In focus today
We expect the Bank of England to deliver a 25bp rate hike to 4.00% to contain inflation risks. Recent communication from MPC members has been hawkish and we expect a solid majority to vote for a hike. Link to preview: Bank of England Preview – A hike to contain inflation risks, 30 October.
In Norway, we and markets expect Norges Bank to keep the policy rate unchanged at 4.50% at today’s interim meeting with only a press release and conference, no new forecasts. We expect Norges Bank to repeat its readiness to raise rates if necessary, while noting the overall picture has not changed materially since September, keeping the December decision dependent, in particular, on the upcoming inflation figures.
From Sweden, we expect October inflation figures to show core inflation at 0.47% y/y, CPIF at 1.39% and CPI at 1.18%. The expiry of the first temporary fuel tax cut on 1 October reduces the tax-related drag on CPIF, while leaving CPIF-CT unaffected.
On the wires, we will hear from the Fed’s Hammack (voter in 2026, non-voter in 2027), Logan (voter in 2026, non-voter in 2027) and Barkin (non-voter in 2026, voter in 2027). Hammack and Logan have been among the most hawkish FOMC participants, both dissenting from the July decision to leave rates unchanged, with Hammack also dissenting in October. As Barkin will vote next year, it will be interesting to hear whether he signals his view on the October rate decision.
ECB’s Isabel Schnabel will also be speaking at the ECB’s Money Market Conference in Frankfurt.
Economic and market news
What happened overnight
In commodities, Brent crude has dropped to around USD 94/bbl, a 2-month low, with the front January contract down around USD 20/bbl this week. With no new geopolitical headlines, the move appears to be driven largely by the Democratic sweep in the US midterms, which raised expectations of political pressure on the Trump administration to end the Iran conflict and potential Congressional constraints on Middle East military funding. Yesterday, the weekly EIA report estimated US crude production rose above 14mb/d for the first time, with a small draw on strategic reserves as well.
What happened yesterday
In the US, the Treasury’s Q4 quarterly refunding announcement brought no major changes to long-end issuance, buybacks or the guidance around either. The Treasury anticipates maintaining nominal coupon and FRN auction sizes for the next several quarters, though subtle wording changes suggest adjustments could be marginally closer than before. The overall market reaction was muted.
Also in the US, the ADP private-sector employment report showed an increase of 86k jobs in October, above the consensus of 69k. The report adds to a run of labour market indicators pointing towards continued solid growth in labour demand ahead of Friday’s payrolls data. An uptick in job-changer wage growth to its highest since March 2024 suggests labour market conditions are tightening and workers’ bargaining power is improving, sending a modestly hawkish signal for the Fed.
In the euro area, headline inflation rose to 4.0% y/y in October from 3.8% y/y, in line with country data but slightly above initial expectations. The uptick was driven by energy prices, while core inflation was steady at 2.5% y/y as expected. Overall, the data continues to suggest that inflation is mainly being driven by energy, with limited spillovers to broader inflation categories. For the ECB, the 4.0% headline print makes a December hike the baseline, but the limited spillovers should reduce the need for further tightening beyond that. That said, additional hikes cannot be ruled out given the ECB’s hawkish rhetoric.
Also in the euro area, the final services PMI was revised down to 51.4 from the flash estimate of 51.7. This was somewhat surprising given that Monday’s manufacturing PMI surprised to the upside. The downward revision to services also pulled the final composite PMI lower, to 51.7 from the flash estimate of 51.9.
In Sweden, the Riksbank hiked the policy rate by 25bp to 2.00%, as expected, citing rising costs, a stronger economy and an improving labour market. The Riksbank maintained its September guidance that further rate hikes will likely be needed over the coming year, reinforcing the rate path of up to two hikes next year. We stick to our current call and expect the next hike in February, followed by one more in March to 2.50%.
In Poland, the National Bank of Poland kept its policy rate unchanged at 3.75% as expected, marking the seventh consecutive hold at the lowest level since 2022. Policymakers maintained a cautious stance, with the path forward remaining data-dependent.
Equities: Equities ended clearly higher on Wednesday as the midterm result was digested. The S&P 500 rose 1.6% and the Nasdaq Composite 1.4%, while the Stoxx 600 gained 1.8%. It was a risk-on session, with higher equities and a sharply lower VIX, while yields fell on both sides of the Atlantic as oil slid. The intraday picture is worth remembering. Yesterday morning, futures pointed markedly lower, but sentiment turned in the pre-market. Yesterday we argued that the outcome that looks less supportive for risk assets on paper could prove the most market friendly, given fiscal restraint and less policy uncertainty. Some of that has already played out.
FI and FX: Bond yields declined, while broad USD and NOK weakened following both the stronger-than-expected Democratic sweep in US midterms, and the sharp drop in energy prices. President Trump said he was prepared to work with Democrats. The Riksbank hiked rates by 25bp as expected, with the rate path unchanged from its September communication. Today, we expect the BoE to hike the Bank Rate by 25bp to 4.00% and Norges Bank to maintain the policy rate at 4.50%. Focus will be on any signals regarding the path ahead. We expect Governor Ida Wolden Bache to repeat the message that Norges Bank stands ready to hike if developments warrant it, keeping the December meeting live.
