Market movers today
It’s time for inflation in Norway . We look for a decline in the core rate in August to 1.7% from 1.9% in July, as we expect some of the volatile components to correct lower; more details on page 2.
On the global front, Italy and US yields continue to be the main focus. Italy’s Finance Minister Giovanni Tria admitted yesterday that the government is worried about the development and said he hoped that further explanations of the budget measures would bring the spread down from its ‘unacceptable’ level.
We only have tier-2 global data. The UK and France are due to release manufacturing production while US Producer Prices (PPI) will reveal if inflation pressure is rising on the producer level.
Selected market news
Both US and Italian yields came off a bit from recent highs – for separate reasons – and Brexit optimism grew. However, overall it would have been a rather uneventful session had it not been for Trump . The US President – again – expressed dissatisfaction with the pace of Fed hikes given what he considered a lack of inflationary pressure. He also noted that he had not spoken to Fed Chairman Powell on this matter, as he does not want to interfere with monetary policy. Meanwhile, China noted during US Secretary of State Mike Pompeo’s visit to Beijing that Trump is engaged in ‘misguided actions’ with reference to the trade war.
Following the warning from the EU Commission over the weekend that the Italian fiscal budget not breach eurozone spending, the League’s Matteo Salvini accused both EU officials and speculators of seeking to bring down Italy. However, spread widening eased after Italy’s Finance Minister Giovanni Tria said that the government is worried about the ‘unacceptable’ yield spread. The spread between the Italian and German 10Y government bond yield is close to 300bp, the highest in 5Y. He did not suggest that the government had any concrete intentions of changing its budget plan, which the EU has suggested is way too optimistic on notably growth assumptions.
US yields came off a bit after reaching 7Y highs last week and the 10Y yield is just off the 3.21 mark. During the day, the Treasury curve flattened led by close to a 3bp drop in the 30Y. Oil prices are on the rise again , now trading around USD85/bbl, on fears hurricane Michael could lead to supply disruptions in the Gulf of Mexico. This comes after a decline yesterday when the International Energy Agency urged OPEC to up the output as markets enter ‘the red zone’. USD weakened slightly and equities were mixed in both the US and Asian sessions.
