Market movers today
Today’s most important event is Fed chair Powell’s speech on the monetary policy framework review at the annual Jackson Hole conference at 15:10 CEST. Expectations are high that the Fed is adopting some sort of average inflation targeting allowing inflation to overshoot the 2% inflation target before tightening monetary policy. There has been some confusion about the timing of such an announcement after the FOMC minutes (September is our base case but could be later) but we do not think that is as important as whether Powell disappoints expectations today by suggesting a less radical shift in policy. ECB’s chief economist Phillip Lane will also be speaking today.
·In Sweden, several interesting releases including retail sales, consumer confidence and business confidence (see below in the Nordic section). In Norway we also get retail sales.
The 60 second overview
Macro. Yesterday, France announced that it will launch a EUR100bn stimulus package next week, while Germany extended the short-term labour subsidy package until the end of 2021. France, Spain and Italy have rejected new lockdowns despite a rise in the number of COVID-19 infections. Focus is on the speech tonight by Fed chair Powell.
Equities. The positive sentiment in the US equity market continues, but it is a mixed picture in Asian equity markets this morning.
FI. Core-EU yields rose modestly yesterday together with US Treasury yields. We think the supply factor (new issuance as well as regular auctions) is still dominating the demand factor from the ECB and the Federal Reserve.
The new issuance season continues today with KfW coming to the market with a new 10Y benchmark. Yesterday, Finland sold EUR3bn in a 10Y benchmark with a very limited new issue premium. Hence, the bulk of the new syndicated deals is in the 10Y and longer maturities and thus a lot of risk to the market.
FX. SEK strengthened a bit yesterday, pulling EUR/SEK and USD/SEK back towards 10.30 and 8.70, respectively. We still see a near-term case for a weaker SEK, with USD/SEK having the potential to breach 9.00. NOK has had a few strong sessions recently and we have a modestly bullish NOK view.
Credit. The positive sentiment continues in the EUR credit market, with iTraxx Xover tightening 7bp to 322 and Main 1bp tighter to 54bp. Primary EUR market has seen several high-beta transactions attracting strong investor interest.
Nordic macro and markets
In Sweden, July retail sales will be interesting, where we forecast 0.5% m/m and 3.3% y/y growth. Retail sales took a hit at the beginning of the crisis but have held up quite well recently, driven in particular by consumption of food and beverages. Note though, that the consumer sectors that were hit hardest by the COVID-19 outbreak (restaurants, travel, etc.) are not part of retail sales, which is about goods. Households’ financial situations, however, have remained stable and, according to NIER, they are quite optimistic on their own economy. This suggests there is still support for a continued upward trend in retail sales and thus a recovery in total consumption.
NIER business confidence is getting close to pre-crisis levels and looks likely to gain further in August. Actual production activity has clearly improved since lows in April (+9.7%) but remained 10% below February levels. In this instance we see reasons to be relatively optimistic.
Speech (12.00 CEST) by deputy governor Martin Flodén regarding the economic situation and current monetary policy. Although we hardly expect any news, it could still be interesting, not least from an FX perspective, seeing as Flodén was the only governor that showed some kind of discomfort with the past couple of months’ appreciation of the SEK in the July minutes. Since then the krona has strengthened further, perhaps meriting further comments.
Finance minister Magdalena Andersson is also expected to speak (15.00 CEST) about the economic situation and the pre-requisites for the 2021 budget. We anticipate to receive at least some hints on both the scale but also the focus of the coming budget, which could have some implications for future borrowing needs and thus FI markets.
In Norway, retail sales for July are due and we expect some correction after the 14% surge in April-June. However, fundamentally we have seen no signs of any weakening of the strong drivers behind consumer spending and the level of sales should still be high. We tentatively predict a decrease of 2% m/m.
