Market movers today
We expect US building permits and housing starts to surprise on the upside. The MBA purchase mortgage application index has increased substantially in the past two weeks and employment in the construction sector in December was a significant positive surprise.
In the UK we expect that ILO unemployment (three-month average) declined further in November in line with the fall in the claimant count level in November. The labour market continues to improve and even though the pace has slowed we expect that the unemployment rate declined to 5.9% in November from 6.0% in October. The average weekly earnings figures for November are also worth noting, as real wage growth turned positive in October for the first time since 2009.
Finally, the Bank of Canada is expected to keep interest rates unchanged. More interesting will be the monetary policy report including updated economic projections.
Selected market news
While the market remains focused on tomorrow’s ECB’s monetary policy announcement, the Bank of Japan this morning announced its monetary policy decision. The BoJ kept its monetary policy unchanged and pledged to increase the monetary base at an annual pace of JPY80trn. At the same time the BoJ cut its core inflation forecast for fiscal year 2015/16 to 1% from an earlier projection of 1.7%, mostly on the back of the significantly lower oil price, but it revised up its real GDP growth forecast.
While the decision was widely expected, the JPY strengthened on the decision, Japanese stocks dropped and breakeven inflation expectations dropped, indicating that the market viewed the decision as more hawkish than expected.
While the Japanese stock market is trading lower this morning, most other Asian markets are up with the Chinese major indices trading up more than 2%. This comes on the back of major losses on the Chinese stock markets earlier this week.
The Swiss central bank’s decision last week to effectively revalue the Swiss franc continues to affect the global FX markets. The Polish zloty experienced some pressure as Polish households are particularly exposed to Swiss franc denominated loans. Contrary to this, appreciation pressure remains on the Danish krone, which fluctuates in a narrow band against the euro. We expect the Danish central bank to maintain its ‘business as usual’ and to keep the monetary policy regime unchanged, as the central bank has the instruments to curb the strengthening of the krone, cf. below.
