Market movers today

Today, focus will be mainly on the FOMC meeting in the US, with the accompanying policy announcement at 20:00 CET. We expect the Fed to maintain the fed funds target range of 0.50-0.75% in line with market pricing and consensus. At the December meeting, the Fed signalled that the economic outlook was ‘uncertain’ due to ‘Trumponomics’ but that ‘almost all’ FOMC members thought there were upside risks to their growth forecasts (and hence the number of Fed hikes) due to the expectations of more expansionary fiscal policy. In line with markets, we expect the Fed to hike twice this year (in June and December), with risks skewed towards a third hike. Continued strong economic data and more information about Trump’s fiscal policy may trigger the Fed to hike earlier than June.

In the US, ISM manufacturing data for January is also due to be released. We expect a marginal move higher to 55.0 from 54.5 in December.

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Danish housing prices and Swedish PMI manufacturing data are due out.

Selected market news

Markets have started to price in a higher Trump risk premium, as it becomes increasingly clear that protectionism and tougher immigration policy seem to be higher on Trump’s priority list than the growth-friendly policies for which investors are waiting. Yesterday, the Trump administration accused Germany and Japan of devaluing their currencies to gain a competitive advantage, drawing criticism from German and Japanese officials and heightening concerns that USD competitiveness could have a prominent role on Trump’s policy agenda. The comments sent EUR/USD to an eight-week high and fuelled a risk-off mood that kept Asian stocks subdued this morning, as unease about the outlook for global trade as well as bilateral relations with Japan, Europe and China is growing. Trump’s pick of the conservative judge Neil Gorsuch for the Supreme Court also did nothing to ease market concerns.

Euro area HICP inflation surprised slightly on the upside yesterday (1.8% y/y from 1.1% y/y in December); however, core inflation remained below 1%. Higher inflation was seen across countries and hence, the ECB can conclude that it is not just German inflation picking up. We do not expect the higher inflation figures to change the ECB’s monetary policy stance, as underlying price pressures are still weak. Although some ECB members have started to express a more hawkish stance recently, consensus in the ECB seems to be that core inflation also needs to rise before tapering will be discussed. See also Euro area inflation surprises on the upside – will core inflation follow the upward trend 31 January 2017.

In the UK, the formal process of passing Article 50 legislation in Parliament has begun, with a first vote taking place today. However, the so-called ‘committee stage’, where members of parliament are allowed to put forward amendments to the bill, does not start until 6 February. Recently, there have been media reports (The Times, 31 January) that Theresa May could trigger Article 50 in connection with an EU summit on 9 March.

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