Markets
Two of Wednesday’s dissenters at the Fed hit the wires today. Goolsbee and Schmid both favoured to keep the rate steady but it appears both had a different angle to do so. Schmid wants to keep monetary policy slightly restrictive, citing a balanced labour market but too high inflation and an economy that’s showing momentum. Goolsbee on the other hand was simply concerned on frontloading cuts too much. He wanted to wait till Q1 after some “concerning” inflation data prior to the shutdown. He went on to say he’s projecting more cuts than the median and thinks rates can come down “a significant amount” next year. Neither policymaker had a material impact on (short-term) US rates though. We do see some (natural?) bear steepening of global curves in an otherwise quiet trading session. Long-end yields rise up to 5 bps in the US and around 4 bps in Europe and the UK. European stocks inch higher with the EuroStoxx50 now just a sigh away from its November record high. Tech on WS underperforms following Broadcom’s (lofty) sales outlook miss but declines for the likes of the Nasdaq are limited to 0.3%. The dollar recovers some ground after a two-day beating. EUR/USD trades near 1.173, DXY grinds higher to 98.48. Sterling extends yesterday’s losses after a poor set of economic data this morning in which the surprising monthly GDP drop stood out. EUR/GBP recovers the previously lost support area at 0.8769.
Today’s poor economic calendar puts the spotlight on the one of the coming week. The US publishes November payrolls on Tuesday along with October retail sales and December PMIs that day. November inflation figures are scheduled on Thursday. They carry big value coming after a Fed that cut rates for a third time this week but basically moved in the dark due to the lack of economic input. They’ll certainly shape market expectations for the Fed in early 2026. We consider a weak(er than expected) batch to have the bigger moving potential (ie. lower US rates and dollar) by markets upping the ante for January. The Bank of Japan’s Q4 Tankan on Monday should convince the remaining (if any) doubters on upcoming rate hike at Friday’s policy meeting. Inflation figures are published the same day and will be an above 2% target reading for the umpteenth month running. The UK central bank meets and likely lowers rates to 3.75%. The BoE has to move cautiously though with November inflation – released on Wednesday – expected to be trending north of 3% still. UK PMI business confidence and the October labour market report is on tap Tuesday. The ECB by Thursday will also have a new set of PMIs at its disposal. President Lagarde already hinted earlier this week at another upgrade to the growth forecasts, cementing the case for a 2% deposit rate for longer. She might get grilled on the impact of the carbon tax being postponed on the inflation outlook in 2027. It could push inflation below target but we expect the central bank look through it since it is out of monetary reach. Additionally, having the tax postponed could also be considered as a positive demand shock that at least partially replaces the cost push shock.
News & Views
The Bank of England published its quarterly Inflation Attitudes Survey, conducted by Ipsos. The perception of the UK inflation rate amongst surveyed residents stood at 4.7%, slightly less than the 4.8% in August. Inflation expectations for the next 12 months, the 12 months thereafter and the long-term (5-yr) were all 0.1 ppt lower as well at respectively 3.5%, 3.3% and 3.7%. When asked about the future path of interest rates, 38% of respondents expected rates to rise over the next 12 months, up from 33%. 24% said they expected rates to stay about the same over the next twelve months (from 26%) and 25% said they expected rates to decline over the next twelve months (from 29%). Respondents were also asked to assess the way the Bank of England is ‘doing its job to set interest rates to control inflation’. The net satisfaction balance, the proportion satisfied minus the proportion dissatisfied, was -1%, down from 2% in August.
SEB research’s quarterly investor survey, targeting large Swedish institutional fixed income investors, showed all respondents expected an unchanged Riksbank policy rate at 1.75% in December and January. For December 2026, policy rate expectations shift to the upside. 40% of the respondents predict at least one rate hike, while the share expecting a rate cut have increased only slightly to 28% (from 24% in June). For December 2027, expectations for rate hikes dominate even more. A broad majority (72%) expect the policy rate to be above the current level (1.75%), while the share predicting a policy rate below declines to 12%. The median expectation for the policy rate is 2.25%.
