In focus today
This week is light on the data front, with key events including Swedish CPI figures and the Bank of England’s bank rate decision on Thursday.
Economic and market news
What happened over the weekend
In the euro area, inflation edged slightly higher than expected in July, reaching 2.0% y/y (cons: 1.9%), in line with earlier country-specific data. The increase was primarily driven by food price inflation, which rose from 3.1% y/y to 3.3% y/y. Core inflation remained steady at 2.3% y/y, as a dip in services inflation to 3.1% y/y was offset by an increase in goods inflation to 0.8% y/y. Following the recent string of events, we have revised our call ECB call, and we now expect the ECB to keep its policy rates unchanged throughout 2025-26. For details see New ECB call: No further cuts in scope, 1 August.
In the US, the non-farm payrolls data revealed a significant slowdown in job creation. July saw only 73k jobs added compared to expectations of +110k, alongside major downward revisions for May (+144k to +19k) and June (+147k to just +14k). This marks a stark contrast to the stronger job growth earlier in the year, with private sector hiring appearing to stall almost entirely after tariffs took effect. Adding to the weak NFP report, unemployment rate increased to 4.2%, these figures boosted expectations of a near-term Fed rate cut and caused the dollar to fall.
In Oil markets, OPEC+ approved a 547,000-bpd production increase for September, continuing its push to reclaim market share amid concerns over potential supply disruptions linked to Russia. The decision was attributed to a strong economy, low inventory levels and that oil prices have remained elevated despite recent output hikes, with Brent crude at USD 69/bbl.
FI and FX: The very weak US labour market report as well as a weak ISM report led to the biggest decline in 2Y US treasury yields since 2023 as well as a steeper US yield curve. Furthermore, there was a substantial shift in the market pricing of US monetary policy as the possibility of a rate cut in September has risen substantially. The broad USD gave up much of last week’s gains following the weak jobs report, which included significant negative revisions to previous months. Adding to the pressure, ISM manufacturing declined to a nine-month low. EUR/USD jumped nearly two figures, and a September Fed cut has now been re-established as the base case in markets.
