Market movers today
Today’s most important event is the ECB meeting although we are not sure it is going to be a very eventful one (see below in overview, FI and FX sections for further information).
Also note that an urgent meeting of the EU-UK Withdrawal Agreement Joint Committee (the committee overseeing the implementation, application and interpretation of the Withdrawal Agreement) will take place in London today. The meeting is called for by the EU after the UK yesterday presented its Internal Market Bill, which undermines specific elements of the Northern Ireland protocol.
This morning, we get August CPI inflation data for Sweden, Denmark and Norway. In Sweden, also household consumption in July is due out (see Nordic macro and markets section). Today’s inflation prints are unlikely to have much of an impact on either SEK or NOK.
Elsewhere, focus is on the US jobless claims data and whether the pace of decline in continuing claims has started to increase.
The 60 second overview
Calm seen in US technology stocks: Equities reversed some of the losses we have seen since last week. Notably US technology stocks were up nearly 3%, safe haven currencies weakened, interest rates rose slightly, etc., in reflection of an improving market mood.
ECB – time for inaction: We do not expect any material changes to the ECB’s policy stance. We will listen carefully to what ECB president Lagarde’s answers to any questions on the Federal Reserve’s new average inflation targeting although we expect her just to say the ECB has taken note of the Fed’s decision and that the ECB will not make pre-emptive conclusions of its own review, see ECB preview Time for inaction, 4 September.
COVID-19: We have published an overview of the current status on developing a Covid-19 vaccine, present historical evidence for the probability of phase 3 vaccine candidates entering the market, the risks associated with fast-tracking the development etc. We have tried to collect the evidence in one, comprehensive report with links to further information, see COVID-19 Research: Vaccine development – an overview, 10 September.
Equities: Yesterday, Equities reversed some of the losses we have seen since last week.
FI: Yesterday’s positive risk environment (after the dreadful Tuesday), lead to a sell-off in core and semi-core countries, also fuelled by comments from the ECB. Peripheral spreads tightened slightly lead by Italy. Curves steepened.
FX: Yesterday brought a (partial) reversal of Tuesday’s violent moves: cyclical sensitive currencies performed while safe havens suffered. GBP remains vulnerable amid renewed Brexit uncertainty.
Credit: Credit markets enjoyed a good run yesterday, and credit spreads generally declined.
Nordic macro and markets
Sweden: Swedish inflation has surprised on the upside over the past couple of months. The main driver has been smaller-than-normal clothing sales. Risks are probably skewed to the downside as Eurozone data turned out very low. Our forecasts (CPIF and core CPIF at 0.9 % y/y and 1.5 % y/y) are close to market expectations but slightly above Riksbank’s expectations.
We expect July consumption and activity indicators to continue to confirm the improvement seen in other macro releases.
Norway: In Norway, core inflation has surprised to the upside over the summer, driven by higher prices for both imported goods and some domestically produced goods and services. While the former is down to the combination of a weaker krone over the winter and closed borders, the latter can probably be explained by an increase in costs due to the pandemic. We expect a slightly smaller rise in import prices in August, pulling core inflation down to 3.3% y/y.
Denmark: We expect Danish inflation to increase to 0.8% in August. The uncertainty on the CPI prints remains elevated this month, as tobacco prices are increasing at an unknown pace, the seasonal pattern on clothing has changed completely and book prices remain highly elevated.
