US Recovery Loses Momentum Short-Term‏

Market Movers ahead
With the end of the government shutdown in the US the calendar will return to normal. The September employment report will be released next week. The data should be undistorted and we expect a decent report.

In the euro area a number of important soft data are due for release with PMIs as the most interesting - we expect further signs of a brighter economic outlook.

We have revised our forecast for Q3 GDP growth in the UK upwards to 0.7% q/q. Minutes from Bank of England's October meeting are due for release.

Chinese flash HSCB manufacturing PMI is expected to have improved slightly.

Japans CPI figure might emphasise that it will be very difficult for Bank of Japan to reach its 2% inflation target.

In the Scandi sphere focus will be on monetary policy decisions in Sweden and Norway. We expect both central banks to keep their interest rates unchanged.

Global macro and market themes
US politicians struck a last-minute debt deal but some damage to US activity has already been done. Combined with this year's sharp fiscal tightening and significant rise in bond yields, this could leave H2 growth clearly weaker than expected.

Fed tapering is likely to be pushed into next year and our baseline scenario is now the 29 January meeting. A later tapering is already pretty much priced in our view.

The postponement of Fed tapering helps risk sentiment. The recovery of Chinese growth should also support risk assets - and Emerging Markets.

The news coming out of Europe is still quite encouraging and we continue to see clear upside risk to euro area growth relative to the consensus expectations.

We expect US bonds to continue to outperform Germany, as the euro area continues to recover while the US is stuck at a low growth track in the short term.

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