Markets weren’t to keen on any directional positioning ahead of the Fed meeting later today. We don’t expect any material changes to Powell’s assessment of the economy and monetary policy “being in a good place” though. The Fed can find comfort in recent data to maintain a wait-and-see approach: Friday’s blow-out payrolls revealed a solid domestic economy while today’s CPI data (see headline below) show no signs of spiraling out of control. The new median projections will probably show the central bank sidelined through 2020. Stock markets slipped shortly after opening but gradually wiped out (most of) the losses. Core bond yields showed a similar pattern. The US yield curve bull flattens with yields changes varying from -0.5 bps (2-yr) to -1.5 bps (30-yr). Declines in German yields are of the same magnitude. Changes in peripheral spreads are negligible (-2 to +1 bps). On FX markets, EUR/USD initially headed south after gaining two days – in effect erasing post-payrolls losses. However, that all changed as US investors joined markets. The currency pair jumping to the high 1.109 area after hitting an intraday low at around 1.107. The Japanese yen crosses suggest it’s mainly euro strength rather than dollar weakness (ahead of the Fed). USD/JPY is going nowhere in the 108.7 area.

With the election campaign now coming to an end, focus shifts to the actual voting tomorrow. UK polling booths are open from 8 a.m. until 11 p.m. So a final result is probably not due before Friday morning. A glimpse on the graphs shows markets are very confident of the Conservative Party winning a solid majority. That would in theory mean the approval of the current Brexitdeal is nothing more than a formality and the threat of a no-deal scenario is basically eliminated. The latest influential YouGov poll projected a narrower majority for Johnson’s Conservative Party of 28 seats yesterday, compared to 68 previously. That dealt a minor blow to sterling during yesterday’s final trading hours. The British pound already recouped most of those losses today though as investors keep scaling back sterling shorts ahead of a widely anticipated victory for prime minister Johnson. EUR/GBP opened at 0.845 before declining back to the low 0.841 area. Cable is headed for the 1.32 resistance area (1.318 at the time of writing).

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News Headlines

Swedish inflation came in at 1.8% (Y/Y) in November, beating the 1.7% (Y/Y) forecast. CPIF inflation (excluding energy prices and the central bank’s preferred core measure) also printed higher (1.7%, consensus at 1.6%). The Riksbank repeatedly emphasized it’s eager to finally reverse half a decade of negative interest rates. The uptick in inflation sealed expectations that the Swedish central bank will increase its benchmark rate from -0.25% to 0% next week, pushing EUR/SEK as much as 0.8% lower at 10.45.

US consumer prices increased by 2.1% (Y/Y) in November (0.3% M/M), surpassing the expected 2%. Gains in healthcare and an uptick in prices of used cars and trucks, recreation and hotel and motel accommodation lifted up the CPI. Excluding food and energy prices, consumer prices advanced 2.3% in November (0.2% M/M), matching October’s rise.

French prime minister Edouard Philippe unveiled a long-awaited draft reform to improve the French pension system following days of protests and strikes. Under the new pension plan, people will be encouraged to work longer by using a discounts and bonuses system and the new plan would be fairer according to Philippe. The new pension plan is set to apply to new entrants to the labor force as of 2022.


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