Market movers today
German IFO expectations for August are expected to edge slightly higher and we also get the details of the plunge in German GDP in Q2.
Norwegian GDP for Q2 is likely to show that Norway is one of the strongest performers globally after the COVID-19 shock (see more in Scandi section below).
US consumer confidence will show the extent to which consumers have been affected by uncertainty about the new fiscal package and the still high COVID-19 numbers. This morning we published our latest US Macro Monitor: Recovery continued in July despite high-frequency indicators suggesting otherwise.
The 60-second overview
US-China trade talks: US trade Representative Robert Lighthizer said in a statement that the two countries discussed the phase-one trade deal and that both sides saw progress and are committed to its success. This was also confirmed from the Chinese side this morning. The news propelled both Asian equities and CNY higher, as the risk of a collapse in the trade deal had been one of the remaining key uncertainty factors for the global economy.
EU-US trade deal: The positive China-US talks follow news over the weekend that the EU and the US had reached an small agreement on tariff reductions on some agricultural production according to the EU. While small in economic terms, the political implications are not, as it marks the first US-EU tariff reductions in more than two decades and brings us one step further away from possible car tariffs and one step closer to an EU-US deal on industrial goods.
It seems that the US administration is keen on portraying itself as a dealmaker on international trade ahead of the US presidential election.
Russia-Europe: A German hospital found that the Russian main opposition candidate, Alexei Navalny, was likely poisoned last week when he fell ill. This prompted Chancellor Angela Merkel yesterday to demand full transparency from Vladimir Putin’s government in investigating the incident. This marks a significant escalation of the tensions between the West and Russia, where also an US official warned of the seriousness of the issue. This increases in our view the likelihood of new sanctions being imposed on Russia, which is weighing on the RUB.
Equities: As mentioned above, the positive news on US-China trade talks sparked Asian equities higher and European and US futures are also pointing to a positive opening.
FI: The positive risk sentiment in global markets resulted in a 1-2bp sell-off across jurisdictions. The curves bear steepened. 10Y Bund-ASW spreads held steady as the issuance season kicked off with supply in the credit space. We expect Finland to start the issuance season for government bonds in the near future (this week).
FX: EUR/USD remains in the lower end of the recent range and Scandies were relatively unchanged, yesterday. In addition, see FX Forecast update – Was that it? EUR/USD strength abating (24 August) for our updated FX forecasts across G10 and EM.
Credit: Risk-on in credit markets, with iTraxx Xover tightening 6bp to 327bp and Main tightening 1bp to 54bp. The primary EUR market came to live, with issuance from Commerzbank, BNP and Vodafone. In EUR covered bonds Berlin Hyp yesterday mandated for the first transaction after the summer break, which could be launched today, while in SSAs EIB yesterday mandated for a new 10Y benchmark issue.
Nordic macro and markets
In Norway, we expect mainland GDP to have dropped 6.3% q/q in Q2, which implies a sharp rebound in June. If proven right, this will make Norway one of the strongest performers globally in Q2 and supports the case for a more aggressive Norges Bank at the September meeting.
