Market movers today
Markets will continue to focus on the escalating US-China trade war and UK politics.
ECB minutes today will be more interesting than usual. At the June meeting, the ECB decided to end its APP by the end of the year and strengthen forward guidance on rates, where they will remain at present levels ‘at least through summer 2019′. We look in particular to the discussion to end the APP and rate guidance, particularly in light of yesterday’s sources, on top of the normal economic and inflation assessment.
Swedish inflation and Riksbank minutes released. In our view, the probability of inflation surprising on the upside of the Riksbank forecast is rather slim. See preview for details. We still look for the Riksbank to delay the first hike on downside inflation surprises.
US CPI and initial jobless claims due. In terms of the former, our expectation of 0.2% m/m in June is in line with consensus and should not be a game changer for the Fed.
Selected market news
The escalation of the trade dispute has remained in focus even in the absence of any new material developments. China has vowed to retaliate to US measures and said yesterday that it is considering ‘other options’ than tariffs; this could possibly take the form of providing US competitors with better access to the Chinese market. That said, the prospect of new talks between the US and China have been raised by officials on either side. Separately, Trump continued the confrontational rhetoric at the NATO summit when reiterating the US’s dissatisfaction with the uneven contributions to the alliance. USD ended the day markedly stronger against both EM and majors including JPY as US PPI and wholesale-trade figures came out strong.
An ECB sources story that governing council members are split on the timing of first hike hit the wires on yesterday afternoon. The ECB has said it will keep rates at current levels through the summer of 2019, which the market has taken to imply beyond the September meeting, but some members reportedly said that the phrase should not rule out a first hike as early as July next year. The story helped lift EUR temporarily. Today’s ECB minutes will be interesting in this light; we continue to call for a first hike in December 2019.
UK’s Brexit-related government unrest continues to linger. Yesterday, sources suggested that EU officials are telling businesses that the chances of a ‘no-deal’ Brexit are as high as 50% and are urging companies to ramp up their contingency plans. Separately, as widely expected, the Bank of Canada hiked its policy rate by 25bp. The estimated impact of protectionist policies was fairly moderate, leaving an overall hawkish impression.
The price of crude oil plummeted last night with Brent down close to 7% to now trade around USD74.50/bbl as the combination of USD strength and trade war fears grabbed the market amid news of better supply prospects near term. Following US losses, equities have been cheerful in the Asian session with notably Chinese indices taking back yesterday’s losses. US Treasury yields are slightly lower with the 10Y now just above the 2.85% level.
