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Here are the top five things you need to know in financial markets on Monday, October 17:
1. U.K. borrowing costs hit post-referendum high on Brexit strife
Ten-year gilt yields (British sovereign bonds that mature in a decade’s time) rose on Monday to their highest level since the U.K. voted to leave the European Union (EU), known as a Brext.
The increase in yields reflects a sell-off of British sovereign debt as borrowing costs rise when prices fall.
The market reaction comes as British newspapers’ front pages show a clash between U.K. finance minister Phillip Hammond and his colleagues over how to proceed with the negotiations with the E.U. over the U.K’s exist from the group.
2. Markets still look towards December for Fed rate hike despite Yellen
Federal Reserve (Fed) chair Janet Yellen suggested on Friday that the Fed might be willing to temporarily run a “high pressure economy” in remarks that were taken by analysts to be it would be possible to allow inflation to run over the 2% target, in what could reduce pressure for a quick return to policy tightening.
Still Boston Fed president Eric Rosengren, who preferred a 25 basis point hike in September, said on Sunday that he would be “comfortable” with an increase in November.
Most analysts think a move next month is unlikely since the policy announcement comes just six days before the U.S. presidential elections.
Markets too appear to think the possibility is off the table with just a 7.2% chance. However, odds for a December hike stood at 73.6% on Monday, according to Investing.com’s Fed Rate Monitor Tool.
3. Focus on data for rate hike expectations
U.S. inflation data will also be in the spotlight Tuesday, as investors attempt to gauge if the world's largest economy is strong enough to withstand an increase in borrowing costs before the end of the year.
Market analysts expect consumer prices for September to ease up 0.3%, while core inflation is forecast to increase 0.2%. On a yearly base, core CPI is projected to climb 2.3%.
On Monday’s light economic calendar, investors will focus on the strength of activity in the manufacturing sector.
At 8:30AM ET (12:30GMT), the NY Empire State manufacturing index for October will be released, followed by the national readings of manufacturing and industrial production for September at 9:15AM ET (13:15GMT).
4. Global stocks mostly lower ahead of busy week
Asian stocks closed mostly lower on Monday with the Nikkei 225 bucking the trend as the Bank of Japan gave an upbeat outlook on regional economies. China was looking ahead to third quarter gross domestic product on Wednesday.
European stocks traded lower on Monday while evaluating the growing possibility of a rate hike by the Fed and while waiting for the European Central Bank (ECB) to announce its own policy decision on Thursday, with most of the focus likely to be on president Mario Draghi's press conference 45 minutes after the announcement. The ECB is not expected to move on rates, but Draghi could offer fresh clues on the time frame of its €80 billion monthly asset-buying program, due to run out in March.
Meanwhile, U.S. futures traded lower as investors looked ahead to a week replete with company earnings. Over 80 firms from the S&P are slated to report quarterly numbers this week. At 6:15AM ET (10:15GMT), Dow futures lost 52 points, or 0.29%, S&P futures fell 7 points, or 0.31%, while the Nasdaq futures traded down 18 points or 0.38%.
5. Oil down on concerns that ramped up U.S. production could worsen global supply glut
Oil prices traded lower on Monday as concerns that U.S. producers were increasing output even as skepticism reigned over the ability of OPEC to reach a meaningful agreement on curbing production at their meeting in November.
A report on Friday by oil services provider Baker Hughes showed U.S. drillers added four rigs in the week to Oct. 14. It was the 16th week in a row that oil drillers had gone without making cuts, indicating more production to come.
U.S. crude futures lost 0.28% to $50.21 by 6:35AM ET (10:35GMT), while Brent oil slipped 0.08% to $51.91.