In focus today
This morning, we published our Nordic Outlook with updated economic forecasts. We expect growth to pick up modestly towards 2025 in Europe including the Nordics, with important variations between them. In the US, growth is still slowing, but from a stronger starting point, while we project the Chinese economy to continue muddling through amid the housing crisis and weak consumer spending. With inflation cooling, the road is paved for gradual and cautious interest rate cuts, where we now expect the Fed to cut rates at every meeting from September to June. Read more in Nordic Outlook – Normalising economies, with risks, 3 September.
The most important data release of the day will be the US ISM Manufacturing index for August. While hard production data has showed recovering growth over summer, the ISM index has remained in contractionary territory and the latest preliminary PMIs signalled further weakness ahead.
In Sweden, Riksbank governor Thedéen will give a speech about current monetary policy at CET 10:00. Thedéen, like other members of the Riksbank board, argues that larger cuts could be justified by an unexpectedly rapid economic slowdown or financial crisis, or otherwise something that significantly alters the inflation outlook. Most Riksbank members have called for 2-3 more rate cuts this year, with Thedéen leaning towards 3 cuts.
Economic and market news
What happened yesterday
Yesterday was muted in terms of market movements, as US markets were closed for Labor Day and data calendar lacked any major macro releases. A slew of PMIs – both preliminary and final – were released.
In the euro area, the final August manufacturing PMI was revised slightly upward to 45.8 from the flash release of 45.6, leaving the overall picture of the weak manufacturing sector unchanged. Notably, country revisions showed France’s PMI improving from 42.1 to 43.9, while Italy’s rose to 49.4 from 48.5, erasing the recent weakness in Italy. France, however, remained deeply in contractionary territory, like Germany. The divergence in growth between Southern Europe and Northern/Central Europe observed in the first half of the year appears to have continued into the third quarter.
In Scandinavia, Sweden’s manufacturing PMI climbed up to 52.7 in August from 49.2, driven by improved orders and production. The Norwegian manufacturing PMI showed a drop to 52.1 from a positive revision of 59.8 (first estimate 56.9), driven by new orders and output. That said, the Norwegian manufacturing PMIs are notoriously volatile, making the reading tough to put too much emphasis on. Better indicators suggest that the petroleum-related parts of manufacturing continue to cushion Norway from weaker global impulses although aggregate growth remains weak.
Equities: Global equities were somewhat lacklustre yesterday, with the US markets closed for Labor Day, leading to directionless trading in Europe. The spread between cyclicals and defensives remained flat, despite some intriguing PMI data released yesterday. The best-performing sector yesterday was REITs, which should dispel any doubts about the implications of yield movements for sectors with high valuation and significant debt loads. After struggling for some years, REITs have emerged as the best-performing sector in the Stoxx 600 over the last six months. Interestingly, banks have been the best-performing industry, highlighting the impact of lower yields driven by improved growth prospects and a more benign inflation outlook. This morning, most Asian markets are lower, led by China, which faces challenges due to weaker-than-expected sales numbers in the housing sector. European futures are mixed, with US futures slightly lower.
FI: It was a quiet session in the European fixed income market as the US market was closed yesterday. 10Y German government bond yields rose almost 4bp, and the curve 2Y-10Y steepened modestly. However, the primary market is still very active with plenty of new issuance as issuers are coming to the market ahead of the central bank meetings in September as well as US election in early November.
FX: EUR/USD has had a quiet start to a very important week due to yesterday’s Labor Day public holiday in the US, still hovering in the mid-1.10-1.11 range. CHF was off to a poor start to September ahead of the important release of Swiss CPI for August this morning at 8:30 CET. EUR/SEK and EUR/NOK had a fairly uneventful start to the week with all eyes focused on the US jobs report on Friday.
