HomeContributorsFundamental AnalysisToday's Main Event Is The FOMC Meeting

Today’s Main Event Is The FOMC Meeting

Market movers today

Today’s main event is the FOMC meeting. It is one of the big meet ings where we get updat ed project ions and ‘dots’. In line with consensus, we expect the Fed to raise the target range to 1.25-1.50%, which by itself should not have a great market impact . What is more important is the updated ‘dots’, but we expect the FOMC to still signal three hikes in 2018. For more details, see our FOMC Preview – Third hike and unchanged dot signals.

In the US, CPI numbers for November are due. We est imate CPI core rose 0.2% m/m (1.7% y/y versus 1.8% y/y in October). In our view, it is likely that headline inflation increased significant ly more given the large increases in fuel prices and we estimate an increase of 0.4% m/m in November (2.2% y/y versus 2.0% y/y in October).

In the UK, the labour market report for October is due to be released, where we expect a further drop in the unemployment rate to 4.2%. It is likely to be accompanied by continued modest growth in average weekly earnings of 2.2% y/y, meaning that real wage growth will cont inue to be negat ive.

Also in the US, President Trump is expected to deliver a speech on US tax reform.

In Germany, party leaders from SPD and CDU/CSU will meet today for first exploratory talks about a possible governing coalit ion.

In the UK, discussions on t he government ‘s EU wit hdrawal bill, which repeals the European Communit ies Act 1972, cont inues today. The opposition and Conservat ive rebels want a meaningful vote in Parliament on the final Brexit deal and PM Theresa May might have to give some concessions here.

In Sweden, Prospera is due to release its quarterly inflat ion expectations survey this morning (see next page).

Selected market news

In the US, Doug Jones (Democrat) won the Alabama special Senate election over Roy Moore in an otherwise safe Republican state. This reduces the Republican’s already slim majority to 51-49 (from 52-48) amid tax reform negot iations. It is difficult to extract much information from the elect ion given the child molest at ion allegat ions against Moore. Trump took the defeat well and tweeted congratulat ions to Jones, perhaps since a Moore victory would also have put the Republican party in a bad situat ion, as many Republicans wanted nothing to do with Moore (also note that Trump init ially supported another Republican candidate). Doug Jones wil l take office no later than 3 January and until he does so, the Republicans still have a 52-48 majority. Markets think on the margin this means tax reform has become a bit more unlikely by sending USD lower, S&P500 futures down and US 10Y yields lower.

With respect to US tax reform, Republicans are now leaning towards a corporate tax rate of 21% (and not 20%) and cut t ing the top individual rate to 37% from 39.6%. The Republicans hope they can reach an agreement this Friday so that both the House and the Senate can vote on the final tax bill early next week, meaning that Trump can sign it before Friday 22 December, where the short -term funding bill expires (risk of government shutdown).

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