Sunset Market Commentary

Markets

Neither Fed’s Powell nor ECB’s Lagarde at the Jackson Hole gathering offered groundbreaking views on the economy or monetary policy going forward. Add to that today’s empty (but backloaded!) calendar and lower trading volumes – the UK enjoys the Summer Bank Holiday – and you get the perfect background for a technical trading session. The ECB’s monthly credit survey is worth mentioning though. Annual M1 money growth in July was -9.2% compared to -8% in June. Growth in the broader monetary aggregate M3 also turned negative for the first time in more than 13 years. At -0.4% it matches the previous series low of February 2010. The annual growth rate in loans to households eased from 1.7% to 1.3% while the measure for non-financial companies fell from 3% to 2.2%. The numbers underscore the (lending) slowdown in the European economy after the bigger-than-expected drop in the (services) PMI already did so last week. Stocks in the region eke out a 0.90% gain (EuroStoxx 50) nevertheless. The Chinese measures announced on Sunday to “invigorate capital markets and boost investor confidence” to some extent help. US Treasuries trade with a strengthening bias. Yields ease between 1.0 bps (2-y) to -2.7 bps (10-y). German Bunds underperform with rates rising 1.9 bps at the front end of the curve while losing 1.0 bp further out. Austrian ECB Governing Council member Holzmann was the latest to weigh in on policy after the JH symposium. The monetary hawk said that, barring a big surprise, rates should be raised further. He argues against a pause in the cycle: “It’s better to achieve a peak rate faster, which also means we can eventually start going lower earlier”, adding that “It’s more difficult for markets to digest a stop-and-go rate path.” Holzmann also said that the ECB should consider speeding up the unwinding of its balance sheet by opening the debate on PEPP reinvestments sooner. They currently run at least through the end of 2024. FX markets trade quietly. The dollar loses a little ground but is off the intraday lows. EUR/USD trades just north of 1.08. The trade-weighted index changes hands around 104.10. USD/JPY (146.46) stays near the recent highs with the Japanese yen the only currency in the G10 landscape worse off than the USD. The Swedish krone (see below) and the Aussie dollar marginally strengthen against peers with the latter currency hoping for further concrete Chinese measures to stimulate its ailing economy. AUD/USD moves a tad higher towards 0.642.

News & Views

Excerpts of a speech of Riksbank Deputy governor Flodén show that the MPC member sees the weak krona as a problem. “It risks contributing to continued high inflationary pressures. The weakness seems to be linked, for instance, to trend-following behaviour, concern regarding the Swedish property sector, the geopolitical situation and the image of Sweden, as well as the expectation that the Riksbank will raise the interest rate less than other countries. But in my opinion, none of this can justify the size of the krona depreciation. There are also many strengths in the Swedish economy, and the krona will reasonably strengthen in the future”, the Riksbank website reads. Quotes on Reuters after the speech was given in Stockholm add that Flodén sees the krone as 20% undervalued and that currency intervention is not a very effective method to affect the level of a currency. The krona today gains marginally, but at 11.91, the Swedish currency continues to trade within reach of its all-time low level against the euro.

Sentiment in the German export industry deteriorated slightly further according the export expectations published by the German Ifo institute today. Export expectations declined to -6.3 in August from -6.0 in July. According to the head of surveys at Ifo, Klaus Wohlrable, German exports continue to struggle with weak global demand. However more German companies are also said to complain about being less able to compete at a global level. On the positive side, the chemical industry is reported to have turned around and now expects a rise in exports. Food and beverage exports also expect improved international sales. Positive and negative responses were reported more or less balanced for automobile manufacturers. On the negative side, the export outlook for manufacturers of machinery and equipment and in the metal industry deteriorated further.