Market movers today
In the US, markets are closed due to Labour Day.
In Denmark, we are due to get FX reserves data for August , which we believe is likely to show that Danmarks Nationalbank has not intervened in the FX market .
In the euro area, the Sentix investor confidence is due for release. Tension concerning North Korea is still seeing spill overs to the financial markets, while the recent EUR strength might also have weighed on investor confidence. Weest imate Sentix fell to 26.9 in August .
The most important event this week is the ECB meeting. We do not expect any announcement on QE at this meeting, as the ECB has hinted that it needs more time to discuss it . Instead, the focus is likely to be on how big a problem the current pace of euro appreciation is for the ECB.
Selected market news
The North Korean crisis escalated further over the weekend, as North Korea carried out another nuclear test . The test was the sixth nuclear test and the largest so far. The explosion is seen as a humiliation of the Chinese President Xi Jinping ahead of the BRIC meeting, which took place yesterday. Both China and Russia have called for diplomatic solutions. US President Trump tweeted that one option is to stop ‘all trade with any country doing business with North Korea’, i.e. mainly China and Russia. Defense Secretary James Matt is, who has been more moderate than Trump, has said that the US will respond with ‘a massive military response’ to any threat from North Korea. It is not an easy problem to resolve for the US and its allies, as diplomacy and economic sanctions seem without effect and a military strikes comes with the risk of a fierce retaliation with significant casualties in South Korea. The capital Seoul, with 10 million people, is less than 50km from the border with North Korea and the latter has a significant arsenal of both conventional and chemical weapons. For more on our view on North Korea see Strategy: Event risk to the fore, 1 September.
The nuclear test has led to a risk-off with most Asian equity indices and US stock index futures are down this morning. Also, gold and yen have rallied while EUR/USD has moved slightly higher to 1.1881.
In the US, Treasury Secretary Steven Mnuchin is considering tying debt limit legislation to Harvey aid to Texas. However, it is not a given that this would make it easier to pass a debt limit increase, as fiscal hawks within the Republican Party are against this. For more see POLITICO.
In the UK, Brexit Secretary David Davis has rejected The Sunday’s story that PMT heresa May is willing to accept a divorce bill of EUR50bn after the Conservative Party Conference in early October in order to get the Brexit negotiations going.
According to polls, German Chancellor Merkel won yesterday’s TV debate against SPD’s candidate Schulz and Merkel is still on track to secure her fourth term in office, see German Election Monitor #1: Next euro area election unlikely to rock the boat , 29 August.
