HomeContributorsFundamental AnalysisLast Night's Fed Meeting Turned Out Rather Uneventful

Last Night’s Fed Meeting Turned Out Rather Uneventful

Market movers today

We do not expect the ECB to make any changes to its policy stance or forward guidance at the meeting today. Focus will therefore be on news regarding QE composition after the scale down and the updated ECB growth and inflation projections, where we expect the new 2020 forecast to show headline inflation close to the target at 1.8% target , in line with the Governing Council’s growing urge t o move on wit h monetary policy normalisation.

Euro area PMIs for December are also released due to be today and we look for a small decline in manufacturing and services PMI to 59.5 and 55.7, respectively, in line with a decline in the leading order-inventory balance.

We also have the Bank of England (BoE) meeting today, where we expect the BoE to stay on hold. It is one of the small meetings without updated project ions or a press conference; focus will hence be on the statement and minutes for any hints on the beginning of a hiking cycle.

The two-day EU summit starts today, where EU leaders will have to decide whether sufficient progress has been made to enter phase 2 of the Brexit negotiations. This seems likely given the deal st ruck between the EU and UK government last week.

In Scandinavia, we also have a busy schedule with November housing data in Sweden and Norges Bank meeting (see next page).

Selected market news

Last night’s Fed meeting turned out rather uneventful. As expected, the Fed hiked the target range to 1.25-1.50% and kept the dot signal broadly unchanged. While two of the dovish FOMC members dissented (Evans and Kashkari), they are losing their voting rights next year. There were also no major changes in the statement. We think the Fed meeting was on the soft side. While most FOMC participants have incorporated some fiscal stimuli from tax reforms into their forecasts, the dots plot were broadly unchanged, as inflation continues to disappoint the Fed. For more details, please see FOMC review: Broadly unchanged Fed signal, 13 December.

Yields lower, dollar weaker. Taking its cue from the slightly soft outcome of the Fed meeting, as well as core CPI figures that showed a decline to 1.7% y/y (from 1.8%), the yield on 10-year US Treasuries fell by 6bp during the day to 2.34%. Meanwhile, the EUR/USD rose some 0.7% to levels above 1.18.

In the UK, the UK government lost an important vote last night in the House of Commons. Tory rebels backed an amendment , which promised the MP s a ‘meaningful vote’ on the final Brexit deal as suggested by the opposition. While the amendment in itself does not mean much in our view (as it is difficult to say what a ‘meaningful vote’ even means in this situation), it is a reminder t hat t he minority government is weak and PM Theresa May’s posit ion has weakened.

Danske Bank
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