Market movers today
A busy week starts off with inflation data from the Nordics. In Norway, strong wage growth continues to support broader inflation pressures, and we expect August core inflation to tick slightly higher to 6.6% y/y (from 6.4%). In Denmark, inflation likely remained more muted, we think headline prices rose 3.0% y/y in August.
In the euro area, the EU Commission will publish its economic forecast. In their latest forecast from May the Commission expected GDP growth at 1.1% in 2023 and 1.6% in 2024. We expect the forecasts to be revised down due to the weak Q2 GDP growth figures and the deterioration we have seen over the summer in both the manufacturing and the service sector. Headline inflation has come in slightly lower over the summer, so here we also expect a downward revision of the forecast for 2023 and 2024.
Later this week, the main focus will turn to the ECB meeting on Thursday. Both markets and analyst consensus remain divided between a pause and a 25bp hike, we still expect the ECB to opt for the latter, see more details from our ECB preview, 6 September.
On the data front, markets’ will pay close attention to the US August CPI release on Wednesday. While higher energy prices likely lifted headline CPI by 0.5% m/m (3.6% y/y), we look for another low core CPI print at 0.2% m/m (4.3% y/y).
The 60 second overview
Markets: Global financial markets closed last week with subdued activity. The S&P index recorded a marginal uptick, while Europe’s Stoxx 600 experienced a 0.2% gain, primarily bolstered by the performance of energy stocks, in tandem with the ongoing appreciation of oil prices. Concurrently, US Treasury yields registered an upward trajectory, lending support to the USD, which marked its eighth consecutive week of ascent – a streak not seen since 2005. This robust performance of the USD has increasingly captured the attention of policymakers in Japan and China, triggering deliberations about its potential impact on their respective economies. In China, consumer prices displayed a modest uptick of 0.1% y/y in August, a slight rebound from the 0.3% decline observed in July, aligning with consensus expectations. Although this shift marked an exit from deflationary territory, the persistent softness in pricing pressures is indicative of subdued demand conditions.
Elsewhere, Brent crude prices advanced by 0.8%, extending their weekly gains to over 2% – now at around $90 USD per barrel. This surge has propelled oil prices to their highest levels since November of the preceding year with Saudi Arabia’s and Russia’s announcement of an extension of supply cuts until year-end.
This morning, Asian markets are mixed. Futures point to a neutral open in Europe. In Japan, the JPY strengthened after Bank of Japan governor, Kazuo Ueda, hinted that the Japanese central bank could have enough information about wage dynamics by year-end – a key factor in deciding when to end its negative monetary policy rate. The yield on 10-year Japanese government bond rose above 0.7% for the first time since 2014 on the back of Ueda’s comments.
Equities: Global equities marginally higher Friday in rather dull session. Energy stocks continued to do well while industrials and materials underperformed. Wait-and-see markets ahead of ECB and Fed meetings seems a little early but yields and monetary policy outlook plays and important role for equities. In US on Friday, Dow +0.2%, S&P500 +0.1%, Nasdaq +0.1% and Russell 2000 -0.2%. Action and focus on Asia this morning with a strong yen on the back of a shift in tone from Bank of Japan. Japanese 10-year yields are up 6bp and bank stocks massively outperformed on a day when Nikkei 225 is lower by 0.5%. US and European futures are in green this morning.
FI: It is going to be a busy week in terms of key economic data and central bank meetings. The main events are the US inflation for August on Wednesday, US retail sales for August on Thursday as well as the ECB meeting on Thursday. The core US inflation is expected to rise by 0.2% m/m. ECB is expected to raise rates by 25bp.
FX: EUR/USD is hovering around the 1.07 mark, as strong US data and general risk-off sentiment have weighed on the cross the past couple of months. USD/JPY is trading around the 147 mark, as elevated US yields still add support to the cross. EUR/GBP is just short of the 0.86 mark. EUR/SEK remained range-bound around 11.85-95 all of last week, consolidating in wait of the next trigger. EUR/NOK has been on a downward trajectory in September and is now trading around 11.45. The rally in EUR/DKK stalled on Friday – it traded slightly to the strong side of the 7.4604 central rate.
Credit: The week ended on a positive note with US markets rallying after a relatively slow European session. Credit markets followed suit and Itrax Main tightened 1.1bp to close at 70.9bp, while Itrax Xover tightened 3.5bp to close at 399.5bp. The usual Friday-lull returned to primary markets, which were relatively calm despite the slightly improved risk sentiment.
Nordic macro
Norwegian core inflation has been volatile in recent months, driven largely by food prices. These climbed far less in July than last year, which may mean that they come down more cautiously than normal in August. There are also signs that the biggest price hikes may now be behind us, and producer prices on food have slowed in recent months. On the other hand, we expect services inflation to remain high due to stronger wage growth, and airfares look likely to rise further. We therefore expect core inflation to climb to 6.6% y/y in August.
. In Denmark, inflation likely remained more muted, we think headline prices rose 3.0% y/y in August.){kind=link}