Focus today: The day will be dominated by central banks. We expect the ECB to leave the refi rate unchanged and the tone at the press conference to turn slightly more positive. Trichet might hint that the ECB intends to begin to roll back unconventional measures next year, but we will have to wait for the December meeting to get any major new insights into the exit strategy. The BoE will keep rates unchanged as well and we reckon that the BoE might consider expanding its asset purchase programme. In the US the main releases will be jobless claims and ICSC chain store sales.
Fixed income markets: The US yield curve steepened further yesterday following the FOMC decision. The 2y yield was marginally lower while a rise in market inflation fears took 5y5y forward breakeven inflation up by 6bp and sent 10y yields higher. The 10y yield is now approaching the upper limit of the current trading range and we would need some firmer evidence of a sustainable recovery to support a further increase. We will likely have to wait for tomorrow's employment report to get that. Today's key events will be the monetary policy meetings at the ECB and the BoE. We do not expect any major news from the ECB, but the BoE might expand its asset purchases, which would lend some support to Gilts.
FX markets: An announcement of a 50bn extension of BoE's Asset Purchase Programme to an astonishing 225bn could send GBP weaker today. We expect that the BoE will react to the terrible Q3 GDP numbers and the troubled situation for British banks by announcing additional Gilt purchases. The market reaction to the previous two extensions has been a lower pound, but the market is more prepared this time. If the BoE decides to end the programme, EUR/GBP could continue lower, perhaps even towards 0.8705 where the technical bullish bias ends.
Scandi Daily
There are no events in the Scandi markets today and the fixed income market is expected to trail Euroland. EUR/SEK and EUR/NOK should have further downside as the unchanged wording from the FOMC should support risk appetite.
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