FOMC meeting takes centre stage

In focus today

• The main event today will be the FOMC's rate decision, where we and the broad market consensus expect a 25bp cut. With no new projections, all eyes will be on Powell's forward guidance, which we expect to remain vague. While markets price in a high likelihood of another cut in December, we do not expect the Fed to pre-commit at this stage. We expect the Fed to end QT for US Treasury holdings but continue QT for MBS. Read more in Reading the Markets USD, 28 October. Note that in Europe, the rate decision comes one hour earlier than usual (19CET/20EET) due to the US daylight savings time.
• In Norway, private consumption has seen a solid uplift this year, as expected given high real wage growth, low unemployment and some tailwind from lower mortgage rates. Fundamentals should continue to support private consumption, but current data suggests a moderate decline of around 0.3% in September.
• In Sweden, the GDP-indicator for September and Q3 should, as usual, be interpreted with caution. Consensus expectations for Q3 stand at +0.7% q/q and +1.6% y/y. Following an improvement in Q2, the economy appears to be trending upward after a long period of sideways development.
• Overnight, US President Trump and Chinese President Xi are set to meet on the sidelines of the APEC Summit in South Korea. The agenda is packed, given recent escalations including China's export controls on rare earths and Trump's tariff threats. We expect the two leaders to strike a deal to ease tensions, however, failure to reach an agreement could trigger a negative reaction in risk markets.
• Overnight, the Bank of Japan (BoJ) meets to decide on the next steps in policy normalisation. With Abenomics loyalist Sanae Takaichi now leading the government and recent spending and wage data showing weakness, we expect the BoJ to take a cautious stance and leave the policy rate unchanged. However, we still see solid arguments for further tightening and anticipate a potential rate hike at the December meeting.

Economic and market news

What happened yesterday

In the euro area, the ECB's Bank Lending Survey showed a slight, unexpected tightening of credit standards for firms in Q3 due to higher risk perceptions. Firm loan demand remains weak, while household demand grew strongly. Overall, the survey supports the view that monetary easing policies are still feeding through to bank lending, but the pace of transmission appears slower, with broadly stable loan demand and a slight tightening of supply.

In the US, consumer confidence improved modestly in October, rising to 94.6 (cons: 93.2). The report was mixed, with a slight improvement in the assessment of the current situation, though consumer confidence remains on a declining trend overall. Future expectations continued to weaken, reflecting persistent uncertainty.

In China's more detailed communiqué on its upcoming 2026-2030 Five-Year Plan, the focus is on boosting consumption and shifting to a domestic demand-driven economy. Compared to the initial communiqué, which used softer language, this update signals a stronger emphasis on consumption as a key driver of economic growth.

In Sweden, the Riksbank Business Survey showed a weaker-than-expected assessment of the current economic situation and outlook for Sweden. Pricing plans have dropped sharply, but the impact of the upcoming VAT cut on food remains unclear. Here, it will be interesting to see the NIER survey on Thursday, which is more granular on a sector level. 

Equities: Equities were slightly higher yesterday on the surface, however beneath that we saw that the "only" reason for a green day was due to Mag7 (up about 1.3%). Otherwise, it was day with sour risk sentiment. Only 21% of the S&P500 ended with a positive return yesterday yet it ended 0.23% up. Thus, if we exclude the Mag7, the S&P493 was down -0.6%. Looking at the tech index, it was a semi-conductor driven rally, not least also due to Nvidia's Jensen Huang dismissing concerns over an AI bubble and also Nvidia broadening its scope with them taking a USD1bn equity stake in Nokia. Russel2000 was down 0.6%, with Dow Jones up 0.3% and Nasdaq 0.8%. Stoxx 600 down -0.2%. Overnight, the sentiment continued in Asia. The indices are up (Nikkei +1.9% and Shenzen +0.5%), but largely focused on tech.

FI and FX: EUR/USD continues to trade in the mid-1.16-1.17 range, moving towards 1.1630 overnight, as markets await today's FOMC meeting. A 25bp cut looks all but certain, with attention shifting to whether the Fed signals an end to QT and to Powell's tone at the press conference. Fixed income markets were in wait-and-see mode yesterday with European and US yields ending the day broadly unchanged. EUR/SEK continues to trade in the lower end of the long-held 10.90-11-10 range, but we continue to favour the upside tactically in EUR/SEK. Similarly, we maintain our bullish EUR/NOK view.