Market movers today
The key event today will be the Riksbank meeting, where it is a close call as to whether the Riksbank will maintain its expectation of a rate hike this year. We expect another delay in the policy tightening.
The US ADP employment report will be watched ahead of non-farm payrolls for August tomorrow.
German factory orders for July will be monitored for any signs of the lingering impact of weaker external demand and trade war concerns.
Selected market news
Sweden’s big week kicks off today as the Riksbank convenes. The Swedish central bank announces its rate decision at 09:30 CEST. We expect the central bank to postpone its first rate hike in seven years yet again. This would be accomplished by lowering the probability of a rate hike in Q4 and hence effectively postponing the hike to next year. We acknowledge that it is a close call, however, as the central bank is divided.
The other major event for Sweden is the general election on Sunday, where we expect a minority government outcome led by Ulf Kristersson and the Moderates. For a detailed exp osition on Sweden’s tumultuous week. For a brief explanation of market impact, turn the page to our Scandi and FX sections.
Italian bonds rallied for a second day in a row as multiple Italian news sources reported that Deputy Prime Ministers Di Maio and Salvini were going to conform to EU budget deficit limits. The Maastricht Treaty stipulates the budget deficit limit at 3% of GDP, although there have been numerous exceptions, as even Germany has breached deficit rules multiple times. We see an Italy-EU budget standoff as a major risk for markets.
Emerging markets remained under pressure. In the equities space, Indonesian stocks witnessed the most excessive bloodletting. In the currency domain, the South African rand took the lead as the country entered a recession for the first time since 2009. The sell-off has broadened across the emerging markets universe.
The US trade deficit widened to USD50.1bn in July from USD45.7bn in June, which amounts to a five-month high as exports fell and imports rose. Net exports will prove a headwind for US GDP in the third quarter, however domestic demand continues to be the main driver of the US economy.
