Market movers today
Today’s highlight will be the US labour market report. The wage growth figures will be in focus as many FOMC members have opened up for a change in the policy rate during the past days.
In the European space, the French and German industrial production figures will take centre stage. German prints have recently been bad and are particularly important in order to see whether the verge between hard and soft data starts to close or it remains wide. Furthermore, markets will digest yesterday’s ECB meeting, where focus will also be on the inflation market pricing which suffered late yesterday.
Today and during the weekend the US-Mexico tariff war will gain focus as Trump has threatened to put a 5% tariff on Mexican goods starting Monday. Mexico wants a delay ‘as negotiations advance’.
We also get the Norwegian GDP figure for April and manufacturing production (see next page).
Selected market news
The ECB yesterday joined the camp of central banks looking at easing monetary policy to fend off moderation in economic growth and declining inflation expectations. At the meeting the ECB extended its forward guidance to “at present levels at least through H1 2020” and Draghi also acknowledged on the subsequent press conference that a possible rate cut or restart of QE as a contingency tool had been discussed at the meeting. Yet, it was not as dovish as expected by markets given the market pricing of an almost 50/50 chance of a 10bp cut already in September. As a result, the EUR/USD and the front-end of the euro curve moved higher. The announced TLTRO3 modalities were broadly as expected. The new staff projections were broadly unchanged, leading to an unchanged baseline narrative, although the external environment posed a more prominent risk than previously. Markets are still pricing a 10bp rate cut by summer next year, for more details see, ECB not delivering to market expectations.
Yesterday, US president Trump said that he will decide whether to enact tariffs on another USD 325 billion of Chinese imports after the Group of 20 summit at the end of the month in Japan, where President Trump is expected to meet with Chinese President Xi Jinping. In a taped interview with Fox News the US president also said that China wanted a deal and predicted the two sides would definitely reach agreement. Meanwhile, the governor of The Peoples Bank of China stressed yesterday that China has a lot of options to stimulate its economy, including cutting interest rates and the required reserve ratio rate, as well as stimulating the economy through fiscal measures. For our latest take on the difficult US-China trade discussion, please see yesterday’s China Weekly Letter – Are we heading for an all-out trade war? .
