Market movers today
In our core markets, all focus is on Norges Bank (NB), which we expect to raise the policy rate by 25bp to 1.00%, as the economy is in very good shape. We expect NB to signal another rate hike this year, with more to come next year, which is more aggressive than current market pricing. See next page for full preview and market implications.
Today, the EU leaders meet to discuss, among other things, whether to grant the UK an extension of Article 50. A final verdict is not expected today. The EU summit starts at 14:00 CET and the Brexit discussion at 15:30. A press conference will be held afterwards.
The Bank of England meets today and Carney & Co seem to be in no hurry to raise rates in the current environment. Our case for a rate hike in November 2019 is under pressure given the other dovish central banks.
The Swiss National Bank (SNB) is widely expected to keep its policy rate unchanged at -0.75% at today’s quarterly meeting.
Overnight to Friday, we get Japanese inflation numbers.
Selected market news
Unsurprisingly, the Fed maintained the target range at 2.25-2.50%. However, the biggest change to the statement is that the Fed thinks the US domestic economy has slowed . The ‘dot plot’ was lowered significantly and the median dots are signalling no rate hikes this year and just one rate hike next year. Five (out of 17) FOMC members think the Fed is on hold until at least year-end 2021.
Based on the dovish Fed, we also have to admit we have misread the Fed. With the new signals, it seems like the bar is high for the Fed to move again on rate hikes. In previous hiking cycles, we have not experienced the Fed pausing for a long time and then resuming hiking and hence we no longer expect the Fed to hike in this hiking cycle.
On Brexit, in a letter to Donald Tusk, PM Theresa May outlined she wants a short extension until 30 June 2019. That said, we see the options being either a very short one to mid-May or a long one lasting into 2020. Our base case remains the latter. The risk scenario is that the EU27 leaders reject an extension, as they are more hawkish on Brexit than Tusk, Juncker and Barnier. Today’s EU summit is only expected to discuss the principles of an extension and a final decision can be taken next week right before deadline, as it would allow May to try to get her deal through the House of Commons a third time. Donald Tusk and other leading EU politicians said the EU is ready to grant a short extension IF the UK passes the Withdrawal Agreement (WA). The EU has repeated said there will be no more negotiations on the WA. The EU commission has recommended to grant either a short extension to mid-May before the European elections or a long one lasting until at least end-2019.
On the trade war, in another bow to trade war dynamics, Trump said he intends to keep tariffs in place for ‘a substantial period of time’ until China adheres to the ceasefire.
