Oil Prices Rose To A Two-Month High Of USD 52.92/bbl

Market movers today

Today, the euro area GDP figures for Q2 are due out, and we estimate growth of 0.5% q/q. The solid euro area recovery should have continued in Q2, also reflected in the declining unemployment rate. The growth figure could get more at tent ion than usual amid the ECB’s increased focus on the stronger economic growth and less so on the lack of underlying price pressure, as the latter should eventually strengthen when the recovery continues.

In the US, the focus is on the PCE headl ine and core inflation figures for June, which we estimate will be muted. We still think risks are skewed towards the Fed pausing its hiking cycle due to continuing low inflation, which may not be just ‘transitory’ as the Fed claims, (see FOMC review – Smidgen dovish but it does not alter the overall picture, 26 July). Markets will also watch out for further insights into the Fed’s monetary policy stance, as the Fed’s Mester and Williams (both FOMC voting members) will speak today.

Manufacturing PMI data for July is also out for a range of European countries, including the UK, Italy and Spain. In the US, we will get the ISM manufacturing index, which weestimate moderated slightly in July to 55.5 from 57.8, in line with the Markit PMI.

In the Scandies, PMI manufacturing data for July is due out for Sweden and Norway.

Selected market news

Asian shares ticked up this morning, supported by optimism on the global economy ahead of a flurry of data released today. The Dow Jones hit a new record high as investors remained optimistic on US corporate earnings, while the VIX volatility index stood near the record-low levels reached last week. The private Caixin manufacturing PMI published this morning showed conditions in China’s manufacturing sector improving further in July, diverging from the fall in the official PMI release yesterday. China has proven more resilient than expected over the past couple of months, but we still look for softer Chinese activity ahead.

Euro area core inflation unexpectedly rose to 1.2% y/y in July and the rising underlying price pressures – although due mainly to volatile components – should be welcome news for the ECB, as it reduces the pressure on rate setters to continue QE at the current pace. Although the initial reaction in EUR/USD was muted, the cross reached a new 2-1/two-year high of 1.1844 in later trading due to month-end port folio adjustments and rising political uncertainty in the US, following the sudden departure of White House communications director Anthony Scaramucci.

After UK ministers gave a range of conflicting views about the Brexit ‘divorce’, Prime Minister Theresa May’s spokesman clarified on Monday that the free movement of people from the EU will end in March 2019 when Britain leaves the bloc. Reaching an agreement on atransitional deal with the EU that does not include the freedom of movement will be even more difficult for the UK government , and political uncertainty surrounding Brexit remains high.

Oil prices rose to a two-month high of USD 52.92/bbl on Monday, on expectations of US sanctions against Venezuela after Sunday’s widely criticised election of a constitutional assembly.