Market movers today
In the US, the week’s most important event is happening tonight, namely the FOMC meeting with the rate announcement due at 20:00 CEST. We expect the Fed to hike the target range to 2.00-2.25%, but not send any new policy signals . With respect to Fed projections, it will most likely still signal another hike in December (and probably that more FOMC members support this) and three hikes next year (it was divided between two or three additional hikes next year and it would take four members to move it higher).
The Fed will also still signal that it is going to raise the Fed funds rate above the longer-run rate . The longer-run rate may be revised higher to 3.00%. It seems on track to deliver two more hikes this year (next week and in December). Growth is strong, optimism is high, the unemployment rate is low, wage growth is increasing (although at a gradual pace) and core inflation is running near the 2% target. We believe it will be more ‘stop and go’ for the Fed when the funds rate has reached neutral (2.75-3.00% range), which we believe is likely to happen in March 2019.
In Norway, unemployment statistics from Statistics Norway (LFS) are due today, which will provide important information on whether economic growth is still above trend. We expect the underlying recent downward trend in the unemployment rate to continue, with LFS unemployment dropping to 3.8% in July (June-August).
Selected market news
In his speech in the UN yesterday, US President Donald Trump lashed out after China again with no sign of any respite in the trade war. We see a high risk Trump will soon announce tariffs on the rest of imports from China. When he announced the tariffs on another USD200bn he stated that the US would immediately move on with tariffs on another USD267bn if China retaliated – which it did.
In his UN speech, Trump also accused OPEC of ‘ripping off the world’, taking aim at Saudi Arabia for keeping oil production too tight. Oil prices came off slightly, as Trump said the US would not put up with it ‘much longer’.
In Asian hours, Chinese stock markets have continued the rally seen over the past week despite the tough talk from Trump. US bond yields and EUR/USD are slightly lower.
US consumer confidence surged higher yesterday to an 18-year high. The upbeat consumer sentiment reflects a very strong labour market, with the ‘jobs plentiful’ index jumping to the highest level since January 2001.