Riksbank Is Next
The FOMC kept policy unchanged, as expected. The statement was largely left unchanged from the September issue except for noting that “household spending has advanced a bit more quickly and business fixed investment has slowed”. USD impact was understandably muted. NZD gained across the board on Wednesday as the RBNZ maintained its neutral stance and left its official cash rate unchanged at 2.5%. Governor Wheeler noted that the Bank expects inflation to head back towards the middle of the target range (1%-3%) over coming months. He sounded less dovish than markets expected noting that the risks to global outlook are more balanced now and New Zealand GDP continues to expand at a modest pace. Earlier, EUR fell on the back of weaker than expected German PMIs – both the manufacturing and the services surveys disappointed. Also, all three components of the German IFO came in soft, and Eurozone manufacturing and services PMIs fell short of expectations, triggering a further round of EUR selling. EURUSD which fell by about 70 pips following the negative data, recovered its losses after Dow Jones reported that Greece would get a two-year extension of the deadline to meet its deficit targets. Both Germany Finance Minister Schaeuble and ECB President Draghi, however, denied reports that the Troika review is complete. The IMF commented that progress has been made in negotiations with the Greek government, and the pending financing issues will be discussed. Data in the US continued to be positive with new home sales growing by 5.7% m/m in September (consensus: 3.2%) and October preliminary manufacturing PMIs printing at 51.3 (consensus: 51.5). USDJPY traded in the 79.70 – 79.88 range during the New York session. Ahead today, the Riksbank rate decision is due. Though markets expect the central bank to stand pat, risks of a rate cut are high after soft inflation and confidence numbers in Sweden. Our economists expect a 25bp cut in December. Also on tap today are UK Q3 GDP data and US jobless claims for last week.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank