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Fed On Hold As We Wait For Trump’s Decision On Trade Deal

Market movers today

Today’s main event is the Fed meeting with the rate announcement at 20:00 CET. As most FOMC members have said they think the current stance of monetary policy is appropriate, the Fed is now on hold after three cuts in a row. Political uncertainty has declined, global growth has stabilised and US recession fears have eased after strong job reports lately. Most will look at the ‘dots’ for hints about what the Fed thinks about next year. Given the Fed has cut one more time than it thought in September, it will automatically be lowered but we think the Fed will signal it is on hold also next year. Markets are pricing in another cut during 2020. For more details see FOMC preview.

Otherwise, we get inflation data in Sweden and the US. The latter is probably not a market mover but the Swedish number is interesting in the light of the Riksbank’s monetary policy decision next week (see more overleaf).

We will continue to monitor any comments on the ongoing US-China trade talks ahead of the 15 December deadline, when the US is set to increase tariffs on more imported goods from China. Yesterday there was a story that the US is planning to postpone the tariffs despite a phase 1 trade deal not having been signed yet.

Selected market news

The clock is ticking as we close in on the deadline on a phase 1 deal or tariff delay by 15 December. Markets are now in a wait-and-see mode with little direction. News yesterday that tariffs would be delayed caused a short bout of risk-on in the markets, but the news was unconfirmed and Trump’s closest advisers say the decision is ultimately up to the president. One of Trump’s trade advisers, Peter Navarro, reminded us yesterday that ‘the president loves them [the tariffs]’ and said that the decision would come soon. We expect the tariffs will be postponed, as Trump cannot risk another period of escalation hurting the US economy ahead of the upcoming presidential election next year. That’s of course assuming Trump is rational and we cannot be certain until we see the tweet from Trump confirming it or a statement from the White House.

US, Canada and Mexico yesterday signed the USMCA pact (NAFTA2) after the Democrats finally reached an agreement with Trump. They had demands on enforcement of tighter labour standards, which dragged out the deal. The Democrats’ emphasis on labour standards compared to Trump is one reason why China may be happier to make a trade deal with Trump than with a possible Democrat president after the US election.

Late yesterday evening, YouGov published its second seat projection for the upcoming UK election on Thursday. The projection still estimates a Conservative majority but significantly smaller than the first estimate released a couple of weeks ago and YouGov says it cannot rule out a hung parliament due to the statistical uncertainty. The new point estimate is now 339 seats for the Conservatives, 231 for Labour and 41 for LibDems for the four large parties. Our base case remains a Conservative victory but given the new projection it is now less certain than previously thought.

Danske Bank
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