Market movers today
The main release today is the US PCE data, which we expect to rise to 2.0% from 1.9% (PCE core inflation). We still believe the Fed is on track to deliver two more hikes this year. The consumer spending data will give us more insight into growth at the beginning of Q3.
In Scandi, the Swedish NIER’s monthly confidence survey is due out this morning. Norwegian retail sales are also due, see page 2.
The regional inflation prints during the day will give an indication before Friday’s euro area flash estimate. We also get European confidence indicators (11:00 CET).
Selected market news
Overnight, Asian equities traded mixed despite the S&P500 closing at an all-time high.
EMs had a tough day yesterday. The TRY continued its recent decline despite the Turkish Central bank (TCMB) applying more tools. Although the TCMB doubled its o/n transaction limits, the implicit tightening did not convince the markets. In our view, the only credible step would be a sharp interest rate hike by the TCMB, as even a 300bp rate hike doesn’t seem to be enough in the current environment.
In Argentina, President Mauricio Macri asked the IMF to speed up its payment from the USD50bn credit line, as the government wants to ensure markets that it has sufficient funds through 2019. The central bank has already raised interest rates to 45% amid a looming recession (the second in three years). The peso (ARS) dropped to an all-time low yesterday. For more detailed EM analysis, see Strategy: New ‘fragile five’ in emerging markets.
The revamp of NAFTA seems likely to be concluded this week after positive tones from Canadian PM Trudeau saying a deal is possible by Friday if it ‘s good for Canada, though he also said, “no NAFTA deal is better than a bad NAFTA deal.” US President Trump echoed similar positive language on the possibility of a deal this week. Overnight, Canadian Foreign Minister Freeland said that a “huge amount of work remains”.
Yesterday, EU chief negotiator Barnier said the EU is prepared to “to offer a partnership with the UK such as has never been with any other third country”. Barnier repeated his previous line, asking the UK to respect the EU’s red lines, in the same way the EU respects the UK’s red lines. As mentioned in yesterday ‘s daily , unidentified sources suggested that the UK and EU would extend the deadline for a Brexit deal and avoid a ‘hard’ Brexit. Our base case remains a ‘decent Brexit’, for a deal that maintains a close trading relationship between the UK and EU, although the UK leaves the single market. One major event is the UK Conservative Party conference in late September-early October, as PM Theresa May is under pressure by hardcore Brexiteers.
A Bloomberg survey indicated that Germany ‘s Jens Weidmann is no longer the front – runner to replace ECB’s Draghi. The survey also indicated that there is no clear front -runner currently, with Finland’s Liikanen, France’s Villeroy and Ireland’s Lane all back to back.
