Market movers today
Focus today will be on the Bank of England (BoE) meeting, with the subsequent press conference of Governor Carney and the publication of a new Inflation Report . We expect the BOE to vote 6-2 in favour of keeping the Bank Rate unchanged and west ill do not expect a rate hike before some time in 2019. We believe the BoE will revise down its optimistic GDP growth projection and we also expect it to announce that the Term Funding Scheme (TFS) will end in February 2018.
After the decline in the UK Construction PMI released yesterday, today’s Services PMI for July will be watched closely for further signs of the expected economic slowdown in the UK.
In the US, non-manufacturing ISM is due out and weestimate the index to have moderated slight ly to 56.5 in July, in line with the observed drop in the manufacturing ISM.
In Scandinavia, the Services PMI in Sweden is due to be released. Norwegian house prices will also be watched closely for any further signs of weakness, which could prompt speculation on further Norges Bank stimulus.
Selected market news
The highlight of the week will be the US labour report tomorrow. Yesterday, we got the ADP report which can sometimes give an indication of the direction of the report. The ADP report showed solid job growth of 178,000 in July and June was revised higher from 158,000 to 191,000. It bodes well for the labour market on Friday, but remember that the ADP report is not always the best indicator of actual job growth.
After a strong Tuesday in global equity markets, we saw some profit taking in Europe yesterday, and most indices ended the day in the red. The sentiment was slightly better in the US as the 5% gain in Apple led indices higher. The Dow jones index closed above 22,000 for the first time ever.
The market is following Fed comments closely as the FOMC is widely expected to start reducing its balance this autumn. The Fed’s James Bullard on the one side who is a known ‘dove’ said yesterday that he is concerned about the soft inflation data. On the other side, we had less ‘dovish’ comments from the Fed’s John Williams and Loretta Mester, who both argue that inflation will reach the 2% target over the coming years.
The US debtceiling is an ongoing concern for the US market . The US Treasury said yesterday in its Q3 refunding statement that it is able to fund the government until the end of September. Treasury Secretary Steven Mnuchin said a few days ago in a letter to Congress that it was critical to act no later than 29 September. In respect of the refunding statement , note that it was said at the press conference that the US Treasury is still looking at the possible introduction of ultralong bonds (50Y bonds), but there was no announcement on the topic.
