Oil Prices Hit Two-Month Low on Positive Market Sentiment

In focus today

We anticipate the Bank of England will raise its policy rate by 25 basis points to 4.00% to contain inflation risks, following hawkish comments from Monetary Policy Committee members. In Norway, we and market participants expect Norges Bank to hold its rate steady at 4.50% during its interim meeting, issuing only a press release and conference without new forecasts. Swedish October inflation is projected to show core inflation at 0.47% year‑on‑year, CPIF at 1.39% and CPI at 1.18%.

Federal Reserve officials Hammack, Logan and Barkin will speak. Hammack and Logan, who dissented against the July and October decisions to keep rates unchanged, are the most hawkish FOMC members. With Barkin slated to vote in 2027, market participants will watch for any hints regarding his view on the October rate decision.

ECB’s Isabel Schnabel will also address the ECB Money Market Conference in Frankfurt.

Economic and market news

What happened overnight

In commodities, Brent crude fell to around USD 94 per barrel, its lowest level in two months, with the January contract down roughly USD 20 this week. The decline is attributed mainly to the Democratic sweep in the U.S. midterms, which raised expectations that political pressure will be placed on the Trump administration to end the Iran conflict and limit congressional funding for Middle East operations. Meanwhile, the EIA weekly report showed U.S. crude production rose above 14 million barrels per day for the first time, with a slight draw on strategic reserves.

What happened yesterday

In the U.S., the Treasury’s Q4 quarterly refunding announcement left long‑end issuance and guidance largely unchanged, though subtle wording shifts suggest a marginally tighter stance. Markets reacted with muted volatility.

U.S. employment: The ADP report indicated an October increase of 86,000 jobs, exceeding the 69,000 consensus and reinforcing a robust labor market ahead of the official payrolls release. Wage growth for job‑switchers climbed to its highest level since March 2024, signalling tightening labor conditions and modestly hawkish pressure on the Federal Reserve.

Euro area inflation rose to 4.0% year‑on‑year in October from 3.8% previously, driven by energy prices, while core inflation remained steady at 2.5%. The headline print supports a December ECB rate hike as the baseline, though limited spillovers suggest further tightening may be limited. Additional hikes cannot be ruled out given hawkish ECB rhetoric.

Euro area PMI: The final services PMI was revised down to 51.4 from a flash estimate of 51.7, pulling the composite PMI to 51.7 from 51.9. The unexpected softening contrasts with the manufacturing PMI’s upside surprise.

Sweden: The Riksbank raised its policy rate by 25 basis points to 2.00%, citing higher costs, a stronger economy and an improving labor market. The bank kept its September guidance that further hikes will likely be needed next year, with our view pointing to a February increase followed by another in March to reach 2.50%.

Poland: The National Bank of Poland held its policy rate steady at 3.75%, marking the seventh consecutive hold at the lowest level since 2022. Policymakers remained cautious, emphasizing a data‑dependent approach.

Equities: Equities surged on Wednesday as investors digested the midterm results. The S&P 500 rose 1.6%, the Nasdaq 1.4% and the Stoxx 600 gained 1.8%. Risk appetite increased, with the VIX falling sharply and bond yields easing on both sides of the Atlantic, mirroring the oil price decline.

Fixed income and FX: Bond yields slipped while the USD and Norwegian krone weakened following the Democratic sweep and the steep drop in oil prices. President Trump signaled a willingness to work with Democrats. The Riksbank’s rate hike was in line with expectations and left the forward guidance unchanged. Today’s focus is on the Bank of England’s 25‑bp hike to 4.00% and Norges Bank’s decision to keep its rate at 4.50%, with attention on forward guidance from Governor Ida Wolden Bache.

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