The oil price dropped substantially
|Market movers today
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All eyes will be on the FOMC meeting tonight . It hasn't become less exciting after the recent market rout and US President Donald Trump's frequent expressions of clear dissatisfaction with the rate hikes. Despite the recent decline in US stocks a rate hike is widely expected. Focus will instead be on the Fed's projections (the dot plot) for 2019 and the language in the statement. The market is currently priced for less than one hike next year, and even if the Fed softens the rate path and the language, we believe they will be perceived as hawkish compared to market pricing. See also FOMC Preview - Fed set to hike again but removing more forward guidance , 14 December 2018.
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In the UK inflation for November is expected to decline slightly from 2.4% to 2.3% (consensus). On core inflation consensus is a decline to 1.8% y/y from 1.9% y/y in October.
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Sweden releases confidence indicators for both consumers and businesses, see page 2.
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The Bank of Japan ends its two-day monetary policy meeting early Thursday morning European time. We expect the Bank of Japan to keep its 'QQE with yields curve control' policy unchanged.
Selected market news
US stock markets stabilised yesterday and closed with minor gains after past days' sell-offs. Trading is mixed in Asia this morning as investors await the FOMC tonight.
The oil price dropped substantially yesterday and Brent oil touched USD 56/bbl for the first time since October 2017. The decline in the oil price appears to be driven by a combination of supply and growth concerns. The latter clearly also represents a supporting factor for the rally in global fixed income markets where the 10-year US Treasury yield declined 4bp yesterday to the lowest close since May at 2.807%, while the 10-year Japanese government bond yield has dropped to around 0.01% this morning.
The Italian government has made a deal with the EU Commission on the budget for 2019 . The new budget reduces the deficit to 2.04% and according to Italian officials there has been a technical agreement on the budget. We still need an official statement from the EU Commission, but that should come today. This leaves room for more convergence between Italy and the core-EU markets.
US Treasury Secretary Steven Mnuchin last night said that the US and China are planning to hold trade talks in January in order to try to make an agreement before the current tariff truce runs out on 1 March next year. We continue to look for a deal between the US and China within next 3-6 months. See China Weekly Letter - Improvement in Trade War, deterioration in Tech War (14 December).
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