Market movers today
A quiet start to the week with German IFO expectations as today’s highlight . In line wit h recent signals from ZEW and PMI, we look for a stabilisation in the index, also as the immediate threat of tariff measures has receded somewhat .
The UK market is closed due to the summer bank holiday.
In Sweden, the household lending release this morning will be particularly interesting, as it should be further affected by slowing residential property transact ions.
Later this week, inflation releases in the euro area and the US are in focus but are unlikely to change expectations that the first ECB hike is far away and that the Fed is set to hike at its meeting in late September.
Selected market news
Chinese stock markets are roaring this morning as the CNY has strengthened after the People’s Bank of China reintroduced t he so-called ‘countercyclical fact or’ in the daily fixing. The countercyclical factor is supposed to dampen daily fluctuations in currency and the fact that it is reinstalled now is a clear sign that China wants to stem the CNY depreciation.
The speech by Fed Chairman Jerome Powell at Jackson Hole on Friday was on the dovish side and sent bond yields and the USD a bit lower while US stock markets rallied to a new alltime high. Powell argued for a continued gradual hiking path as the Fed navigates the twin risks of either choking off the recovery by hiking too fast or facing overheating if they hike too slowly. Policy will continue to be data driven and based on evaluation of the two risks. A hike next month is close to a done deal and a December hike is also likely if the economy continues to perform well. The US 2-10Y yield curve continues to flatten and is now below 20bp. An inversion could heat up the discussion of whether the Fed needs to slow down the hiking cycle or even pause. If the current pace of flattening continues, this could be the case already early next year.
On the trade front , the US and Mexico have apparently made significant breakthroughs in NAFTA talks over the past days and a deal could be st ruck as soon as Monday.
On a less upbeat note, over the weekend, US President Donald Trump cancel led a trip by his Secretary of State Mike Pompeo to North Korea, which was planned for Friday, see Reuters. Trump cited lack of progress with North Korea and partly blamed China for easing pressure on Pyongyang due to the US-China trade war.
Indirectly, Trump said in a tweet that he expected a trade deal with China soon, stating, ‘Secretary Pompeo looks forward to going to North Korea in the near future, most likely after our Trading relationship wit h China is resolved’. China reacted with surprise to the statement and a China Daily Opinion (state media) said that considering the lack of progress in US-China trade talks, that could be quite a while. China also strongly opposed the accusation it should be the reason for slowing progress, highlighting its own interest in denuclearisation in North Korea.
