Market movers today
As Brexit headlines are thinning now that the UK Parliament has been suspended until mid-October, a quiet day awaits us. Markets are in a wait-and-see mode ahead of the ECB meeting tomorrow (have a look at our ‘cheat sheet’ on what to expect: ECB Meeting 12 September: Predicting the unpredictable market reaction after ECB).
The only releases worth noting today are Spanish industrial production figures for July and OPEC’s monthly oil market report, which will contain forecasts for both demand and supply.
Selected market news
It has been fairly quiet overnight as markets still await crucial monetary policy decisions from especially the Fed next week and the ECB this Thursday. This morning most Asian equity indices are trading in green following US counterparties after a late rally during the US session characterised by continued ‘value’ buying and ‘growth’ selling. Notably the FI sell-off eased somewhat overnight with 10Y US treasury yields falling back from a one month high. Also 2Y US swap rates are modestly lower this morning after a fairly consistent sell-off that has seen the rate go from 1.42% to a high of 1.68% in just one week.
Yesterday US President Donald Trump ( presumably ) fired his national security advisor John Bolton who has been known for his notoriously hard-line approach against US adversaries. It is well known that Trump’s and Bolton’s working relationship has deteriorated lately and it seems Bolton advising against a meeting with the Taliban was the straw that broke the camel’s back. The market impact was limited upon announcement even though oil slid a little as it could mean a softer stance against Iran. Trump stated he will announce a new – and fourth under his presidency – national security advisor next week.
The release of both inflation and the Regional Network survey yesterday was key for all with interest in Norwegian macro and markets. Core inflation disappointed at 2.07%, which was primarily due to lower imported inflation, whereas domestic core inflation rose modestly (to 2.62%). With the summer weakening of the NOK in mind we think the drop in inflation will prove temporary, as imported inflation is set to rise over the coming quarters as illustrated by this chart . We expect Norges Bank (NB) to make the same analysis even if inflation is a drag on the rate path at the meeting on 19 September. More importantly, for the actual rate setting decision the Regional Network Survey indicated a 2.7% annualised mainland growth outlook for the next six months. This is clearly higher than the economy’s potential. Importantly, the survey also showed strong labour demand, a rising share of companies reporting of capacity problems and that heightened international risks so far have not been a significant drag on activity or investment levels.
In June NB clearly indicated a September rate hike and in August the bank concluded that ‘the outlook for the policy rate ahead is little changed since June’ despite global risks creating ‘greater uncertainty about policy rates going forward ‘. Given all this we expect NB to hike policy rates by 25bp next Thursday whilst lowering the longer end of the rate path to almost flat levels, i.e. indicating that rates have likely been hiked for the last time. In comparison markets price the hike at less than 50% probability.’
