Market movers today
In the US, the minutes from the December FOMC meeting are due out, where we will look for differences in the FOMC members’ views on the economy and markets, especially after indications last week that the Fed may go about its monetary tightening more gradually. Members of the board Evans and Rosengren are due to speak today.
Overnight, Chinese inflation numbers are due out. Producer price inflation for December may attract some attention, as it is set to fall further from 2.7% y/y to around 1.5% y/y. We expect it to fall into deflationary territory during Q1 due to the big drop in commodity prices. CPI inflation is expected to decline to 2.1% y/y in December from 2.2% in November, still far below the 3% target.
In Denmark, today brings figures for foreign trade and the balance of payments in November.
In Sweden, the main focus is the Riksbank minutes, which is accompanied by the borrowing requirement for December.
In Norway, monthly GDP data is due to be published this morning.
Selected market news
On Tuesday evening, British Prime Minister Theresa May lost another parliamentary vote ahead of the important vote on her Brexit deal on Tuesday next week. The amendment in question was with regards to a possible limitation on the British tax code in the case of a no-deal Brexit not being specifically approved by the House of Commons – a scenario May has repeatedly said to be preferable to a ‘bad deal’. While the amendment in itself has limited impact in practice, it signals that there is currently no majority for a no-deal Brexit among British politicians. However, markets did not seem to put too much emphasis on this vote and the pound weakened only modestly during the day.
Oil (futures up 2% on the day to USD50.5/bbl) continues its gradual climb and is now up 10% YTD. We forecast oil at USD 65/bbl short term as OPEC+ cuts come into effect. Oil has been an important driver of US interest rates and break-evens recently. 5Y treasury yields are up another 7bp since yesterday, making the short end of the US yield curve ever less inverted as it continues to flatten. The market-implied probability of a Fed hike in March increased from 0% to 8%. 10Y US break-evens are up 13bp over the past three days following the climb in oil, significantly outperforming nominal yields.
Equities are up about 1% in most markets with Asian indices leading the way and the VIX Index is now back in more familiar territory, although still high. S&P500 is up 5% over the past three days, thus close to being unchanged on the month. With only little news out, it seems markets continue to rally on the back of the positive signs given yesterday from the US-China trade talks and unconfirmed news reports breaking from White House officials that Trump is determined to get a deal passed.
