ECB: Not only a question of liquidity

We expect the US employment report on Friday to be soft, but driven largely by one-offs related to the government shutdown. On balance, ECB dovishness and a resilient US labor market imply a downward trend for EUR/USD.

Meanwhile, risky assets have been broadly stable to begin the week on better news about global growth. The details of the US factory orders report were positive for our Q3 GDP tracking estimate, now at 2.2%. Later today, we look for an increase in the nonmanufacturing ISM to 55.0 in October in US. In China, Service PMI rose to 52.6 in October, from 52.4. However, our economists still expect softening momentum in industrial data coupled with high inflation later in the week.

Elsewhere, the UK construction PMI reached a multi-year high, confirming the strong momentum in the housing sector. The final eurozone manufacturing PMI was unchanged from the flash reports, with a slightly better reading for Germany offset by minor slippage elsewhere. And in emerging Europe, manufacturing PMI prints across the region point to a growth rebound. An improving trend for global growth will continue to support cyclically linked assets by way of a better earnings outlook.

US Q3 earnings remain on a solid footing. With 70% of the S&P 500 companies having reported earnings, our earnings scorecard shows a higher proportion of companies beating earnings expectations than the previous week. Our equity research analysts are less optimistic than consensus expectations for companies releasing results over the next 30 days, however.

The RBA was more explicit about its desire to see a lower AUD in its statement today, consistent with our view that the central bank has a low tolerance for further currency strength, in the context of an uncertain economic outlook. Inflationary pressures remain benign in Asia, as both Taiwan and Philippines CPI surprised on the downside.

European equities have largely shrugged off apparent headwinds, which include a strong EUR. The strong EUR appears to have dented eurozone earnings despite the recent cyclical improvement in the macro data, but we do not see a clear effect of the EUR across the sectors that are exposed to it, or when using regression analysis over the past 10 years