Market movers today
Market focus will be on the US labour market report today. Consensus is looking for easing jobs growth (NFP +290k) in line with lower PMI employment indices and the ADP report released earlier this week. However, even with slowing employment growth the labour market remains extremely tight. Another increase in wage growth could seal the deal for another 75bp Fed hike in September, which is also our base case, read more in Research US – Fed continues to guide US economy towards a recession, 1 September.
ECB will release its July Consumer Expectations Survey results. Developments in inflation expectations will be particularly in focus, given ECB members’ increased focus on the risk of de-anchoring inflation expectations lately.
We think Norway’s unemployment rate likely declined to 1.6% in August.
The 60 second overview
Strong US economy: Jobless claims were lower than expected and ISM manufacturing was stronger than expected at 52.8. The news drove EUR/USD back below 1, and took long US yields higher. While production growth slowed, new orders index rebounded back above 50. Prices paid and supplier’s delivery times indices continued moving lower, pointing towards easing inflationary pressures. The market is now pricing 75% probability of a 75bp hike in the next meeting.
Executive briefing: We have published our monthly executive briefing, which gives a short and high-level overview of global and Nordic economies and financial markets Executive Briefing – Central banks double down on fighting inflation, 1 September.
German retail sales recovered some ground in July, rising 1.9% m/m after the last months’ declines. It suggests consumer spending was not yet falling off a cliff at the start of Q3, despite record-low consumer confidence and an inflation peak not yet in sight. However, we expect further slowdown in consumption lies ahead, once the latest surge in energy prices starts to feed through fully to consumers.
Equities: Global equities dropped further yesterday although the US cash session ended close to day-high with some indices in green. Please note the increases in US driven by defensives with health care and utilities on top and energy materials both sharply lower. In other words, investors are not seeing a better growth outlook or more positive signs, they are simply moving in the part of equities where they are not risking too much. This is very much in line with our strategy but we are still challenged by the long end of the yield curve continuing to tick higher. This gives some headwind to growth and quality stocks while benefitting value stocks in the relative game. Yesterday in US Dow +0.5%, S&P500 +0.3%, Nasdaq -0.3% and Russell 2000 -1.2%. Asian markets mixed this morning and the same goes for futures in the western world. European futures pointing to a solid opening while US futures are slightly lower.
FI: Global bond yields continue to rise ahead of the US labour market report and the ECB meeting next week, where the consensus regarding the policy hike is now 75bp. In our fixed income weekly on the European market, we look at the potential outcomes of the ECB meeting regarding the rate hike.
FX: USD rose vis-à-vis EUR and Scandi currencies yesterday. EUR/USD fell back below parity, USD/SEK rose to 10.80 and USD/NOK above the 10.00 level. USD/JPY above 140, now and Japanese government warns against rapid FX moves once again.
Credit: CDS indices opened the day sharply wider, but made a quick turn-around. This made Xover close the day 2bp tighter while Main widened 0.3bp.
Nordic macro
Norwegian registered unemployment was slightly lower than expected in July, but we expect the improvement to tail off in August, leaving the jobless rate unchanged at 1.6% (seasonally adjusted), which is exactly what Norges Bank projected in the June monetary policy report. Keep an eye on new vacancies as well, as they seem to have slowed down in recent months.
