Market movers today
Focus turns to the trade war again as EU Commission President Jean-Claude Juncker meets with US President Donald Trump. Juncker will be accompanied by EU trade commissioner Cecilia Malmström, who last week said that Juncker would try to persuade Trump to de-escalate the conflict and not impose tariffs on autos. The EU has also said it would not negotiate with a ‘gun to its head’. On 23 May, Trump ordered an investigation into whether to increase tariffs on cars from the EU and other countries. Trump said in late June that he expected it to be completed in three to four weeks.
On the data front, the key release today will be German ifo business confidence. Following a rebound in German PMI yesterday, we may see a rebound in the ifo index as well, suggesting that the recent escalation in the trade conflict is not having a big negative effect on business sentiment.
In the US, new home sales are up for release. Other housing data has been weak recently in response to higher house prices and increasing mortgage rates .
Selected market news
It has been fairly quiet overnight, with Asian markets trading sideways and notably the Chinese equity rally levelling off following Monday’s announcement of additional easing by the Chinese authorities. In Japan, long-dated government bonds have stabilised again and this morning’s regular market operation from Bank of Japan (BoJ) gave no policy hints for markets to trade on. Yesterday, we released our BoJ preview ahead of the 31 July meeting. In short, we do not expect any policy changes but the risk of policy fine-tuning has admittedly risen. See full preview here .
In FX markets, EUR/USD initially gained yesterday on the better-than-expected set of eurozone manufacturing PMIs. The rise eventually faded, but the initial price action was in our view the key driver behind the rebound in Scandi FX, which has been under pressure recently from a bid USD, looming trade wars and thin summer markets. Manufacturing confidence data out of Norway yesterday morning supported the case for a September Norges Bank rate hike, see chart . Yet, we think the synchronous price action in EUR/SEK and EUR/NOK rather suggests that the NOK’s and SEK’s high beta to eurozone developments were the driving forces behind the rebounds. In the very near term, we still regard EUR/SEK and EUR/NOK as range plays.
Yesterday evening, UK Prime Minister Theresa May announced a reshuffling of the team responsible for the UK/EU Brexit negotiations, in a move essentially giving herself more responsibility. May announced that going forward her Cabinet Office ‘ will have overall responsibility for the preparation and conduct of the negotiations’ , thereby taking over the role from the Department for Exiting the EU, which was downgraded to focusing on domestic preparations. The decision gives May’s chief European adviser Oliver Robbins a key role following a period where Robbins frequently clashed with former Brexit Secretary David Davis. Markets reacted positively to the news with EUR/GBP falling moderately on the announcement.
