Market movers today
Today’s key event is the Riksbank meeting at 9:30 CEST, where we expect the rate path to be left intact , thus indicating a hike in Q4.
Danish currency reserves data will show whether Danmarks National bank remained sidelined in the FX market in June.
Global markets continue to await the implementation of the tariffs on goods worth USD34bn from both China and the US on Friday, which could trigger a further escalation in the US-China trade war if Trump follows through on his threat to announce tariffs on another USD200bn worth of Chinese goods.
Selected market news
Stock markets and bond yields bounced back yesterday on the back of a strong US ISM manufacturing index for June, which jumped back up close to the highest level in 15 years. There is thus still no evidence of any negat ive effect on the US economy from the higher uncertainty related to trade war fears. We continue to look for moderation in US ISM in the next 3 -6 months, but so far it seems the fiscal boost in the US is giving strong support to the economy.
Risk sent iment is under pressure again in Asia though, as Chinese stocks continue their rout with the Shanghai Composite Index reaching a 28-month low. The CNY also continues the sharp decline with USD/CNY now t rading above 6.70, the highest level since August 2017, see SCMP. There is no sign of China intervening to halt the CNY decline as CNH offshore money market rates have dropped. Normally, China uses higher CNH money market rates to stem depreciat ion pressure. The lack of intervention suggests the Chinese government is allowing the CNY to slide possibly as part of the t rade war with the US. We cont inue to see risk of further CNY weakness in the short term.
In another sign of fears over Chinese growth, indust rial metals continue to slide. The LMEX industrial metals index declined to the lowest level since December last year. We have not yet seen much contagion to developed markets but the development clearly bears watching as further st ress in China and EM could spill over to developed markets.
On a positive note, the polit ical stand-off between German Chancellor Angela Merkel and CDU’s sister party the CSU has come to an end, as a compromise was reached late yesterday.
The Reserve Bank of Austral ia this morning left rates unchanged at 1.5%, saying that unchanged policy is consistent with meeting the CPI target over time.
