Market movers today
On the data side, we get July existing home sales data for the US today. The housing market has largely defied rising interest rates, so data will be interesting to follow.
Focus is on the August flash PMIs due on Wednesday; note that the Japanese PMI will be out overnight European time. The Japanese economy has held up relatively well in recent months with record-high service PMI prints and manufacturing PMI only just below the 50 threshold, supported by a weak yen.
In the Nordics, focus will be on Norwegian GDP, see more below.
The 60 second overview
German inflation: German producer prices (PPI) declined 1.1% mom in July inducing a 6% annual decline, driven largely by energy. This is the first annual decline since end November 2020. Excluding energy, annual PPI stands at 2%. This indicates further deflationary forces on goods. That said, consumer inflation remains largely service-driven. The Bundesbank also expressed concern yesterday that inflation will remain above 2% for a long time to come due to high wage growth. They expect GDP growth around zero in Q3 and the labour market to remain robust in the coming months, with unemployment climbing slowly higher. For more, see Bundesbank.
New China forecast: Yesterday we revised down our China GDP forecast to 4.8% in 2023 (previous 5.2%) and 4.2% for 2024 (previous 4.8%), see Research China: Downside risks on the rise – scenarios for Chinese growth, 21 August. Rising financial stress and weaker economic performance over the summer has lowered growth expectations. We see a rising risk (25% probability) of a deeper financial and economic crisis but still believe that China has the tools to avert such an outcome and will use them to the extent needed. We have revised higher our USD/CNH forecast to 7.70 in 12M from 7.40 in response to the weaker outlook and rising risks. Today we host a webinar elaborating further on the China outlook, see invitation with link to the webinar here.
Equities: Global equities higher yesterday, driven by a renewed appetite for US tech stocks. It was a relative narrow window with appetite and the majority of S&P500 members were lower despite the index rising 0.65%. Large cap outperforming small cap, cyclicals outperforming defensives and VIX ticking lower. The sudden tech optimism came without major news, though it would not be surprising if some gold diggers are hoping another blowout result from Nvidia as they are set to report after the close on Wednesday. In US yesterday, Dow -0.1%, S&P 500 +0.7%, Nasdaq +1.7%, Russell 2000 -0.2%. The tech optimism is continuing in Asia this morning coupled with less bad news and a strong FX fixing out of China. For the first time in a while, we see a broad lift to indices across Asia. Please note, the MSCI Asia excl. Japan has lost almost 10% in August and one day of relief does not change a trend. Futures in Europe are positive this morning while US futures are flat.
FI: Global bond yields rebounded after the decline on Friday. 10Y US treasuries continued the upward trend that has been dominating since May when the 10Y yield bottomed at 3.4%. It now stands at 4.35%.
FX: Despite US yields continuing higher, EUR/USD traded mostly sideways around 1.09 during yesterday’s session. However, the greenback strengthened further against the Yen on the back of the rising US yields. Scandies were offered a breather yesterday as risk sentiment recovered somewhat, and both EUR/SEK and EUR/NOK closed the day more or less unchanged.
Credit: Despite the improvement in risk sentiment, the EUR credit market remained somewhat soft yesterday where iTraxx Xover widened 1.6bp (closing at its widest level since late May) and Main 0.4bp. Financial issuers were the main drivers of primary market activity, but Volvo re-opened the corporate EUR market with a EUR700m 3y bond priced at MS+40 and attracting a solid order book.
Nordic macro
Based on the monthly output figures, we expect that the Norwegian mainland GDP was unchanged in Q2. If proven right, growth (including revisions) will be very close to the projections presented by Norges Bank in its June monetary policy report.
 declined 1.1% mom in July inducing a 6% annual decline, driven largely by energy. This is the first annual decline since end November 2020. Excluding energy, annual PPI stands at 2%. This indicates further deflationary forces on goods. That said, consumer inflation remains largely service-driven. The Bundesbank also expressed concern yesterday that inflation will remain above 2% for a long time to come due to high wage growth. They expect GDP growth around zero in Q3 and the labour market to remain robust in the coming months, with unemployment climbing slowly higher. For more, see Bundesbank.){kind=link}