Market movers today
Today, we get the final German inflation figures. This will hold more information on what lies behind the still quite sticky core inflation in August.
In Sweden, we get lots of interesting data with GDP, production value indicator, and consumption indicator.
The 60 second overview
Overnight, New York Fed president John Williams noted that “I think we’ve gotten monetary policy in a very good place in terms of we have a restrictive stance of policy” prior to the Fed blackout period commencing tomorrow before the Fed meeting on 20 September. Also, Dallas Fed president Lorie Logan said that “another skip could be appropriate when we meet later this month” but that “skipping does not imply stopping”. We and markets expect the Fed to be on hold later this month with markets pricing 2bp for the meeting. The US economy continues to show underlying strength with labour markets still strong. Yesterday, Q2 unit labour cost growth was revised up slightly more than anticipated (2.2%; from 1.6%) and productivity growth picked up significantly from Q1 despite the revision.
Yesterday we received wage figures for Q2 in the euro area. Wage growth measured as compensation per employee increased 5.5% y/y like in the first quarter. While the wage growth is clearly not compatible with the 2% inflation target, it does not point to an imminent wage-price spiral. For an in-depth analysis of the recent changes in the euro area macro environment see our latest euro area macro monitor: Euro Area Macro Monitor: Bye-bye two speed economy. Hello contraction, 7 September.
Equities: Global equities were lower yesterday in a much more classic risk-off rotation than we have seen for long. This also includes lower yields one a day when jobless claims came in rock-solid. Defensives outperformed the group of cyclicals by more than 1% although it is hard to find a direct macro or monetary policy announcement that justifies the magnitude of defensive rotations. Tech led the sell-off, and the size of the sector explains part of the weak cyclical performance yesterday. Again, this was not macro-driven but was a consequence China’s decision to expand the iPhone ban to state firms and agencies. Please note most (geo)-political driven sell-offs are typically short-lived compared to macro or monetary driven sell-offs. In US yesterday, Dow +0.2%, S&P 500 -0.3%, Nasdaq -0.9% and Russell 2000 -0.99%. Asian markets are mostly lower this morning after a set of lacklustre Japanese macro data. Futures in US and Europe are flat and mixed this morning.
FI: Global bond yields rallied on the back of weaker sentiment in the equity market and the belief that both the Federal Reserve and ECB are done hiking in this environment. Several of the Federal Reserve officials have recently indicated that US monetary policy is in “a good place”. A recent survey on ECB shows that economists are uncertain whether ECB will hike next week or in October. We still believe in 25bp at the meeting in September and then ECB is done. We also expect the Fed to be on hold for now.
FX: EUR/USD is trading around the 1.07 mark as the USD continues its grind higher with both initial and continuing claims declining more-than-expected in the US yesterday. EUR/DKK rose further yesterday and broke the 7.46038 central rate for the first time since 2020. EUR/GBP ended the day broadly unchanged with the BoE’s Decision Maker Panel survey showing that both wage growth and inflation expectations have ticked lower the past month.
Credit: The skittish equity markets from Wednesday continued on Thursday, but credit markets roughly held firm on the back of a small rally in the rates space. Itrax main was broadly unchanged at 72.1bp (0.2bp wider) while Itrax Xover widened 1.7bp to close at 403.3bp.
