FOMC minutes and the global equity rally

Market Movers

• It's a very thin calendar today with only tier-2 data. French industrial production is expected to rebound 0.6% m/m in August after a big drop in July of 0.8% m/m.

• This afternoon, US release import prices and the Fed's Lockhart (voter, dove) will speak. Later tonight, the Fed's Evans will speak as well (voter, dove).

• In Denmark, current account figures are due. In Sweden, the Riksbank’s Business Survey will shed light on whether retailers will raise prices on the back of higher import costs. In Norway, inflation figures are due which, however, are less important than usual, as Norges Bank accepts inflation above the 2.5% target. For more details please see Scandi markets, page 2.

Selected Market News

FOMC minutes from the September meeting showed a greater concern on the inflation outlook and confirmed that although the domestic economy is in good shape, the US economy is facing headwinds from China and emerging markets. The FOMC thought ‘it was prudent to wait for additional information confirming that the economic outlook had not deteriorated and bolstering members’ confidence that inflation would gradually move up toward 2% over the medium term’. The FOMC thinks that the recent turmoil is ‘likely to put further downward pressure on inflation in the near term’. Despite some members stating that they still see a lift-off later this year, we think the minutes support our view that the first hike will be pushed into the beginning of next year. We expect the first hike in January.

The stock markets reacted well on the FOMC minutes and the global equity rally continued. US stocks closed higher and Asian stocks are up this morning. The weaker USD has been good for emerging markets currencies, which have appreciated recently. CNY was again fixed lower at 6.3493 (from 6.3503) on the back of the weaker USD.

Oil prices continue to rise supported by signs of increasing oil demand and the weaker USD. Currently, Brent oil is trading around USD53.8/barrel, which is nearly eight dollars (or 12%) higher compared with last Friday. If the oil price stays at this level, it would be a helping hand for many central banks as this would boost inflation at the beginning of next year when the base effects from the oil price drop in early 2014 begin to fall out of the consumer price indices.

Initial jobless claims in the US fell to 263k from 276k and thus continued the downward trend. Lay-offs do not appear to have picked up (yet?) despite the very weak job report in September, which showed that hiring has slowed. The US labour market still seems to be in good shape and the unemployment rate is likely to crawl below NAIRU soon.

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