Market movers today
Lots of data on the agenda today. In the euro area, the Flash PMI is due. After reaching an all-time high of 60.6 in December 2017, manufacturing PMI fell for six consecutive months to 54.9 in June 2018. The July figure reported a small increase to 55.1 and we believe manufacturing PMI will stabilise around this level for now. This is supported by the rebound in August ZEW economic expectations, and the trade deal between the EU and US in July has also diminished the immediate threat of tariff measures. Hence, we look for manufacturing PMI at 55.2 in August (in line with consensus).
US PMI manufacturing has fallen for two months but at 55.3 it is still above the average since 2010 at 54.0. Our models suggest US manufacturing is set to slow a bit further over the coming months and we look for a small decline in August. US Initial jobless claims are likely to stay broadly unchanged from the already low level at 212,000 last week. US new home sales are also up for release. This has been moving broadly sideways this year but overall housing has shown some signs of softening lately.
The second tranche of tariffs between the US and China comes into effect today. It will lead to another 25% tariff on goods worth USD16bn. We continue to look for further escalation of the trade war during autumn, see also US-China Trade – no deal in sight , 27 July 2018.
ECB minutes from the July meeting are also being released. Although we do not expect any major new information as the meeting was relatively uneventful, we will look out for any hints regarding the Governing Council’s interpretation of the date-dependent part of the forward guidance on rates (‘at least through the summer of 2019’).
In the Scandies, it is time for Norway GDP for Q2 and Swedish unemployment figures, see next page.
Selected market news
The release of the FOMC minutes yesterday did not move the market significantly. They further confirmed that the Federal Reserve is set to raise rates again in September. Beyond that, it reiterated the Fed’s focus on the flattening of the yield curve. In this regard, note that the 2Y 10Y US yield curve flattened further to 22bp – the lowest level this year. In addition, there was a long discussion about the implication for the future monetary policy framework from the risk of hitting the effective lower bound on interest rates again in the future.
Oil prices rallied strongly yesterday with the price on Brent crude moving firmly above the USD74/bbl level. Prices were supported by the fall in USD and decline in US oil inventories last week. The later has eased concerns in the market about the impact of growing supply from OPEC recently.
The UK is preparing for the event of a no-deal Brexit as Brexit Secretary Dominic Raab yesterday urged that both sides find sensible solutions so business can continue in such a scenario.
