Market movers today
Today the German Bundestag will start debating the 2020 budget. As we argue in Research Germany – Loosening the brake, 5 September, with the advent of the constitutional ‘debt brake’, the scope for additional fiscal spending in Germany has been significantly limited to some extra EUR5bn (0.14% of GDP) in 2020. In that light we will look out for any signs of a softening of the government’s stance on Germany’s strict fiscal rules or headlines about the creation of a “shadow budget” to boost public investments and ‘green initiatives’.
We also get July industrial production figures out of France and Italy. The German ones brought nothing to cheer last week, so focus will be whether the Italian and French ones can defy the German downtrend. France in particular, has been one of the rays of light lately in the Eurozone, with manufacturing confidence actually recovering some ground in Q2.
In Sweden we expect CPIF and CPIF excluding energy to print a tenth below the Riksbank’s new forecasts, while Danish CPI figures for August should also show a slight increase to 0.5%.It’s a crucial session for Norwegian markets today with the release of both inflation and the Regional Network Survey. In short we expect both releases to support the case for a Norges Bank rate hike next week. In comparison markets only price a roughly 50% probability of this hike materialising.
Selected market news
The German Bundestag will start discussing the budget for 2020 today and yesterday we had two interesting stories out. First the Reuters story that Germany is considering a ‘shadow budget’ to circumvent the ‘black zero’ and the ‘debt brake’. Later in the day Bloomberg reported that the Finance Minister has written to lawmakers in the Bundestag arguing that budget changes are possible if there should be a need due to overall economic developments or external factors. European yields continued to move higher and the curve bear steepened yet again as markets increasingly starts to price in higher bond supply next year and a QE disappointment from the ECB on Thursday. The negative bond sentiment was also fuelled as German export surprised on the upside in July rising 0.7% m/m. Risk appetite almost remained positive as Treasury Secretary Mnuchin said that US and China have made ‘lots of progress’ on trade-talks.
The probability of a no-deal Brexit also continue to diminish as the Parliament yesterday passed the ‘no-deal legislation’ and made it into law. The law states that Johnson must ask the EU for a Brexit extension if no agreement is reached with the EU. The Parliament has now been prorogued (sent home) and will return 14 October. It still points to a new election after 31 October as Johnson does not have a majority in Parliament.
