Market movers today
ECB Governing Council member Klaas Knot speaks at our Danske Talks hybrid event today, where we will discuss the monetary policy outlook (see registration here). Hawkish ECB Governing Council members Holzmann, Muller and Wunsch will also speak along with dove Stournaras about “Inflation: Can Central Banks Cope?” at the Alpbach Forum in Austria.
In Europe, inflation will remain in focus today, as German and Spanish HICP figures for August are released. The numbers could show a further increase in inflation pressures despite government efforts to stem the rise in prices.
US consumer confidence for August, JOLTS job openings and house price data are also on the agenda. New York Fed President Williams will speak about the US economic outlook.
In Sweden we look forward to wage data and the NIER survey.
Discussions about further EU energy investments (especially a gas pipeline linking the Iberian Peninsula to the rest of Europe’s network) will likely feature during a meeting between German chancellor Scholz and Spanish premier Sánchez.
The 60 second overview
ECB set to hike 75bp: We have changed our call on ECB from a rate hike of 50bp to 75bp on the back of the hawkish comments from ECB officials, see our ECB comment New ECB call – We expect 75bp at the meeting next week, 29 August. We now expect ECB to hike 75bp next week, which will be followed by 50bp in October and 25bp in December. We believe the euro area will face a recession and ECB will continue to hike despite the recession given the elevated level of inflation and the risk of rising inflation expectations. The 75bp is almost fully priced in the market rates. Hence, a 75bp rate hike at the upcoming meeting should not come as a big surprise. Nonetheless, the hike is substantial and will contribute to the ongoing efforts in curtailing (global) inflation over the medium term.
EU politicians want to intervene: Seemingly led by Ursual Von Der Leyen, it was widely reported yesterday that EU politicians intend to intervene in and reform the gas and electricity markets within ‘days or weeks’. While the goal likely is to curtail the strong rise in prices, there has been little to no details as to how they might go about this. Most speculation relates to what other politicians and member states have previously suggested such as a cap on prices.
Equities: Equities were lower yesterday across regions in a post-Jackson Hole reaction. Hence, the hawkish stagflation trade continued with Min Vol, defensive and value outperforming. VIX took another step higher to north of 26 and thereby opening up for more two-sided risk compared to a couple of weeks back where VIX was below 20. In US Dow -0.6%, S&P 500 -0.7%, Nasdaq -1.0% and Russell 2000 -0.9%. Asian stocks are higher this morning and the same goes for European and US futures.
FI: It was a challenging day in the global financial markets with a significant rise in global bond yields as well as a decline in equity prices on the back of the hawkish comments from both ECB and the Federal Reserve during the weekend.
FX: Hawkish comments from ECB over the weekend and a big drop in natural gas prices lent slight support to EUR/USD yesterday. The pair briefly rose above parity. USD/JPY rose close to 139 yesterday due to a rebound in long-term bond yields.
Credit: With the UK markets closed there was no trading in CDS indices and the primary market was also more or less closed. However, judging by the moves in other asset classes, credit will probably be weak today to catch up with yesterday’s moves in other risky assets.
Nordic macro
Today, the Swedish National Mediation Office publishes wage data through June. The last report showed wage growth at 2.7%, in line with the pre-pandemic level. The centrally negotiated wages are expected to rise by 2% (y/y) through March 2023. It remains to be seen if this report yields any further signs of a pick-up in wage drift.
We also get the latest Economic Tendency Survey (ETS) from NIER. The takeaway from the last surveys have been increasingly depressed consumers, now at all-time-lows, whilst the manufacturing sector is seemingly still going strong. The general Economic Tendency Indicator is still signalling ‘normal’ levels, however extrapolating the recent trend it is only a matter of time before it is in contractionary territory, possible already today.
