Market Movers Today
The first inflation figures in the euro area for July are due for release with the German, French and Spanish figures. The euro appreciation during July should not yet result in lower inflation, but we look for the German HICP inflation figure to go lower as package tours should be less supportive.
We will also get information about economic growth in the euro area in Q2 with the French and Spanish GDP growth figures due for release.
US GDP growth is also due for release and we have a below-consensus forecast of 2.3% q/q AR, reflecting slower growth in private consumption and less contribution from fixed investments than expected when entering the quarter.
In Scandinavia, focus is on the Norwegian labour market figures and Swedish GDP growth for Q2 where we look for a pickup in economic activity to 3.0% y/y from 2.2% y/y in Q1. Finally, Norwegian and Swedish retail sales are due for release.
We expect Russia’s central bank to cut its policy rate by 25bp to 8.75%. See CBR rate decision preview: we pencil in a cautious cut, 24 July 2017.
Selected Market News
Asian stock markets declined this morning after US tech shares retreated from recent rallies. A string of Japanese economic data came in stronger than expected, with household spending rising more than expected and the jobless rate falling to 2.8%, although inflation at 0.4% y/y in June remains way off the Bank of Japan’s target .
The US Senate voted to impose new sanctions on Russia, putting President Donald Trump in a tight spot by either forcing him to take a hard line on Moscow or veto the legislation and infuriate his own Republican Party. EUR/USD retreated yesterday from the highs reached following Wednesday’s FOMC meeting, and is currently trading at 1.1688. In effective terms, the euro is now 4% stronger compared to the assumption in the ECB’s project ion from June 2017 and we believe that the recent euro appreciation will be a headwind to inflation in coming years, especially as the ECB’s inflation projection seems optimistic already. We st ill expect the ECB to continue its QE purchases but at a reduced pace of EUR40bn per month in H1 18, and that it will announce this at the October meeting with some signalling of it in September.
The UK FCA announced that Libor will be phased out by the end of 2021, saying that the rate is not sustainable due to a lack of t ransact ion and volume. Uncertainty abounds on how the t ransit ion to more t ransact ion-based fixing can take place both in the UK and the euro area.
Politics in Sweden also continues to be in focus following Prime Minister Stefan Löfven’s decision to replace the infrastructure and interior ministers over an IT scandal, while avoiding the more drastic opt ion of calling an early elect ion. Löfven st ill retained the Defence Minister, defying calls for a dismissal of all three ministers. Opposition parties are expected to press for a confidence vote on the Defence Minister after the summer recess and if passed, it could st ill bring down Löfven’s minority government . So far, EUR/SEK remains unperturbed and unless the government is brought down and a polit ical crisis erupts, we expect the market impact to be only modestly SEK negative as economic data in Sweden remains strong.
