Market movers today
The main focus today will be the ECB- and Riksbank meetings and overnight tonight these meetings will be followed by Bank of Japan.
In the case of ECB, we do not expect any announcements with regards to policy changes from the governing council at this meeting. However, as presented earlier today in our ECB preview, we have changed our call on the ECB’s hiking path. We expect ECB to come with its first rate hike in December 2019, but with a 20bp size on the deposit rate hike instead of a 10bp hike in Q2 19. Recent data on inflation has disappointed compared to ECB projections, and the declining activity indicators should further lead the ECB to revise its GDP forecast downwards at the June meeting. Taken together, we believe the ECB is likely to postpone the first hike, as its current projections seem overly optimistic given recent developments.
In Sweden it is time for the Riksbank’s policy announcement. In our minds, now is the time for the Riksbank to make another shift to the rate path by pushing hikes further out in the future, presumably to the first quarter of 2019.
Early Friday morning, the Bank of Japan (BOJ) will announce its policy decisions. We expect the BoJ to keep its ‘QQE with yield curve control’ policy unchanged, which is the first under the new leadership. With the arrival of two new deputy governors, we expect the board to have turned slightly more dovish. Considering how the economy has lost some momentum recently and inflation has still not really picked up, we see the probability of further easing as at least as likely as any tightening measures.
Selected market news
After the break of the pivotal 3% mark yesterday, the 10 year US government bond yield have taken a firm hold above 3% trading at 3.03% this morning. While we continue to hold the view that it is too early to call for a major fixed income sell-off given the business cycle outlook and still dovish central banks, the break of the 3% in the 10 year US yield has created room for higher US yields supporting the case for further widening of the 10 year government bond yield spread between the US and Germany, which is currently at the widest level since the inception of the European Monetary Union just below 240bp.
US equities ended the day slightly higher yesterday and the S&P500 index gained 0.18% after swinging between gains and losses during the US session as investors continue to consider global equity markets’ ability to cope with higher interest rates. Asian markets trade mixed this morning with Japanese equity indices in the green while Chinese markets trade lower.
Yesterday’s NOK session was dominated by news that the opposition had voted against the March change of the Norges Bank’s inflation mandate from 2.5% to 2.0%. However, shortly after the news hit the wire, the Christian Democratic Party’s spokesperson stated that in the end it is the government that decides. In other words, we should not expect a re-change of the inflation mandate back to 2.5%. The noise did however contribute to weakening the NOK in yesterday’s session.
