The oil price appears to be driven by a combination of high supply

Movers

• In the UK, it is time for the BoE’s January meeting. As expected, the BoE took a dovish stance at the December meeting due to a combination of a poor risk environment and the lower oil price, which has lowered the inflation outlook. Not much has changed. The oil price is still dropping, risk appetite is still poor and activity data have been weak. The pressure from the strong GBP, however, has eased as it has weakened significantly. Overall, we expect the Bank Rate, the stock of purchased assets and the vote count to be exactly the same as in December. We expect the first BoE hike in Q2 16 (probably in May) but the recent developments, both economically and in the financial markets, mean that the BoE is not in a hurry to follow the Fed’s lift-off despite strong developments in the labour market, in our view.

• In Germany, real GDP growth in 2015 is due for release, which will implicitly give us an idea of how the German economy performed in Q4 15.

• We expect the Polish central bank to leave the policy rate unchanged at 1.50% at today’s meeting.

• Fed’s Bullard (voter, hawkish) is speaking today.

• December CPI- and CPIF data are released in Sweden. Our forecast (see calendar) is 0.1 ppt below the market average and 0.2 ppt below the Riksbank's projection. For more details see Scandi Markets.

Selected Market News

Focus is still on anxiety in the markets as they do not seem to have calmed down yet despite strong trade figures from China yesterday. While most of the European stock markets were up yesterday, the initial gain in the beginning of the trading session was almost entirely gone by closing time. The US stock markets closed in red. At the time of writing, stock markets across Asia are down. The somewhat soft US Beige Book did not help to reduce market concerns as it suggested that the US economy was slowing down by the end of 2015 despite the strong job reports.

The oil price took another hit yesterday and Brent briefly went below USD30 per barrel, the lowest since April 2004. The oil price appears to be driven by a combination of high supply and growing concerns over the global economy.

It is noteworthy that US 5y5y breakeven inflation has been trending downwards the past 10 days and is currently at 1.705, the lowest since the crisis. Lower inflation expectations have become an increasing concern for some FOMC members and this could likely affect the rate path this year.

There have been multiple explosions in central Jakarta, Indonesia. So far six people are reported killed but this number will probably rise. Rumours are that there are 14 attackers.

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