Market movers today
Following a few quiet days on the data front, the Riksbank is set to present its Financial Stability report today. This will most likely contain the usual messages about risks associated with household indebtedness, as well as banks’ funding and appropriate capital buffers. We expect no major news in today’s report.
The ECB will also present its Financial Stability report today and chief economist Lane will speak.
In the US, FOMC meeting minutes are due for release. At the October meeting, Fed cut its target range by 25bp to 1.50-1.75% as expected, but it seems that the Fed now wants to stay on hold to monitor how things play out. As there is a clear division in the committee, it will be interesting to see if the minutes will give us any information on the different stances within the Fed. We believe that the Fed will deliver one more cut in three to six months, as we still believe the US economy is fragile. For more details see FOMC Call Update: Fed on hold for now but may be forced to cut again, 11 November.
Selected market news
US-China tensions flared up again, just as the two parties were about to reach a first phase towards a trade deal. The US Senate yesterday passed a bill that requires certification of Hong Kong autonomy and warned China against suppressing protestors violently. The US backing of Hong Kong demonstrators fuelled Chinese anger and officials called upon the US to stop interfering with internal Chinese affairs.
These renewed strains come after news yesterday that the US and China were in possible final negotiations over how much tariffs should be rolled back, possibly using the preliminary terms from the failed May agreement as benchmark. However, with the Hong Kong bill that may soon land on Trump’s table, there is clearly a risk talks could be upset yet again.
Separately, the US House of Representatives managed to pass a stopgap funding bill to avert a looming US government shutdown. The latter was not enough to lift risk sentiment from the hit it took on China-US worries and equities ended the day mixed in the US session. Downbeat sentiment carried over to Asia with Hang Seng down 0.7% at the time of writing.
Focus now turns to Financial Stability reports in Sweden and the euro area today plus FOMC minutes this evening. Ahead of the latter Fed’s Williams yesterday noted that monetary policy is in the ‘right place’ being ‘somewhat accommodative at present as previous Fed cuts have been very effective’. US inflation expectations are little changed since the October Fed meeting and there are no signs the Fed will deviate from its ‘on hold’ stance near term. US 10Y yield slid some 6bp on Tuesday but EUR/USD held steady around the 1.1075 level.
