AILY COMMENTARY | EQUITY MARKET CARNAGE CONTINUES | 14/01/2016

• Equity market carnage continues The start of the earnings season in the stock markets has done nothing yet to reverse the overall risk-off environment. Having already a rough start for the year, with China at the forefront of developments, US stock markets continue to decline with no clear signs for a recovery. Although only a small portion of companies have reported earnings so far, the results were overall disappointing. This risk-off environment should see demand for funding currencies intact, with currencies like JPY, EUR and CHF outpacing most other currencies. The gains against the dollar however, may stay limited, as investors remain aligned behind further rate hikes from the Fed.

• Today’s highlight will be the Bank of England monetary policy meeting. No change in policy is expected while consensus is that the vote will once again be split 8-1 with Ian McCafferty to maintain his call for a rate hike. The minutes of the meeting are released at the same time as the decision, which makes meeting days more interesting than before. With the British pound hovering near its lowest levels since June 2010 vs USD, the falling commodity prices to which the UK equity market is exposed and the looming “Brexit” referendum concern, the minutes will give us the opportunity to get additional insights about members’ views on the UK economic outlook. The minutes of the last meeting showed that the committee expected November’s CPI rate to have returned to positive territory and to continue rising as the effects of falling energy prices drop out of the calculation. While inflation turned marginally positive in November, the renewed drop in oil prices and the soft wage growth is set to weigh on the Bank’s inflation outlook. That said, we will closely monitor the meeting for any hints on just how far the committee’s expectations for the first increase in the Bank rate have been pushed back.

• From Sweden, we get the CPI and CPIF for December. Both rates are forecast to have remained unchanged from the month before. Last week, the Riksbank Board gave Governor Ingves additional powers to intervene immediately in the currency market, should the exchange rate appreciate too quickly. In an attempt to combat possible deflation and appreciation of SEK that could undermine further rise in inflation. If the inflation rate fails to pick up, or if we see a negative surprise in the CPI rate, we see a possibility for the Bank to intervene in the FX market to weaken the krona.

• In Germany, the annual GDP growth rate for 2015 is forecast to have accelerated slightly from the previous year, which could support EUR a bit, at least at the release.
•  In Eurozone, of particular note will be the release of the ECB minutes, which have never been a driver of the EUR since they started being released, but could be important this time. The ECB decided to cut the deposit facility rate at their last meeting and to extend the QE program for at least 6 more months. In the meantime, the Board expanded the assets they can purchase and decided to reinvest the proceeds from the bonds that mature. Since then, ECB officials stated that QE will run as long as necessary to reach the inflation target and that the deposit rate is theoretically not at its lower bound. What is more, Eurozone’s CPI rate failed to accelerate in December and stayed unchanged at 0.2% yoy. Therefore, we will look through the minutes for further hints if the Bank is willing to expand further its stimulus program.
• In the US, initial jobless claims for the week ended on the 8th of January are forecast to have decreased from the previous week, while the 4-week moving average is expected to have increased slightly.

• We have two speakers scheduled on Thursday’s agenda: Atlanta Fed President Dennis Lockhart and St. Louis Fed President James Bullard speak.