Market movers today
Apart from headlines regarding the spreading of the coronavirus, the main event today is the Federal Reserve’s announcement of its monetary policy decision at 20:00 CET. We expect the Fed to keep its target range unchanged at 1.50-1.75% without making any major changes to the statement. It is too early for the Fed to react to the recent sell-off. During the Q&A session at the press conference starting 20:30 CET, Powell is likely to be asked about his views on the recent development but we expect him to state that it is one of the risks the Fed is monitoring. In other words, the Fed is probably not going to strike a dovish tone given the labour market continues to tighten and private consumption growth remains solid. That said, we may see a small 5bp hike of the interest rate on excess reserves (~60% priced in by markets), as the effective Fed funds rate is no longer trading above the IOER rate, which the Fed prefers.
At 18:00 CET the EU Parliament will vote on the Withdrawal Agreement. We expect the ratification to be a smooth sailing, before the UK officially leaves the EU on 31 January.
In Sweden we get NIER’s January confidence survey and household lending data for December.
Selected market news
The coronavirus continues to be in focus in markets. The number of cases in mainland China has reached 5,974 surpassing the 5,327 cases during SARS in 2003. The death toll climbed to 132. China’s leading SARS expert Zhong Nanshan says peak in epidemic may come in a week or 10 days: “It’s hard to predict when the epidemic will reach its peak, but it may come in a week or 10 days, said Zhong Nanshan, a member of the Chinese Academy of Engineering and a prominent expert in respiratory diseases. After that, the number of people infected by the novel coronavirus will not increase massively” , he told Xinhua News Agency yesterday.
In terms of policy response, Chinese state media reported that all companies in the city of Chongqing has been asked not to resume work before 10 February. Hong Kong’s Carrie Lam said yesterday that Hong Kong will stop individual travellers from China effective from today. Australia is now urging its citizens to reconsider travelling to China. Both adds further to concerns over the economic ramifications of the virus. People’s Bank of China pledged to offer abundant liquidity via open market operations when the Chinese market reopens on Monday after the New Year holiday.
The Hong Kong stock market reopened after the holiday falling more than 2%. US equities bounced back about 1% along with US yields, where the 10Y US Treasury rose 4bp. Commodity prices also benefitted from the stabilisation in risk sentiment with Brent crude recovering back above the USD60/bbl level.
