Sell-Off

Market movers today

Focus today will be on the equity market rout starting yesterday and continuing overnight in Asia. Developments in Italian bond markets also continue to be an important market driver.

On the data front, it’s time for key Swedish inflation figures, where we look for a print below both the Riksbank and consensus forecast, see page 2.

Accounts from the ECB meeting on 13 September are due. Since then, communication has become less dovish and we will look at the assessment of not least wage growth.

US CPI inflation is due, which is getting more focus due to the tight labour market and still strong growth. We expect core inflation to stay unchanged at 2.3% y/y. It is clearly above the Fed’s target but note that this is based on the PCE inflation number, which is a bit lower than CPI at present. However, inflation pressure generally seems to be rising in the US, as there are bottlenecks in the labour market and companies report very strong demand growth. US initial jobless claims are also being released and are expected to continue to hover around record lows.

Selected market news

Equities sold off heavily in the US session as a combination of rising US Treasury yields and renewed trade war concerns unsettled stock markets. Fears over equity valuation have been lingering for a while and notably technology stocks were hard hit with Nasdaq down over 4%, but also Dow Jones and S&P500 down more than 3%. The sell-off continued in the Asian session with Nikkei lower by over 4% at the time of writing. The VIX vol index reached its highest levels since April, illustrating the significant souring of risk sentiment.

US Treasury markets gained with yields down across the curve and the 10Y point dropped more than 4bp to now stand at 3.15%. Crude oil prices dropped whereas with Brent now around USD81.50/bbl as Hurricane Michael made landfall in Florida. JPY and CHF generally strengthened, Scandi currencies came under pressure but the USD weakened on a broad note with not least EUR/USD gaining.

The equity rout made the US President sharpen his recent criticism of the Fed . Trump said that the sell-off in equities was not driven by rising trade tensions but rather by the Fed ‘going loco’ with respect to rate hikes and adding ‘they’re so tight. I think the Fed has gone crazy’. The fall in equity markets could put some pressure on the Fed, but the comments from Trump are probably in themselves working in the other direction. Indeed, as central bankers sometimes put it, ‘we are like whipped cream – the more you beat us the harder we become’. Meanwhile, focus is turning increasingly to whether the US could declare China a currency manipulator in its semi-annual report next week. We think not. See Flash Comment – Will the US label China a currency manipulator? Not likely, for details.

Danske Bank
Danske Bankhttp://www.danskebank.com/danskeresearch
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