Indian Central Bank acts
Another emerging market central bank has acted to loosen policy overnight. Pressure from falling demand, lower commodity prices and a rampant US dollar have made 2015 a difficult year for emerging markets and the decision by the Reserve Bank of India seems entirely justified.
Rates were cut to a 4 year low this morning with the repo rate now down to 6.75%. The 50bps cut will allow some stimulus to creep into the economy, alongside some increased sentiment around future policy certainty. While the RBI will not be sat there thinking that it has done its job, it can certainly call on the government to turn some fiscal taps on in the future if needed.
EM markets were quiet yesterday and will likely remain so until Thursday’s global run of manufacturing news.
Dollar higher on data and chatter
The back and forth of Federal Reserve policymaker speeches continued yesterday as both the Presidents of New York and San Francisco said that they expected rates to rise at some point this year. For all the transparency that these speeches are meant to bring, they have confused the issue before. December remains our bet despite the market probability of a hike on December 16th falling to 39.5% in the past 24hrs.
Dollar was also helped by a strong household spending number that climbed more in August than had been forecast. Alongside falling petrol prices and rising wages, this strengthens the backbone of the US economy; consumption. Next Monday will tell us if that has translated into the service sector although this may all be for nothing if Friday’s payrolls announcement is a dog.
Thankfully there are no Federal Reserve members due to speak today but we do have speeches from the European Central Bank’s Coene and Weidmann as well as Bank of England Governor Mark Carney.
EU for you?
Sterling will be listening closely to the two of the three Cs today as both Mark Carney and Jeremy Corbyn will be at the podium. The Labour Leader’s address to his party’s conference will be interesting for many reasons but from a markets point of view, some certainty or guidance as to his position on how he will instruct Labour MPs to vote on the EU referendum question stands front and centre. He speaks at 2.15pm BST.
In structured economic news we have the latest runs of German inflation and UK mortgage approvals to get through today. Mortgage approvals are interesting enough but I’ll be looking to see how many re-mortgages are happening now in anticipation of higher rates coming through in the next 12 months.