Market movers today
With little interesting data out markets will focus on the situation in North Korea, the hurricane Irma hitting Florida and further digest the ECB meeting yesterday.
North Korea is expected to launch another Interballistic Missile (ICBM) tomorrow when it celebrates its founding day. China voiced support yesterday for further sanctions against North Korea but also wants to see renewed efforts to begin a dialogue.
Hurricane Irma is expected to hit Florida on Sunday after causing severe damage in the Caribbean.
The ECB left its policy measures unchanged and President Mario Draghi confirmed that the bulk of decisions regarding the QE purchases beyond 2017 will most likely be taken in October. We still believe the ECB will announce a reduction in its QE purchases to EUR40bn per month in H1 18 at the next meeting in October.
In terms of economic data releases, it is a quiet day today. In the UK, keep an eye on the NIESR GDP estimate for August , as it is usually a good predictor of actual GDP growth. In Germany, labour costs data for Q2 are due to be released at 08:00.
In Sweden, household consumption in July is due while in Denmark, current account and trade balance data for July are being released this morning. The Riksbank left a dovish message yesterday despite keeping its policy measures including the reporate path unchanged. The Riksbank also announced that CPIF inflation is now the formal target variable and reintroduced a +/-1 percentage point variation band. Neither has any implication for actual policymaking.
Selected market news
With uncertainty in the market prevailing, US stock markets and Asian markets are treading water with little clear direction. While FX markets interpreted Draghi on the hawkish side sending EUR/USD above 1.20, bond yields took another nose-dive yesterday.
In a speech yesterday Fed Vice President Bill Dudley (voter, dove) reiterated his view that ‘even though inflation is currently somewhat below our longer-run objective, I judge that it is still appropriate to continue to remove monetary policy accommodation gradually’. However, he refrained from saying whether that meant another hike this year. Fed member Esther George (non-voter, hawk) overnight said thatitis ‘time to continue to move that interest rate higher’. Dudley and George have given some counterweight to speeches made recent ly by some of the Fed doves (Brainard, Kaskhari and Kaplan) that have argued for patience due to low inflation. The Fed is currently splitinto two camps – one that wants to pause and another that wants to continue with gradual rate increases.
Chinese trade data overnight disappointed slightly with export growth being 6.9% y/y (consensus 8.7% y/y) down from 11.2% y/y in July.
