Market movers today
In the US, markets will look out for two interesting events on the agenda: the release of the June FOMC minutes and Fed chief Powell’s semi-annual testimony before the House Financial Services Committee. In his prepared remarks, Powell will not address monetary policy but he is sure to face questions about the Fed’s view on the economy in the Q&A afterwards. The central question remains when and by how much the Fed will cut interest rates. After a strong jobs report on Friday, markets have scaled back expectations of an aggressive 50bp cut already in July. Apart from the timing and preconditions for Fed easing, the minutes will also shed some light on the different stances within the Fed. We stick to our view of a 25bp ‘insurance’ cut in July and a total of 75bp in the second half of 2019 (i.e. July, September and December)
As news about Brexit remains limited ahead of the Conservative Party leadership contest concluding on 22 July, focus for once reverts to UK economic data. Today we will get more clarity on where growth in Q2 19 will arrive with the monthly GDP estimate for May. After a strong start to the year helped by pre-Brexit stockpiling, the manufacturing sector has struggled of late as PMIs have fallen back. Overall, we remain sceptic that the economy can maintain its 0.5% q/q growth momentum from Q1.
Bank of Canada is widely expected to keep rates unchanged at today’s monetary policy meeting. Consequently, focus will turn to the bank’s forward guidance and its monetary policy report amid rising speculations of a rate cut in neighbouring US. We expect unchanged rates over the next 12 months going into the meeting, whereas markets price a roughly one-third probability of a 25bp cut until next summer.
In Norway and Denmark, inflation data for June is in focus. In Norway, core inflation slowed rather unexpectedly to 2.3% in May. With wage growth accelerating, there is little reason to expect domestic inflation to fall and we expect to see a correction in June, with core inflation printing at 2.4%, with the risk slightly to the upside. In contrast, we expect Danish inflation to remain unchanged at 0.7%, as package holidays and gasoline prices continue to exert a drag.
Selected market news
Asian equity markets are trading mixed this morning, following lacklustre sessions in the US and Europe yesterday as markets await the next catalyst in the form of either policy clues from central banks – notably the Fed today – or progress on the US-China trade talks. On the latter, US and Chinese negotiators had their first ‘constructive’ talks after the G20 ceasefire according to White House economic adviser Kudlow. However, no further meetings have been set, supporting our view that a trade deal is not just round the corner
