Market movers today

Today’s main event is the Bank of England meeting. We do not expect any major policy changes at this meeting, neither on the Bank Rate nor QE.

In the US, we get jobless claims, which have disappointed in recent weeks in line with other high-frequency indicators. The negotiations on extending the additional USD600 per week in unemployment benefits have not moved forward yet, implying that a lot of Americans are experiencing a significant negative income shock, which may eventually lead to an outright setback in the economic recovery.

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Also look out for German factory orders this morning.

Selected market news

US equity markets continued to rally yesterday supported by comments from Treasury Secretary Mnuchin that the Democrats and the Republicans will try to reach a deal by the end of the week. S&P ended the day up by 0.6% and Dow Jones 1.4%. Nasdaq rose 0.5%. Noteworthy, inflation expectations jumped 4bp to 1.61% and the level is now back to the level seen in the autumn last year and up roughly 100bp from the bottom seen in March this year. Oil also moved higher yesterday with WTI surpassing USD46 a barrel for the first time since March.

The combination of a higher oil price, inflation expectations moving higher and good risk appetite weighed further on the US dollar and EUR/USD once again tested the 1.19 level. The current market sentiment might be negative for the dollar, but it is supportive for the Norwegian krone that at the same time sees support from strong domestic data as reflected in July house prices that jumped another 0.9%. EUR/NOK dropped more than 10 figures to 10.62 during yesterday’s session.

However, the US data yesterday were in fact a mixed bag. The ADP job report showed a gain of 167,000 jobs, well below the 1.2m new jobs expected. However, remember that the ADP report is often a poor predictor for the non-farm payroll data that will be out tomorrow, where Trump by the way has promised a ‘big number’. The ISM services index on the other hand was clearly on the strong side rising to 58.1 from 57.1 (expected at 55.0) but again, the ISM/PMI indicators might be a poor reflection of underlying activity at the moment given the unprecedented drop in activity in Q2 and signals from high-frequency data that point to a less rosy picture for July.

On Tuesday we saw new lows in global yields, but some reversal was seen yesterday as 10Y US treasury and 10Y Bund yields rose 4bp. Note that the spread tightening for periphery countries like Spain and Italy continued supported by the good risk appetite. Market sentiment has weakened overnight with major Asian indices and US/EU equity futures in red. US-China tensions are in focus after US secretary of state Mike Pompeo urged American companies like Google and Apple to remove Chinese applications from its app stores. He also urged companies to stop using Chinese cloud solutions. The tech controversy with China is now obviously moving beyond banning TikTok.

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