FOMC Minutes take centre stage

In focus today

In the US, minutes from the FOMC's September meeting will be released, with markets closely watching for clues on the timing of the next rate cut. We revised our call yesterday and now expect the Fed to lower rates in October, followed by quarterly reductions until July 2026.

In Sweden, preliminary inflation figures for September are released. Inflation is expected to start declining y/y after the increase over the summer. We will not get any details today (they will be published next Wednesday), but there are still some summer-season-related components expected to decrease. Our forecast is close to the Riksbank's, and we are slightly below consensus. We predict CPIF excluding energy to be 2.7% (prior: 2.9%), and CPIF to be 3.1% (prior: 3.2%).

In Poland, the National Bank of Poland (NBP) concludes its monetary policy meeting. The decision will be a close run, with the market split between a rate cut and a hold. We expect the central bank to keep the policy rate unchanged at 4.75%. The NBP cut rates by 25bp in September, taking a data-dependent stance while emphasising risks to inflation from loose fiscal policy and elevated wage growth. Nonetheless, Governor Glapiński has indicated a 'cautious will' within the Board to cut rates further, and we expect at least one more cut during Q4. 

Economic and market news

What happened overnight

In Japan, wage data surprised to the downside with a mere 1.5% y/y increase in total cash earnings for August (prior: 3.4%). In real terms, this corresponds to a decline of 1.4% y/y, marking the fastest drop in 3 months. This contrasts with expectations of a stronger wage pickup following spring negotiations. The weak data adds to the Bank of Japan's challenges ahead of its 29-30 October policy meeting, as sustained wage increases remains a prerequisite for further rate hikes.

In New Zealand, the Reserve Bank of New Zealand (RBNZ) announced a 50bp rate cut overnight, bringing the official cash rate to 2.5% and signalling further easing to come. The decision was a close call, with analyst consensus leaning towards a smaller 25bp cut. Markets reacted by trading the NZD lower, while interest rate swaps also declined. The dovish stance is likely to be a welcome relief for the government, as policymakers aim to address economic struggles. We expect the NZD/USD to rise over the coming year, with a 12M target of 0.63.

In the commodities space, gold surged past USD4000.00 per troy ounce for the first time, marking a historic milestone with gains exceeding 50% year to date. The rally is fuelled by geopolitical uncertainty, soaring debt levels, and central banks diversifying away from the dollar. Other precious metals, including silver, platinum, and palladium, also saw notable gains.

What happened yesterday

In the US, several Fed officials were on the wire, offering mixed signals ahead of the October meeting. Miran advocated for aggressive rate cuts, citing a declining neutral rate and subdued inflation risks. Kashkari was more cautious, warning against stagflation signals amid a slowing job market and persistent inflation around 3%. Lastly, Bostic downplayed recent labour market weaknesses, attributing them to structural factors such as reduced immigration.

Equities: Equities pulled back slightly yesterday after a long stretch of steady gains. There were no major macroeconomic or political catalysts behind the move, rather it looked like a classic case of profit-taking following an extended rally.

The "profit-taking" approach also visible with in the sector rotation as cyclical sectors underperformed, where investors locked in profits, while more defensive areas such as consumer staples outperformed after being massively underperforming in the rally the last six months.

What's worth highlighting is that volatility has been gradually rising, with the VIX now above 17. Considering the current macro backdrop, that's not extreme, but it's notably higher than in recent weeks.

This uptick reflects growing investor awareness that valuations have reached levels rarely seen in recent years, prompting some to hedge exposures in what remains a strong equity environment. Adding to this, the ongoing U.S. government shutdown is limiting the flow of key macro data, leaving markets to navigate somewhat "blindly" for now.

Asian equities are lower this morning, with particular weakness in tech, while U.S. futures are slightly higher and Europe is broadly unchanged.

FI and FX: French politics and the US government shutdown remain in focus in foreign exchange and fixed income markets, together with the strong depreciation of the Yen. As for the latter, the question arises if we could see interventions in the foreign exchange market from the BoJ. In Sweden we get the preliminary inflation numbers for September, and the Debt Office is issuing substantial amount of ten-year government bonds. Norway taps its 4y and 15y bonds.