The main event today is the January ECB meeting. Attention from financial markets will be on the timing of when forward guidance will be revisited on the back of the ECB's December account, which stated that the forward guidance 'could be revisited early in the coming year [2018]'. We believe these changes will relate to QE and not the forward guidance on policy rate early in the year. We expect no change in forward guidance next week, but only at the March meeting, see ECB Preview - Too soon to revisit forward guidance , 19 January 2018.
German IFO expectations are being released today. We saw a sharp decline in expectations from 111.0 in November to 109.5 in the December release, although the current situation indicator edged slightly upwards. In January, we expect the IFO expectations to take another step downwards to 108.9, while uncertainty remains around the CDU/SPD coalition in Germany.
In Norway , we do not anticipate any new signals from Norges Bank at today's rate setting meeting. At its meeting last month, the central bank signalled that its key rate would be unchanged until late this year, with a first hike most likely coming in December. Since then, developments in the Norwegian economy have been more or less as assumed, while inflation has been marginally higher than projected. The housing market also appears to be performing as foreseen. On the other hand, the krone has been rather weaker than expected, and oil prices higher. Add in slightly higher interest rates abroad than assumed last month, and it looks like the chances of a hike in December have increased somewhat.
In Sweden , focus is on NIER data, not least price plans, but also the sentiment in the construction sector. Labour market data and PPPI are also due for release.
Selected market news
US Treasury secretary Steven Mnuchin accelerated the USD sell-off yesterday with his endorsement of a weaker dollar and thus broke the longstanding tradition of the Treasury's 'strong dollar' policy. Meanwhile, US Commerce Secretary Wilbur Ross, in a panel at the World Economic Forum in Davos, defended the Trump administration's America First policy saying that 'any protectionist agenda in the U.S. pales in comparison to China's' and that 'the US would protect its exporters'. While we do not expect Trump's protectionist step against China to evolve into a full-blown trade war, as this would come at a cost for both sides, it bares close watching, as a tit-for-tat escalation is sometimes the result of conflicts of any kind. See Flash Comment - Trump makes first move on trade - more to come , 23 January, for more details.
The broad-based dollar index, the DXY index, slipped more than 1% yesterday to a three year low, while EUR/USD broke above 1.24. The USD has fallen into uncharted territory and with the US stepping up 'trade war' efforts and abandoning its 'strong dollar' policy, the case for a higher EUR/USD has improved substantially.
A weaker USD and concerns about the US stepping up 'trade war' efforts is weighing on Asian markets this morning. The Japanese Nikkei index leads the sell-off with a 1% decline as a stronger JPY is weighing on Japanese exporters.
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