax will be increased as planned next year. We expect Bank of Japan to remain on autopilot and to not reward the government's fiscal tightening with further stimulus at the policy meeting.

Global macro and market themes

This week we generally had more decent data with strong Chinese PMI, a rise in euro PMI and a decline in US jobless claims. Nevertheless, stock markets failed to gain.

We now see a rising probability that we are in for a bull market correction in which stocks could decline around 5% lower. The US budget and debt issues are in focus, and we see an increasing likelihood of a government shutdown next week.

US 10-year yields are heading for the lower end of the 2.5-3.0% range, which we expect for the rest of the year. Also, the political mess in the US could add to the downward pressure.

Our medium-term positive view is unchanged as the global recovery is expected to gain steam in coming months. On average, data received last week confirm this view, but interest rate increases are weighing on US housing.

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