Market movers today
Focus today remains on euro area inflation following the country releases on Friday. These figures were stronger than expected and we now look for euro area headline and core HICP inflation to have remained unchanged at 1.3% and 1.1% in July, respectively. The inflation figures are not yet affected by the stronger euro as the impact will come after around six months.
The euro area unemployment rate for June is due out and weestimate another small 0.1pp drop to 9.2%, due to the ongoing economic recovery in Europe.
There are no major data releases in the Scandi countries today.
Selected market news
Asian equity markets are mostly in the red this morning after PMI figures released showed that growth in China’s manufacturing sector slowed marginally in July (from 51.7 to 51.4), in line with our view that economic activity will cool in the second half of this year as borrowing costs rise and regulators clamp down on riskier types of lending.
North Korea conducted another test of what it said was an intercontinental ballistic missile (ICBM) on Friday, already the second missile test this month. The move was condemned by Japan and the US, which reacted by flying two military aircrafts over the Korean peninsula over the weekend and stepping up pressure on China to impose further sanctions. Tension between North Korea and the US has been rising steadily in recent months as its missile test s have grown in frequency (see Flash Comment: Further escalation of the North Korea crisis, 4 July).
Data on Friday showed that US economic activity picked up in Q2: real GDP grew by a solid 2.6% q/q annualised in Q2 after the disappointing 1.2% in Q1. Core PCE inflation was also slight ly higher than expected but st ill weak at 0.9% q/q annualised. Solid growth in the US with subdued inflation and an ongoing recovery in Europe is supporting the case of less Fed-ECB divergence in the future and EUR/USD reacted accordingly by moving back up towards 1.175 on Friday.
US politics also remains in focus, after President Trump replaced his White House Chief of Staff, Reince Priebus, after only six months in office, with General John Kelly. After the latest Republican effort to repeal Obamacare failed in the Senate on Friday, there are signs that Trump faces growing Republican unease about his ability to govern. The majority of Americans now want Congress to move on from healthcare reform, according to a Reuters/Ipsospoll. Republicans are now likely to move on to tax reform, however, and according to a white house press release, the reform will not include the controversial border tax adjustments.
