Market movers today
Today we will have to wait until the afternoon for market movers. Here we will look out for the US ADP employment report, although it has been a poor indicator for payrolls for some time now.
A little later, it will be interesting to hear what FOMC member Williams has to say on average inflation targeting.
Finally in Denmark, we will look out for the August FX reserve figures. The focus in the monthly reserve figures will once again be on the government’s foreign borrowing.
In Sweden, Riksbank vice governor Per Jansson speaks at 11:00 CEST.
The 60 second overview
Fed. This morning we published our new Fed call on the back of the Fed’s change to average inflation targeting. We now expect the Fed to change its forward guidance by stating that ‘the Committee expects to maintain this target range until it is confident that inflation will run above 2% for some time’ and to increase QE buying. We think the Fed will recognise the importance of building up credibility right away, especially as inflation expectations remain subdued, no matter what measure one is looking at. For more details including views on FX, fixed income and equities see Fed Monitor: Forward guidance linked to inflation outcomes and faster QE buying on the cards, 2 September.
Inflation. Euro area inflation fell into sub-zero territory (-0.2%) for the first time since May 2016. However, for now the low inflation prints are unlikely to create too many concerns at the ECB, as seasonal factors due to postponed summer sales in France and Italy as well as government initiatives (German VAT cut) were the main culprits.
Germany. The German parliament decided to hold a full inquiry into the collapse of Wirecard amid mounting questions as to why the government failed to prevent the biggest corporate fraud in the country’s post-war history. This means the Wirecard affair will likely also play a role in next year’s election campaign and could raise some awkward questions for Finance Minister Olaf Scholz, who just became the Social Democrats’ (SPD) chancellor candidate.
Equities. Asian shares are in the green this morning following buoyant US ISM manufacturing indicators and a rally in US tech shares. Both S&P 500 and Nasdaq closed at record highs, with technology leading the performance. US and European index futures point to another strong session today.
FI. European government bond yields rallied and the spread between the periphery and core-EU tightened yesterday on the back of very low inflation data for the Eurozone. US Treasury yields also declined on the back of the move in Europe and despite higher ISM data. Both US Treasury secretary Mnuchin and Fed’s Brainard are calling for more fiscal stimulus and thus more supply of US Treasury bonds. Hence, an increase in the Federal Reserve’s QE programme seems likely.
FX. GBP and USD rose vis-à-vis SEK and NOK on Tuesday. There were no significant moves in FX markets. The most notable highlights were EUR/SEK, which rose up towards the high end of the 10.20-10.40 range and EUR/GBP, which has now dropped to the lowest level since the start of June.
Credit. Credit indices continued to tighten yesterday, with iTraxx Xover moving 13bp tighter to 311bp and Main 2bp tighter to 52bp. The strong sentiment was also visible in primary where Adidas managed to get its dual-tranche 10x oversubscribed.
Nordic macro and markets
In Sweden, Riksbank vice governor Per Jansson speaks at 11:00 CEST.
In Denmark, FX reserve figures for August are due for release today. The focus in the monthly reserve figures will once again be on the government’s foreign borrowing. The figure has remained stable at just under DKK100bn for the past couple of months and repayments may start up soon. Meanwhile, the Danish krone (DKK) hit its strongest level since 2017 in July, though it still remains some way from the level where Danmarks Nationalbank would normally intervene to sell DKK.
