Danske Research Team
Danske Bank A/S
Market Movers
The calendar is light today, so financial markets will look to Sweden, where the Riksbank will announce its decision on monetary policy at 9:30 CET. We expect a repo rate cut of at least 10bp to 0.45% or lower. With regard to the Riksbank’s forecasts, we believe the main change will be in the inflation outlook, which could be revised downward by up to 0.5pp. Should the Riksbank make such a large revision, there is a chance of an even bigger cut or other policy measures.
Federal Reserve chairwoman Janet Yellen is set to speak again today – the second day in a row. We expect her to reiterate the message from yesterday, that the Federal Reserve is monitoring the tightening of financial conditions, which may have a negative impact on the outlook for growth in the US economy and lead to a postponement of the next increase in the federal funds rate.
Selected Market News
Federal Reserve chairwoman Janet Yellen’s testimony before the US congress on monetary policy yesterday did not deliver any significant changes to the Federal Reserve’s view on the economy and monetary policy. Overall, Janet Yellen preserved the right not to jump to any premature conclusions before the next monetary policy meeting in March despite a significant tightening in financial conditions. She did acknowledge that tighter financial conditions could have a negative impact on the outlook for the US economy and warrant a postponement of the next increase in the federal funds rate but did not discuss a possible rate cut.
Overall, the message from Yellen was fairly balanced and she managed not to spook financial markets further yesterday, although prices on riskier assets, such as stocks and commodities, did show slight declines led by an initial rise in the USD. Sentiment in financial markets overnight has been negative. The Hong Kong stock market opened, following a three day holiday close, with a loss of 3%, the JPY continues to rise with USD/JPY falling below 1.13 and the oil price has fallen. The price on WTI crude has dropped below USD27/bl and widened the spread to the price on Brent crude to more than USD3/bl on the back of an increase in crude oil stocks in Cushing Oklahoma to a record high level.
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