Housing data also in focus in the US today

Good morning,

• BoJ stands pat after last month’s surprise stimulus efforts;

• BoE minutes more hawkish than Carney comments last week;

• FOMC minutes to elaborate on hawkish statement a few weeks ago;

• Housing data also in focus in the US today;

• Oil prices remain under pressure ahead of next week’s OPEC meeting.

The trading day is being dominated by central banks on Wednesday as the Bank of Japan stands pat following last month’s surprise stimulus and the Bank of England minutes show members to be more hawkish than expected. Still to come we have the FOMC minutes from the previous meeting which as always has the potential to really shake things up in the markets.

The BoJ’s decision to leave monetary policy unchanged came as no surprise to the markets, despite seeing significant weakness in the data over the last week. Policy makers clearly anticipated these figures at the meeting a month ago when they increased the monetary base to ¥80 trillion and therefore there was no need to act again today. Whether they’ve done enough remains to be seen but I think it would be ridiculous to overreact at this stage. It can’t come as a massive surprise that the economy fell into recession when the same thing happened last time there was a sales tax hike and the same will probably happen again in 2017.

The minutes from the BoE meeting a couple of weeks ago came as more of a surprise as they didn’t appear to support the views expressed by Governor Mark Carney at the quarterly inflation report press conference. Carney had suggested that inflation will fall below 1% for some time and only return to 2% in three years, which appears to go against the comments in the minutes. The minutes show some of the seven that voted against a rate hike highlighting the risk of inflation overshooting the 2% target and a tight labour market leading to wage growth soon which could boost CPI pressure. Once again we’re getting mixed messages from the BoE but I think right now, the markets are more inclined to agree with the views of Carney last week and many are moving back their rate hike expectations to the end of next year at the earliest.

Next up we have the minutes from the FOMC meeting a few weeks ago. The statement that was released alongside the decision a few weeks ago was erring on the hawkish side, with the FOMC appearing more optimistic on the economy and the labour market. They also gave the impression that they don’t envisage low inflation being a problem, as is being experienced in many other parts of the world, which I would imagine makes a rate hike more probable. The minutes today should elaborate more on this but I imagine investors will go into this expecting more hawkish comments from the Fed, which when Janet Yellen is at the helm tends to be a little dangerous.

On the data side, we’ll get some housing data early on in the US session, with building permits and housing starts for October and MBA mortgage applications for the week to November 14 being released. Both building permits and housing starts have been pretty steady over the last year or so, but remain well below the levels seen before the financial crisis. As it stands, we’re seeing no signs of this changing and I think the markets will be content with the status quo for now, which is what is expected.

We’ll also get the latest crude oil stocks data from EIA today, although I’m not convinced we’ll get the usual reaction to it. Oil prices have been declining for a long time now and remain very heavy despite consolidating a little as of late. I think people are more focused on OPEC’s reaction to the decline next week though and whether production will be cut in an attempt to support prices.

The S&P is expected to open 3 points lower, the Dow 20 points lower and the Nasdaq 3 points lower.