In focus today
In Sweden, the Riksbank’s rate decision, a policy statement and a shorter policy report will be published at 09.30 CET. A press conference follows at 11.00 CET. There will be no new macro forecasts and no new rate path. A 25bp rate cut is – or should be – a done deal. Instead, market focus will be on communication. We expect that they will guide toward two more cuts this year, which is slightly more dovish than in June, though less dovish than market is pricing (three more cuts).
In the euro area, we will get final inflation figures for July. The final HICP data allow us to see how the important domestic inflation indicator (‘LIMI’) fared in May, see Research Euro Area – The importance of domestic inflation guiding ECB policies, 6 August. The preliminary figures showed that service price pressures eased to around 0.3% m/m, which is still too high, but lower than a couple of months ago.
In Denmark, we get national accounts data for Q2. We expect 1% GDP growth in Q2. GDP declined 1.4% q/q in Q1 on the back of a very strong fourth quarter in 2023. This leaves room for growth in Q2. For more details, see Danish section in Weekly Focus – From fear of inflation to fear of slowdown, 16 August.
In Turkey, the central bank will announce its rate decisions at 13.00 CET. The Central Bank of Turkey has concluded its hiking cycle and is expected to keep the policy rate unchanged at 50%. Since the July meeting, inflation has developed largely in line with their forecasts, as headline inflation in month-on-month terms increased temporarily in July, while the rise in underlying inflation was limited.
Fed’s Bostic will be on the wire in the evening at 19.35 CET.
Economic and market news
What happened overnight
Peoples Bank of China (PBOC) left loan prime rates unchanged as expected in the market, after interest rates were lowered in July. More easing is expected later in Q3 as the economy is struggling and PBOC has been waiting for the Fed to start easing before cutting rates (to avoid downward pressure on the renminbi).
What happened yesterday
In the euro area, ECB’s Rehn (voting member) spoke about monetary policy. He said that ECB may need to lower interest rates at the September meeting, due to negative growth risks arising, while inflation is on the right track in his eyes. Markets price in a 90% probability of a rate cut in September. We, however, still stick to our call of no cut in September.
Market movements
Equities: Global equities were higher yesterday, and this morning’s post might start to sound like a broken record with the MSCI World Index gaining for its eighth consecutive day. Equities were up, volatility was lower (VIX below 15), and cyclicals outperformed defensives. As US stocks rallied into the cash close, all 25 industries finished higher on a day that saw virtually no headline news to drive the market. FOMO is back, and all the fear about a recession among equity investors seems to have gone. Please remember, this is typically how investor behaviour appears when we are very late in the cycle. In the US yesterday, Dow +0.6%, S&P 500 +0.97%, Nasdaq +1.4%, and Russell 2000 +1.2%. This morning, most Asian markets are higher, led by Japanese markets, which are up more than 2%, while Chinese stocks are moving in the opposite direction. Futures in Europe are mixed, while in the US, futures are marginally stronger.
FI: Markets waiting for the important ECB data and Jackson Hole speech later this week resulted in a tight trading range. Markets are also waiting for toda’’s supply with an expected 5y Finland deal and a 10y and long-end German bond tap. 10y Bunds ended virtually unchanged at 2.45%. Key events this week are the EA and US PMIs on Thursday, EA negotiated wage data on Thursday as well as Powel’’s speech in Jackson Hole on Friday. Lane speaks on Saturday.
FX: JPY was the top performer among G10 currencies yesterday, were the USD stay on a weak footing. EUR/SEK declined below 11.50 before the Riksbank rate decision today.
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