Markets
Spanish and German consumer prices rose less than expected in August. Spanish prices were flat in M/M terms with headline CPI falling more than forecast, from 2.9% to 2.4%. German prices even fell by 0.2% M/M to be up 2% Y/Y (from 2.6% vs 2.2% expected). It was the first time since March 2021 that they hit the ECB 2% price goal. The drop is mainly the result of lower energy prices and favorable base effects for goods. Looking at core inflation, the disinflationary trends was much more modest both in Spain (2.7% from 2.8%) and Germany (2.8% from 2.9%). Markets nevertheless welcomed the outcome. The front end of the European yield curve outperforms with the German 2-yr yield currently 2.1 bps lower. Losses were bigger intraday. 25 bps rate cuts at all three remaining ECB meetings still aren’t fully discounted yet. Tenors from 7-yr and longer are 1 to 2.5 bps higher in line with the US move. US yields add 2.5 bps to 4 bps across the curve. The move started after an upward revision to Q2 GDP numbers (3% Q/Qa from 2.8%). Personal consumption increased by 2.9% Q/Qa from an earlier reported 2.3% (and vs 2.2% expected). Weekly jobless claims stabilized for a fourth week running around 230k after their increase to the 250k area in the month of July. Data help putting to bed recent US recession fears. The loss of interest rate support weighs on the single current with EUR/USD slipping from levels around 1.1140 ahead of first regional German CPI’s to 1.1090 currently. EUR/GBP tried to test the 0.84 handle, but without success. European stock markets rallied up to 0.8% for the likes of the EuroStoxx50 which took out the August recovery high in the process and is on his way back to the 5k mark. US stock markets open up to 1% higher for Nasdaq, recovering from the overnight scare (up to -2.5% for futures) in the wake of yesterday’s Nvidia results (-2% from -6%).
News & Views
Swedish GDP growth decreased by 0.3% Q/Q in Q2. Activity was 0.5% higher compared to the same period last year. The decline was less than an initial flash estimate published end July (-0.8% Q/Q). According to Statistics Sweden the setback in the economy was wide, but offset by a positive contrition from net exports (0.9 ppts contribution) as exports increased (1.0%) and imports declined (0.6%). Household consumption fell 0.2% Q/Q. General government consumption increased a small 0.1%. Gross fixed capital formation fell 1.7% Q/Q, mainly due to investments in machinery and equipment and weapon systems. Investments in intellectual property products increased for the second consecutive quarter. Changes in inventories also were an important drag on overall growth (negative contribution of 0.6 ppts). The number of employed persons decreased by 0.2 percent. The number of hours worked decreased by 0.5% in the whole economy and by 0.9% in the business sector. Labour productivity in the business sector increased 0.4%. Household real disposable income increased by 2.0% Y/Y. Poor domestic demand supports the case for further Riksbank easing. The RB last week cut its policy rate from 3.75% to 3.50% and indicated that it could accelerate the pace of rate cuts compared to earlier guidance. A 25 bps rate cut at each of the 3 remaining meetings this year is possible. After a rebound of the krone since the early August sell-off, the Swedish currency today trades little changed EUR/SEK (11.345).
Belgian CPI consumer prices were unchanged from July in August. Y/Y inflation declined from 3.64% to 2.86%. Core inflation (excluding energy products and unprocessed food) stood at 2.73% Y/Y, compared to 3.04% in July and 2.97% in June. In a monthly perspective, the most significant price increases were registered for tobacco (5.4%), private rents (0.6%), non-alcoholic beverages (1.7%), hotel rooms ,(2.1%) clothing (0.5%) and restaurants and cafés (0.3%). However, motor fuels (-3.9%), household appliances(-6.9%), flowers and plants (-4.7%), vegetables (-1.2%) and natural gas (1.6%) had a decreasing effect on the index. The first inflation estimate according to the European harmonized index of consumer prices (HICP flash estimate) for Belgium amounts to 4.5% for August 2024.
Graphs
EU 2y swap rate ticks lower on stronger headline disinflationary trends in Spain and Germany in August
EUR/SEK: tough environment for more SEK-gains despite some euro weakness today
EUR/USD: stronger US data also help the pair away from 1.12 area
EuroStoxx50: (more?) rate cuts are coming!
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