Markets
There was no guidance from the economic calendar today while other news flow was extremely thin. German Finance Minister Scholz presented a solid budget without new debt before parliament today. His budget proposal comes after rumours that Germany is increasingly considering fiscal stimulus. Scholz did say that “we [the German government] will react should there be a crisis”. One particular headline from Chinese prime minister Li saying that China and the US should find solutions to solve the trade dispute triggered an upleg in (European) stocks. The move probably says more about markets desperately looking for a driver ahead of key central bank meetings rather than anything else. Other markets (FX, bonds) barely reacted to the “news”. The German Bund fluctuated around opening levels. The yield curve bear steepened with yields picking up as US investors entered. Changes vary from 1.1 bps (2-yr) to 2.2 bps (10-yr). Peripheral spreads widen slightly with Greece (+2 bps) underperforming peers. US yields are little changed and add about1-1.5 bps across the curve. The story for FX markets was equally dull. EUR/USD initially held a cautious upward bias during a technically inspired trading session. The move higher soon ran into resistance around the 1.106 area though. The couple is currently trading at around 1.104, virtually unchanged vs. opening. USD/JPY holds steady at 107.3. It will probably require the ECB on Thursday (and the Fed next week) to unblock the stalemate.
The pound switched between gains and losses today. Sterling initially felt some selling pressure as PM Johnson insisted he won’t ask for another Brexit delay at the EU summit mid-October. That would turn British politics into a judicial battlefield. Other political news was absent with the British Parliament now suspended until October 14. A strong July labour report(4% YoY wage growth, 3.8% unemployment rate) however turned the tide for the British pound. Bank of England chair Carney later said there’s a global economic slowdown underway but added that the UK has fiscal space to counter it. At the same time he doesn’t see negative interest rates as a monetary policy tool in the UK. Sterling, if anything, slightly eked out further gains after Carney’s comments. EUR/GBP is filling bids again close at intraday lows of around 0.893 (vs. 0.895 at opening). Cable also reversed (small) intraday losses to trade at 1.237.
News Headlines
The UK labour market report was solid overall, but some components suggest that uncertainty on Brexit might gradually cause some reluctance from corporates to hire additional staff. According to ONS total earnings growth rose 4% Y/Y in the three months to July, up from 3.8% in June, the strongest growth since mid-2008. The jobless rate declined to 3.8%, matching the lowest since early 1975. On the other hand, job growth slowed more than expected to 31.000 in the three months to July and vacancies fell.
US NFIB small business confidence declined more than expected from 104.7 to 103.1. Small businesses fear that the slowdown in the manufacturing sector might also filter through to some extend into small business activity. In a broader, longer term perspective, the index is still at a level associated with decent growth.
August inflation in Norway and Sweden both printed lower than expected. Underlying inflation in Norway slowed from 2.2 Y/Y to 2.1 Y/Y. The Norwegian central bank meets next week and is/was expected to raise rates further. Swedish inflation (1.4% Y/Y headline and 1.3% Y/Y CPIF) also missed consensus. The Norwegian Crown (EUR/NOK 9.89) lost ground after the publication of the CPI report. This was also the case for the Swedish crown, but it regained part of its losses as Riksbank governor Ingves ‘downplayed’ the inflation undershoot (EUR/SEK currently 10.73).
