ECB and Fed continue to be in the spotlight

Market Movers

• ECB and Fed continue to be in the spotlight ahead of their important meetings in December. There are several speeches scheduled for today and we will listen carefully for any comments on monetary policy.

• It could be that the ECB account from the latest meeting will attract some attention. The information level of the minutes has in general not been high but Mario Draghi was very dovish at the press conference and we may (or may not?) get some details.

• UK retail sales in October are due. Overall, retail sales should not be over interpreted as they account for less than 6% of GDP but markets seem to follow them. Retail sales were very strong in September due to the hosting of the Rugby World Cup and thus we will likely see a downward correction. We look for a decline of 0.7% m/m.

• Initial jobless claims in the US are estimated to have stayed more or less unchanged around 275,000. This is a low figure suggesting that the slack in the labour market has almost vanished. Multiple FOMC members have said that we have or are close to have met the full employment criteria.

• Today unemployment figures in Sweden are due, see Scandi Markets.

Selected Market News

The minutes of the 27-28 October FOMC meeting were more or less as expected and thus the market reaction was limited, see FOMC minutes: Outdated due to the strongjobs report – December hike seems very likely, 18 November. Due to the very strong jobs report for October we think a December hike is more or less a done deal and thus the FOMC minutes were in fact already outdated even before publication. The reason why the FOMC included a sentence stating that it would assess whether it was ‘appropriate to raise the target range at its next meeting’ was that the FOMC wanted to keep ‘policy options open for the next meeting’. The minutes reveal that most FOMC members think the domestic part of the US economy has been quite robust to the negative external shock.

We expect four additional hikes in 2016 corresponding to a hike every other meeting, i.e. in total five hikes from now until year-end 2016. This is in line with the latest Fed’s median projection from September but more hawkish than market pricing. The market prices in total three hikes from now until year-end 2016.

As expected, Bank of Japan kept its monetary base target unchanged at JPY80trn despite inflation being weak and Japan being in recession. We expect Bank of Japan to stay on hold until 2017 as the relatively complacent stance from the BoJ suggests that the bar for additional easing is ‘very high’. The statement says that ‘Inflation expectations appear to be rising up [...]’ and ‘Japan’s economy is expected to continue recovering moderately’. We agree with the latter as we should see some stabilisation in exports due to the expected rebound in China. GDP growth in Japan should also be supported by a moderate uptrend in private consumption and capex. The next BoJ meeting is on 17-18 December.

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