Market movers today
We do not expect the Fed to hike the Fed funds rate tonight at 20:00 CET (in line with consensus and market pricing). As it is one of the interim meetings without updated projections and a press conference, we do not expect Powell & co to make big changes to the policy signals in the statement. We do not think the Fed will cut the interest rate on excess reserves by 5-10bp at this meeting despite the effective Fed funds rate trading exactly at the IOER. We think the Fed will wait until December and then hike the target range by 25bp but only raise the IOER by 15-20bp. In our view, the Fed is on track to raise the Fed funds rate to 3%, which is the neutral rate, where monetary policy is neither expansionary nor contractionary. This will happen in June (hikes in December, March and June).
Today at 11:00, the European Commission will release its autumn forecast. While usually not a market mover, attention will be brought to the outlook assessment for the Italian economy.
In Sweden, average house prices in October are due out at 09:30 CET.
Selected market news
Positive risk sentiment has returned to financial markets in recent days. US stocks rose more than 2% yesterday and the positive sentiment has carried over to the Asian market. The 10Y US yield has climbed back to its 2018 peak of 3.23%. USD/JPY is creeping higher and the gold price is inching lower.
The oil market has had to digest a lot of news this week. At the beginning of the week the market had to cope the effect of oil-related sanctions on Iran. Yesterday, news broke that OPEC+ (the corporation between OPEC and oil producers outside OPEC, including Russia) will meet on Sunday to discuss a common strategy for the oil market in 2019, as the current agreement to cut production ends this year. Apparently, an extension of production cuts is on the table. The news provided some temporary support to oil prices yesterday. However, that support vanished when the weekly US inventory report confirmed the large stock build last week, as reported by API on Tuesday. So far this week, the price on Brent crude has traded in the range of USD71.2-73.5/bbl.
Yesterday, the Riksbank announced it plans to add NOK and DKK to its currency reserve portfolio, meanwhile indicating it will raise USD exposure and reduce EUR exposure. The change in composition is set to take place in Q1 19. The new investment policy is motivated by a need for contingency and aims to capture better the short-term funding needs of the Swedish banks. As discussed in FX Strategy - Riksbank rebalances its currency reserves , 7 November, this will imply USD, NOK and DKK buying and EUR selling. However, we do not expect this to have any material impact on the market, as the amounts are still negligible relative to total market turnover.
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