Market movers today
Today’s highlight will be the Bank of England’s (BoE) monetary policy announcement at 13:00 CET. Despite a few economic data releases that came out stronger than expected, we still expect the BoE to cut the Bank Rate by 25bp, a view we have held since November. Despite slightly stronger data, the economy remains weak overall due to high uncertainty on Brexit. However, it is likely to be a close call, which is also reflected in market pricing, as investors are pricing a 45% probability of a cut, leaving some upside in EUR/GBP if we are right in our call.
In Europe we get a range of interesting data releases on the state of the labour market in end-2019 as well as the final string of leading indicators for January with the Commission’s economic confidence indicator. Employment growth has slowed recently, but in light of the dynamic service sector, we do not expect to see a marked deterioration in the European labour market. German inflation figures for January meanwhile are expected to show another increase in the headline rate driven by energy prices.
Later in the day, we expect US GDP figures to reveal decent growth of around 2% in Q4 19, with consumer spending remaining the key driver of growth.
In Scandinavia, we get Norwegian retail sales and Danish unemployment figures for December.
Selected market news
As expected, the Fed did not change its Fed funds target rate (still 1.50-1.75%), sticking to its message that ‘the current stance of monetary policy is appropriate’. On the liquidity situation, the Fed raised the interest rate on excess reserve (IOER) by 5bp to 1.60% from 1.55% (and O/N RRP rate to 1.50% from 1.45%), as we had expected. The Fed also extended repo operations to ‘at least through April’ and repeated that T-bill purchases are set to continue into the second quarter. Fed chair Powell said during the press conference that the Fed wants to keep reserves above USD1,500bn. All of this was about as expected and the market reaction in turn was relatively muted.
The number of coronavirus cases continues to grow and sets the tone in markets. Worldwide 7,815 cases have now been reported and the death toll has reached 170. Yesterday Finland reported its first coronavirus case in a tourist from Wuhan. The World Health Organisation called a meeting of its Emergency Committee today to review the situation and consider issuing a global alarm. Notably industrial metal prices continue to be under pressure due to the economic impact on in particular the Chinese economy of the virus outbreak.
The oil price briefly jumped yesterday after Houthi rebels targeted Saudi Aramco facilities with a missile and drone attack. Saudi Aramco has yet to make an official statement, but a Saudi official said that all missiles were intercepted.
