Market movers today
Today’s highlight is the BoE’s rate decision at 13:00 CEST. We expect the Bank of England to hike the Bank Rate from 0.50% to 0.75% (in line with consensus and market pricing), as activity indicators have rebounded and the unemployment rate is low. We expect no change in the APF nor the CBPP. It is one of the big meetings to keep an eye on. The Inflation Report is also due at 13:00 CEST. BoE Governor Carney’s press conference starts at 13:30 CEST. Going forward, we expect the Bank of England to hike once a year. We look for EUR/GBP to remain range bound near term, with Brexit uncertainty expected to remain a key source of volatility.
In Denmark, FX reserves data for July are due out at 16:00 CEST. We expect them to show that Danmarks Nationalbank did not intervene in the DKK markets in July.
Overnight Thursday/Friday, the Chinese Caixin index will be released. It is likely to mirror the small disappointment that the official Chinese numbers showed earlier this week.
Selected market news
As expected, the FOMC meeting turned out to be a non-event. The Fed maintained the target range at 1.75-2.00% and did not feel it was necessary to send any new signals in the statement (there were no updated projections or a press conference at this meeting). The statement just stated the fact that growth has been strong and PCE core inflation is near the 2% target. We still expect the Fed to hike two additional times this year in September and December.
US Trade Representative Robert Lighthizer has now officially stated that the Trump administration is considering increasing the tariffs from 10% to 25% on UDS200bn worth of imported goods from China. The hearing period has been extended from 30 August to 5 September. For more details, see statement here. The hope is probably to force China back to the negotiation table but China has said that blackmail would not work and that the Chinese leadership is ready to retaliate against any protectionist measures taken against the country. We still think it is difficult to see the two countries reaching a deal this side of the US mid-term elections in November. Stocks are trading lower on the back of the escalating trade war.
US ISM manufacturing fell more than expected to 58.1 in July from 60.2 in June but despite the fall, it has been range-bound since last summer. We still believe ISM should come down eventually, but it has been more stubborn than expected and ISM manufacturing is still much higher than what we see in the hard data.
Yesterday, 10-year US Treasury yields moved above the 3% threshold for the time since May, as the US Treasury said it is going to sell USD78bn in long-term debt in Q3 up from USD73bn in Q2. At the moment, it is trading marginally below the 3% threshold again. 10-year JGB rose yesterday and is now trading at 0.133%.
The Turkish lira hit a new low against the dollar yesterday due to the political standoff against the US.
