The trading day after Jackson Hole 2021 – which wasn’t very spectacular to begin with – won’t go down in history. After some modest further repositioning during Asian dealings, attention shifted to Europe with the release of business confidence and Spanish and German HICP as a taster for tomorrow’s eurozone reading. Unfortunately, the numbers just came and went. The EC’s Economic Confidence indicator in August retreated slightly more than expected, from a record 119 to a still-impressive 117.5. Sentiment eased in three out of five categories: manufacturing (supply bottlenecks and raw material shortages), services (deltavariant flare-up) and among consumers (delta and rising inflation). Construction and retail were the green shoots. Spanish inflation (0.4% m/m, 3.3% y/y) exceeded expectations while Germany’s matched a 3.4% y/y consensus and the 2008 record pace. Details are unavailable as of yet but regional German data suggest upward pressures from food, energy and package holidays (where a lower basket weight this year compensates for the seasonal price decreases). Base effects are at play too. Let’s not forget, however, upward price pressure are out there in the real economy, as also shown by a subseries of the EC’s indicator. Expected selling prices in manufacturing just hit another all-time high while hovering near 13-year highs in services. We also heard from ECB’s Villeroy. Comments and speeches from ECB governors are interesting in the run-up to the September meeting, though Villeroy sought to downplay its relevance. He said it’s not urgent to decide on PEPP (or APP in general) in September, reminding that the crisis program runs at least until March 2022. He added that it might be useful for the ECB to disconnect QE from rates the way the Fed did last Friday. On inflation, Villeroy said there is no risk of a sustainable surge in inflation in the eurozone.
That’s today in a nutshell. Turning to markets, we can be relatively brief. Equity, currency and bond markets all trade muted. European stocks eke out gains not more than 0.20%. The USD has a small, marginal edge over G10 peers. EUR/USD’s test of the 1.1805 resistance area failed and now struggles to retain the 1.18 big fig altogether. The trade-weighted greenback is going nowhere at 92.74. USD/JPY reversed early weakness and is eying 110. Core bonds tread water. US yields prepared for a minor downleg but the move lacked momentum. The US10y yield holds north of 1.30%. German Bunds are holding a choppy sideways trading pattern and at the current stage slightly underperform USTs. The 10y (-0.41%) tested but failed to cap -0.40% in early trading. Peripheral spreads are – you guessed it – largely unchanged. Oil prices are slightly down for the day while natural gas futures reversed an Asian spike higher despite hurricane Ida shutting down nearly all gas production by the US gulf.
The Swiss KOF Economic Barometer fell from its all-time high in May for the 3rd time in a row, from 130.9 to 113.5 (vs 125.9 consensus), but remains above its long-term average of 100. Accordingly, in the coming months the economic recovery from the consequences of the pandemic is expected to continue. All indicator groups except construction contributed to the decline in August with the fourth wave fueling doubt on future economic activity. In the goods producing sector, the order backlog in particular is assessed as less positive, followed by earnings, employment, and production. The Swiss franc returned all of Friday post-Powell (decline real yields) gains and returned from EUR/CHF 1.0750 to 1.08. Last week’s deposit data suggested hardly any FX interventions by the Swiss National Bank. Early August, the SNB prevented CHF from appreciating beyond EUR/CHF 1.07.
The National Bank of Belgium upwardly revised its Q2 GDP forecast from 1.4% Q/Q to 1.7% Q/Q. It’s the fastest quarterly growth figure with available data dating back to Q2 1995. Details showed positive contributions from household consumption (3.5% Q/Q), government spending (3.5% Q/Q) and investments (1.6% Q/Q). Net exports fell by 0.4% Q/Q with imports (3.1% Q/Q) rising faster than exports (Q/Q).