Market movers today
- Today, we have plenty of interesting data releases. After the preliminary US Q2 GDP data released yesterday, estimates for Q2 GDP for the euro area (including country-specific data for Germany, France, Italy and Spain) are due out today at 11:00.
- Also flash euro area HICP inflation is due out today at 11:00.
- In Norway, unemployment data for July are due out at 10:00 CEST.
- The monthly US private consumption and inflation (PCE) data out at 14:30 are always interesting to look at but we implicitly got the data yesterday in connection with the Q2 GDP data.
- FOMC members are allowed to speak again after the July meeting so keep an eye in the coming weeks on comments from individual FOMC members. Fed Chair Jerome Powell sounded more dovish during the press conference than the hawkish shift in the statement so seems like disagreements are growing within the committee.
The 60 second overview
Markets: Yesterday’s session was generally characterized by a small Fed-induced relief boost to reflation-sensitive assets. Long-end inflation expectations rose, the USD weakened, rates curves steepened, value outperformed growth in equities and EM/Scandi FX did well.
Meanwhile, overnight sentiment has turned somewhat sour again with similar drivers as in the early parts of this week; namely growth/delta fears and concerns as to the regulatory clampdowns in China. Consequently, most Asian (not least Chinese) equity indices, as well as developed market futures, are found in ‘red’ this morning. Also, the flattening pressure on rates curves has returned.
US economy: Yesterday’s national account figures fell slightly short of expectations as they revealed second-quarter growth of 6.5% Q/Q annualized with negative revisions. Private consumption beat expectations but government consumption, private investments, and net export were somewhat disappointed. That said, with this release US nominal GDP is now back to the pre-crisis trend path which highlights the much more forceful policy response to this crisis compared to the financial crisis of 2007-2009.
The Fed: One of the most important drivers of markets in H2 will be the monetary policy signals from the Fed. With nominal GDP back to pre-crisis trends it highlights the need for gradually removing record stimulus from the economy and markets. We continue to expect that the Fed will turn more and more hawkish in coming months so that actual bond buying tapering will start in Q4. We think it is too early for the Fed to make the next change in connection with the Jackson Hole (also given Fed Chair Powell’s more dovish comments during the press conference Wednesday) but we think the September meeting is more likely (two jobs reports away). We still expect the first rate hike in H2 2022. Overall, we see a road from here with tapering, rate hikes, and mild liquidity tightening in the coming years.
FX: USD declined on a broad basis yesterday as the market continued to digest Wednesday’s FOMC meeting. EUR/USD rose closer to 1.19 and USD/JPY fell firmly below 110. USD/CNY dropped to 6.46 fully reversing the sharp rise earlier in the week.
Credit: Wednesday’s sentiment improvement continued into yesterday where iTraxx Xover tightened 2bp (to 233bp) and Main ½bp (to 46bp). HY bonds tightened 2bp and IG was unchanged.
