In focus today
The most important event today will be the Riksbank’s rate decision at 9.30 CET. On the back of a slightly weaker economy and lower inflation than expected, we expect Riksbank to cut the repo rate by 25bp and reduce the repo rate path by some 40bp compared to the June forecast. Such a downward correction, however, is not sufficient to match market pricing of 99bp for the coming three meetings including today’s decision. Market pricing for today is 32bp or a 28% chance of a 50bp cut.
Economic and market news
In China, the PBOC followed Tuesday’s stimulus package with a 30bp cut to the medium-term lending facility rate, as expected. The move supported the momentum in Asian equities with the Hang Seng index up 1.9% this morning following yesterday’s 4.1% gain.
In the US, rates slid after a weak conference board sentiment print where labour market metrics suggested a continued softening. In response, markets slightly raised the implied probability of a 50bp cut in November, which as of this morning sits at 60%.
Oil found support from both supply- and demand-side factors, as continued tensions in the Middle East sowed fears of supply disruptions, while a monetary stimulus package by the PBOC raised prospects for demand. Brent almost reached 76 USD/bbl. but ended at about 74.96 which was still in the positive.
The RBA left rates unchanged as expected by markets and us. The forward guidance remains hawkish compared to the Fed and most other G10 central banks as it still sees underlying inflation stabilizing close to target only in late 2025. AUDUSD shifted higher after the announcement and was also supported by the Chinese stimulus package announced, the cross ended the day up some 0.5%.
Equities: Global equities were higher yesterday, led by China following a broad spree of monetary and fiscal stimulus. That said, all regions posted gains yesterday, with the S&P 500 marking its 41st all-time high this year. Looking at sector performance, we also see the effects of the Chinese stimulus, as materials was the best performing sector (though the worst performing YTD). It can be challenging to separate hot and cold water, but macro data was not the driver yesterday. In our opinion, the macro data suggested a very different outcome from what we observed in the equity markets yesterday. In the US yesterday, the indices showed modest gains: Dow +0.2%, S&P 500 +0.3%, Nasdaq +0.6%, and Russell 2000 +0.2%. China is continuing its stimulus efforts this morning, which has led to a sharp rise in Chinese stocks again today. The rest of Asia is more mixed, while European and US futures are lower this morning.
FI: 10Y Treasuries seem to be stabilising after having risen some 13bp since Monday last week. We have a string of US data this week, where the US inflation data (US PCE price index) published on Friday is the main event. If the data is weaker than expected the market will focus on the possibility of a 50bp rate cut at the next FOMC meeting.
FX: While EUR/SEK has kept within a tight range through September, yesterday saw a tentative break below the lower end of the 11.30-11.40 interval and starts Wednesday at 11.2950. Focus on the Riksbank decision at 09:30 CET where we and consensus expect 25bp. EUR/NOK downside rejected at 11.60, trades at 11.6450. EUR/DKK fell to 7.4570, its lowest point since March. EUR/USD erased losses that followed weak European PMIs earlier this week and gained further after soft US consumer confidence. This morning the cross tests August highs at 1.12. Weak dollar pulled USD/JPY lower to trade around 143.30. Yesterday we booked profit on our long GBP/CHF.
