Market movers today

Today’s focus is on the Riksbank. We expect it to make only marginal adjustments to macro forecasts and leave the repo rate path unchanged, signalling on hold for longer. Since this is in line with pricing, with RIBA contracts indicating +2bp until next summer, the repercussions in the market should be muted. That said, it will be interesting to see if Breman or Jansson, who voted against the hike in December, will accept staying at zero or vote for a cut today. Also, if there are any indications of what the first line of defence would be if more stimulus is needed, e.g. a rate cut or more QE. The decision is due at 09:30 CET and at 11:00 Ingves is set to hold a press conference.

In the euro area, industrial production figures for December are out. Recently, the industrial recession has eased and leading indicators and improving order-inventory dynamics have pointed to a rebound for a while now, but actual production figures have so far bucked the trend.

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It is still too soon to call the coronavirus over, and hence markets will continue to have it in the background.

In the US, Harker and Powell (as part of testimony) speak today.

Selected market news

Risk sentiment was positive yesterday, sending global equities up by 0.5-1% and European rates up some 2bp. The positive risk sentiment continued in the overnight Asian session. The data on the coronavirus suggest that the spread is diminishing, adding to the positive risk sentiment.

News agency MNI reported that ECB sources said the chances are rising of an ECB rate cut ‘on the back of data and coronavirus’. Rates markets took note of this, in particular the front end, which repriced 2bp. We do not share the view of the MNI story and firmly believe the ECB is on hold this year in terms of policy rate changes.

The host of Fed speakers yesterday (most notably Fed chair Powell) didn’t provide much new information above their previously communicated views. However, caution was voiced over the potential impact on the US economy from the coronavirus, albeit to what degree was too soon to say. Powell’s testimony continues today.

The UK Q4 GDP figure released yesterday was a tad stronger than expected overall (1.1% y/y); however, with the Bank of England clearly highlighting that it’s more interested in post-election and post-Brexit data, this is not a game changer for it. The BoE’s Carney said that if there was no post-Brexit bounce in data, it may add more stimulus.

The results from the US Democratic Party election in New Hampshire pointed to a Bernie Sanders lead with Pete Buttigieg and Amy Klobuchar coming in close behind.

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