Market movers today
Today’s main event is without doubt the long-awaited ECB meeting . We expect a more dovish package than other analysts. We expect (1) a 20bp rate cut in the deposit rate and the extended forward guidance ‘at present or lower…well past the horizon of net asset purchases ‘ to remain, (2) a 12M QE restart of EUR45-60bn per month, although we acknowledge there are downside risks given recent communications and (3) the introduction of a tiering system.
If ECB cuts the deposit rate today, focus will turn to Danmarks Nationalbank (DN) that is set to announce a rate change at 17:00 CEST . If we are right that the ECB cuts 20bp, we look for DN to cut the rate of interest on certificates of deposit 10bp to minus 0.75%.
Earlier in the day, we also get euro area industrial production data for July. Weak industrial activity has been a driver of the euro area slowdown, with the print falling 2.6% y/y in June following seven consecutive months of falling production. Judging from the country figures already released, markets should prepare for another disappointing reading showing the industrial slump extending into Q3.
In the US , August CPI core inflation is released. In the past couple of months, CPI core has surprised on the upside but we do not think this is the beginning of a trend given the low inflation expectations. We estimate a rise of 0.2% m/m in August (2.2% y/y). A narrowed field of 10 Democrat presidential candidates will also debate in Houston.
Key members of OPEC+ will meet on the side-lines of the World Energy Congress in Abu Dhabi. Discussions will likely centre on the recent slide in the oil price and output cap commitments.
Selected market news
Overnight US President Donal Trump announced that the scheduled 5pp rise in tariffs on USD250bn worth of Chinese imports on 1 October will be postponed by two weeks. The decision comes after last week’s announcement that the two parties will meet in the beginning of October and on the request of Chinese Vice Premier Lie He, as the 1 October marks the 70 th anniversary of the People’s Republic of China. The news also comes after China yesterday announced a broad list of US goods suspended from tariffs. The announcement eased trade war escalation fears with broad equities, yields and the CNY moving higher, while safe havens in CHF, JPY and gold weakened further early this session. Importantly, while we remain sceptical of an eventual trade deal being reached already in October, this morning’s announcement could drive an extension of the more upbeat market environment seen since last Wednesday, which stands in stark contrast to most sessions during August when trade and recession fears dominated.
Oil prices sold off yesterday, on the news that US President Trump is mulling easing sanctions on Iran. Iran’s oil production has dropped sharply due to US sanctions. It is early days, but an easing of sanctions could eventually bring more Iranian oil to the market, which is what the market is reacting to.
