The ECB minutes released yesterday

Market Movers

• There have been several ECB and Fed speeches this week and today is no different. We continue to listen carefully to what the ECB and FOMC members have to say. Most important is the speech from ECB President Mario Draghi at 09:00 CET.

• An otherwise quiet day today. We expect consumer confidence in the euro area to continue its falling trend as the boost from the lower oil price has been factored in. Note that although consumer confidence has been trending downwards since March 2015, the indicator is still the highest it has been for several years.

• The Netherlands and Greece are up for review by the rating agencies.

• Danish consumer confidence is expected to be more or less unchanged.

Selected Market News

There has not been much important market news out during the night and the morning. US stocks moved sideways and Asian stock markets are mixed. Nikkei is slightly down, while China is flashing green. Commodity prices remain under pressure. Copper trades around 208, the lowest since 2009. Brent oil is at USD44.3/barrel, a level that does not help boosting inflation next year. Nickel trades around its lowest level since 2003. Gold is around a 5-year low.

As usual, the ECB minutes released yesterday did not reveal any news of significance. In speeches, the most important ECB members continue to stay dovish and do not seem to want to play down expectations. We expect the ECB to make a ‘package’ of easing measures. We think the ECB will cut the deposit rate from -0.20% to -0.30%, reintroduce forward guidance, extend its QE programme by three months from September 2016 to December 2016 and increase its monthly purchases from EUR60bn to EUR75bn.

Fed members continue to signal that a hike seems very likely in December. Yesterday Fed Vice Chairman Stanley Fischer said that the Fed has ‘done everything’ it could ‘to avoid surprising the markets and government when we move’. Initial jobless claims released yesterday showed that the labour market continues to do well. Lockhart said yesterday that he is in favour of a ‘gradual’ increase in the Federal funds rate, ‘not every meeting. Beyond that, it is difficult to predict what it would look like exactly’. We expect the Fed to start the normalisation process in December and then hike four times in 2016 (i.e. 5 in total from now on and until year-end 2016) corresponding to a hike every other meeting. The markets only price in three hikes from now until year-end 2016, i.e. two additional hikes next year if the Fed hikes in December.

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