Market movers today
A relatively light data calendar today with the US markets closed for Independence Day.
In the UK, PMI services will attract some attention, as it will be interesting to see whether it is going to rebound or not (consensus is for a stable reading). In our view, the Bank of England needs to see a rebound in growth to be able to hike the Bank Rate in August.
Final PMIs are also being released for a range of euro area countries. After German and French service PMIs registered a small rebound in June, it will be interesting to see whether a similar trend can be observed in Italy and Spain.
Selected market news
No change in the policy rates by the Riksbank as expected during yesterday’s meeting. The Riksbank cut GDP growth slightly and raised the CPIF inflation path due to higher energy prices and a weaker krona – quite minor adjustments overall. The Riksbank still appears to be concerned about slowing services prices, which were driven higher in 2017 due to special factors. With regard to the GDP outlook, the Riksbank says that growth was temporarily weak at the beginning of the year. We are slightly surprised to see that it remains optimistic about the outlook for the rest of the year given that residential construction is affecting GDP significantly and given the risk of a trade war. This time, Deputy Governor Ohlsson was accompanied by Deputy Governor Flodén (as indicated in the April minutes) in dissenting from the repo rate path and both dissented from the extension of the FX intervention mandate. Naturally, the upcoming minutes will be crucial in gauging the strength of the 4-2 majority . We stick to our call that the Riksbank will postpone the first hike beyond 2018, although we see a small chance/risk it might move already in Q4 this year.
The ECB’s monthly QE figures for June showed the PSPP share rose to 83%, close to the highest on record, and significantly higher than the recent trend with the new purchase rate commencing in January. The additional data on reinvestments covering until June 2019 indicates a EUR12.1bn reinvestment per month on average, almost as high as the announced Q4 18 net purchase rate. The reinvestment policy will gain market focus in months to come. We expect formal guidance to mirror the forward guidance on rates of a date at which the ECB will at least reinvest until.
The ECB’s Peter Praet pointed to the increased prominent role of the rate as a policy tool going forward.
China’s Caixin services index was slightly better than expected at 53.9, despite equities being down overnight in Asia. Oil markets recorded another volatile trading session yesterday amid US inventories shrinking, increasing the concern about global supply shortfalls.
