Fed remains on track for December hike

Market movers today

  • In Norway, inflation data for October is due out. We estimate core inflation slowed to 1.8% y/y, from 1.9% y/y in September. For more see Scandi markets overleaf.

  • In the UK, focus remains on Brexit, where we have seen mixed signals on whether the UK Cabinet is about to reach an agreement on the UK's backstop proposal (backstop is the solution to avoid a harder border if negotiations on the future relationship breaks down). Besides this, we are due to get the monthly GDP figure for September (and hence the first full estimate for growth in Q3), which we estimate rose 0.1% m/m. We believe it is likely GDP grew 0.6% q/q in Q3.

  • In the US, preliminary consumer confidence from the University of Michigan is due out in the afternoon.

 

Selected market news

The positive risk sentiment in financial markets seen earlier this week did not last long. Asian stock markets fell 1-2% overnight, while the USD stayed strong and the 10Y US yield continues to trade around this year's peak of 3.23%. The oil market sold off further yesterday, with the price of Brent crude falling below USD71/bbl.

Chinese inflation data for October was published overnight. It came in roughly as expected 6 PPI was 3.3% y/y, down from 3.6% y/y in September, and CPI was 2.5% y/y, unchanged from the previous month. Hence, inflationary pressures remain muted in the Chinese economy and do not constrain the People's Bank of China from keeping an easy stance on monetary policy.

Money-supply growth in Japan is also worth keeping an eye on. Both growth in M2 and M3 money supply slowed in October to 2.7% y/y and 2.3% y/y, respectively.

Finally, the Reserve Bank of Australia kept monetary policy unchanged but signalled that higher rates are to come amid a sound economy but downplayed the likelihood of a near-term move.

As expected, the Fed stayed on hold today and made no major change to the policy signals in the statement, which means the Fed is still on track to hike rates again in December. A few in the market had speculated that the Fed would cut interest on excess reserves (IOER) by 5bp at this meeting, as the effective Federal funds rate had crept higher leading up to the meeting. However, the Fed could instead make an adjustment hike of 15-20bp of IOER in December following a widely expected 25bp hike of its target rate (see FOMC Review 6 No change to the Fed's hiking plans , 8 November).

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