• Fed minutes: FOMC discusses a change in rate path The minutes of the January 26-27 FOMC policy meeting showed that officials were divided on how to interpret the financial market volatility. They expressed concerns that this poses increasing downside risks to the US economy and debated on whether the path for the Fed funds rate should be reconsidered. However, as the impact of the global slowdown on the US economy was still blurry, they agreed that such a move would be premature. They even discussed a hike at that meeting. In our view, this shows that the recent uncertainty caught the committee unprepared, which was reflected in the divided views among its members. Given that the global situation has only worsened since then, we expect the Fed to revise down its median ‘dot plot’ forecasts, at least for 2016, at its March meeting. This would bring the Fed’s projections closer to market expectations, which at the moment, barely point to a single hike this year.
• Iran says thank you but no thanks Iran’s oil minister voiced his support for the plan to freeze oil production at current output, but refrained from committing Tehran to join the agreement. As the Saudi-Russian agreement on Tuesday was conditional upon other major producers freezing output as well, it is unclear whether this deal will be sealed. Oil minister’s diplomatic response left the door open for more talks, but bearing in mind Iran’s eagerness to regain market share, we expect that the nation will not agree to anything unless it is offered some special conditions. WTI rose as Iran did not clearly reject joining in, but we would sound a note of caution on oil’s outlook until the dust settles down.
• Today’s highlights: During the European day, the French CPI is forecast to have accelerated somewhat in January. Sweden’s CPI and CPIF for January are also coming out. Both figures are forecast to have accelerated from the previous month. At its latest meeting, the Riksbank cut interest rates further into negative territory by more than expected in order to safeguard the rise of inflation towards the Bank’s target. However, we believe that accelerating CPI may not reassure the Bank that the upturn in inflation is on a solid footing as this could happen due to energy related base effects arising from the CPI calculation. After all, this is what we saw happening in most of January’s CPI data from other regions. Therefore, we prefer to wait February’s data to come out before assuming that the upturn in inflation is healthy and that the Riksbank could take the sidelines for a while.
• In Eurozone, the ECB releases the minutes of its January policy meeting. At that meeting, the Bank remained on hold but signaled that it will reconsider its policy stance in March as the global market turmoil may have affected Eurozone’s outlook. At his press conference following the meeting, President Draghi said that the Board did not explicitly discuss which tools are more suitable in case of an action. Therefore, we believe that the minutes will provide little new information and may pass unnoticed by the market. Eurozone’s current account balance for December is coming out as well.
• In the US, initial jobless claims for the week ended on the 12th of February are forecast to have risen from the previous week, but the 4-week moving average is expected to have declined. This could confirm that the labor market remains the bright spot in Fed’s chart book. The Philadelphia Fed Business activity index for February is expected to rise a bit, but to remain below the crucial zero mark. Taking into account the disappointment in the Empire State manufacturing index for the same month, another contraction in Philadelphia’s manufacturing activity could increase the likelihood for a print below 50 in the ISM manufacturing PMI due to be released on the 1st of March. This may prove USD-negative, at least at the release.
• We have two speakers scheduled today: San Francisco Fed President John Williams and Norges Bank Governor Oystein Olsen.