In focus today
Today is very quiet in terms of data releases, with focus on the US NFIB Small Business Optimism Index for July. The index rose to a four-month high of 97.4 in June, supported by stronger expectations for business conditions and real sales. Following the weak July jobs report, it will be interesting to see whether small businesses have become more cautious.
Economic and market news
What happened overnight
In Australia, the Reserve Bank of Australia (RBA) maintained its cash rate at 4.35% this morning in line with consensus and market pricing. After three rate hikes during the spring, RBA is unlikely to tighten its policy rate further at the coming meetings.
What happened yesterday
In commodities, Brent crude climbed to USD87/bbl as hopes faded once again for a near-term resolution to the US-Iran conflict and the reopening of the Strait of Hormuz. Negotiations over the key shipping route have stalled, with President Trump’s latest demands on war compensation adding further uncertainty to the prospect of a deal. The demands, which include calls for Iran to compensate those killed in wars, attacks and protests, came in response to Iran’s demands over the weekend.
In the euro area, the August Sentix Investor Confidence increased for a fourth consecutive month, moving into positive territory at 0.9 (cons.: -0.5, prior: -3.1). The reading was the highest since the onset of the war in the Middle East. The improvement was driven mainly by a sharp rise in the current conditions assessment, while expectations also edged higher. The release suggests recovery momentum is continuing, although high energy costs and subdued order books remain headwinds.
In Norway, July core inflation surprised to the downside at 2.7% y/y, below our estimate and consensus at 2.9% as well as Norges Bank’s June forecast of 3.3%. The downside surprise was mainly driven by a smaller-than-expected rebound in information and communication technology prices and slightly lower food prices. We now expect Norges Bank to stay on hold at 4.25% on Thursday, with a growing probability that rates have peaked.
In Denmark, headline inflation declined to 1.7% y/y in July from 1.9% in June, below our expectation of an unchanged reading. Base effects from food and energy prices pulled inflation lower, only partly offset by seasonal price increases for holiday centres and camping sites. The downside surprise was mainly driven by housing equipment and hotels. Food prices increased 1.6% m/m, above the July average, suggesting the recent price war has slowed.
Equities: Global markets had a quiet start to the week, with volatility indices low, but beneath the surface the message was less calm. Oil was the dominant macro variable for yesterday’s moves. The S&P 500 closed basically flat, while Nasdaq was down 0.3%. However, the rotation was clearly towards the defensives. Energy benefited from the oil move and ended 4.6% higher in the US, while tech was down 1.1%. Nvidia fell after reports that they are working on a USD500bn AI funding package. Overnight, Asian equities are mostly in green and US futures are also pointing to a positive opening.
FI and FX: The biggest move yesterday was the JPY which saw a big drop. Consequently, USD/JPY rose above 159 and undid the effect of recent FX intervention efforts. The catalyst looked like a combination of the rise in oil prices and rising interest rates, i.e., the 2Y US swap rate rose back to around the level from Friday before the release of the jobs report. EUR/USD edged slightly lower yesterday as the broad USD gains weighed on the pair. NOK briefly bounced higher and short NOK rates dropped after the CPI release in Norway showed surprisingly low inflation easing expectations of more interest rate hikes from Norges Bank.
