Market movers today
The calendar has a slow start today to an otherwise busy week. The Bank of Japan (Tue) and Bank of England (Thur) meetings will be particularly interesting and we expect the BoE to hike rates. The Fed is due to meet on Wednesday, but this is likely to be quite uneventful.
Later this week, euro area inflation, GDP, unemployment, US inflation, the labour report (NFP) and Chinese PMIs are due, to name but a few.
Today in the majors, we will get the German and Spanish releases ahead of tomorrow’s euro area HICP print. Swedish GDP is the main event in the Scandies today. We expect 0.5% q/q and 2.6% y/y.
Selected market news
One of the key events for the Japanese markets and the global bond markets is the Bank of Japan meeting, which started today with the policy announcement tomorrow. Last week, the BoJ announced twice that it would buy an unlimited amount of bonds. The last one on Friday was conducted when the 10-year JGB yield hit 0.10%. However, there has not been a bond purchase announcement this morning despite 10-year yields being marginally above the 0.10% yield level target. We still hold the view that the BoJ will not change the yield target this week, as the risk of a stronger JPY would be clearly counterproductive for it to reach the inflation target. That said, a policy adjustment (fine-tuning) in Q3 has increased significantly. USD/JPY has been stable this morning. We wrote about the BoJ meeting and our view including the impact on global bond markets in Bank of Japan Review- risk of JPY appreciation keeps the BoJ sidelined .
On Friday, the key event was the US GDP report for Q2. GDP came in at annual rate of 4.1% q/q, driven mainly by a strong contribution from private consumption, which was up by a rate of 4.0% q/q. Inventories contributed negatively by one percentage point, whereas fixed investments were decent with a one percentage point contribution. Given the focus on the US trade deficit, note that net exports were a positive 1.1 percentage point. All in all, the US economy is doing fine despite GDP growth coming in one-tenth below consensus. PCE core index also came in lower than expected but should not change much for the Fed, which still seems on track to deliver two more hikes this year.
US yields edged slightly lower on the release and US equites were already under pressure from disappointing news from Intel in the morning. All the major indices ended Friday in the red, with Nasdaq down 1.46%. Asian stock markets are also in the red this morning.
We also have the Bank of England meeting this week (Thursday). Like consensus, we expect a hike in the Bank Rate from 0.50% to 0.75%, as activity indicators have rebounded and as the unemployment rate is low. Importantly, we do not expect more rate hikes his year and only one next year, as Brexit looms and as the neutral rate stays low. See our BoE preview to the right. Finally, the Fed has a meeting on Wednesday. We expect no change and it is one of the small meetings without a press conference. The press release typically changes little from meeting to meeting.
