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Big Rise in Natural Gas Price

Market movers today

The main event today will be the release of the US July CPI, where we look for +0.2% m/m in terms of both headline and core inflation, in line with consensus. Further disinflationary signals especially on core services prices would support our view that the Fed is already done hiking rates. Weekly jobless claims data is also due for release, claims have declined over summer after a modest increase last spring.

Inflation data will also be released for Norway, where we forecast headline inflation to drop to 5.8% from 6.4% and core inflation to ease to 6.4% from 7.0%. This would be roughly in line with Norges Bank’s estimate (6.3%) and point towards a 25bp hike in next week’s meeting.

In Denmark, we expect CPI inflation increased to 3.1% in July from 2.5% in June after the re-introduction of the electricity fee.

From Sweden, details on June private consumption and industrial production will be released.

On the central bank front, the Fed’s Bostic and Harker are scheduled to speak in the Philadelphia Fed’s webinar.

The 60 second overview

Natural gas: European natural gas prices rose as much as 40% yesterday – the biggest daily increase since last year. Both the day-ahead spot price and the one-month benchmark future jumped. The move higher came a bit out the blue. Some news headlines suggest it could be due to a tighter LNG market partly on the back of a labour strike in Australia.

US. President Joe Biden yesterday signed an order which limits US investments in China, e.g. in semiconductor, quantum computing and AI. The final details are still to be worked out before coming into effect next year, but at a glance, the order, which has been under way for almost two years, does not look as stringent as some might had expected or hoped for.

Japan: Producer prices in Japan rose 3.6% y/y in July. Last month they increased by 4.3% y/y. Pressure on input costs in Japan continue to ease as also seen, e.g. in Europe and US.

Equities: Global equities were lower yesterday, dragged down by US and cyclicals. The picture was very different in Europe with cyclically driven gains plus banks coming back as Italian politicians are flip-flopping on the windfall tax on banks. US session with relatively high intraday vol and indices ending near worst levels. This was not a very macro or news driven but should in our opinion be seen in the light of solid summer performance and lack of new drivers.

In US yesterday Dow -0.5%, S&P 500 -0.7%, Nasdaq -1.2% and Russell 2000 -0.9%. Asian markets are mixed this morning and the odd situation of negative daily correlation between South Korean and Japanese equity markets are continuing. One could also see this as a lack of big common driver/news. Futures in both Europe and US are higher this morning.

FI: A mostly sideways trading in the absence of significant news before noon was followed by a small uptick in EGB yields with 10y Bunds ending 3bp higher on the day. While difficult to pinpoint an exact trigger, Italy changing the bank tax decided on this weekend and a surge in natural gas may have contributed to the higher EGBs in a thin summer trading session.

FX: FX crosses in general stood relatively still on Wednesday. EUR/USD moved in a tight range around 1.0975, seemingly awaiting the US CPI numbers for direction. EUR/SEK made an attempt to break below 11.70 in risk-on but failed and ended the European and US sessions were it started, close to 11.73. NOK had better luck when EUR/NOK dropped some six figures just to find support at 11.20. USD/JPY climbed a bit, from the low to the high end of 143.

Credit: Yesterday, sentiment in credit markets was constructive but cautious ahead of the US CPI report for July, leaving iTraxx Main broadly unchanged (-0.6bp) at 72.7bp, while iTraxx Xover tightened by 2.7bp to close the session at 406.4bp. Moreover, the primary market activity was relatively muted with only a few financials active the Eurobond arena. Handelsbanken printed a EUR750m 11NC6 Tier 2 bond at MS+190bp travelling from IPT of MS+220 area, this intraday transaction with solid book-coverage underpins a healthy investor appetite.

Nordic macro

Denmark. Danish CPI inflation declined significantly in Q2, as low spot energy prices weighed heavy on inflation. With the re-introduction of the electricity fee, we expect an increase in the July figures, though, to 3.1% from 2.5% in June. Food prices remain a joker after we saw a big increase in June.

Sweden. Did Swedish economy fall off a cliff in the second quarter? It was indeed the impression given by the very weak GDP indicator which contracted a whopping 1.5% compared to the previous quarter, way below the Riksbank’s -0.5% and which also surprised NIER which lowered its forecast for Q2 and 2023 yesterday, yet without taking the poor preliminary GDP indication fully into account. The official National account data for Q2 is released on 29 August and those will be the numbers the Riksbank brings to its September meeting. In the meantime, we get June consumer and production data this morning which will shed more light on the matter.

Norway. We expect Norwegian core inflation to drop from 7.0 % to 6.4 % in July, mainly from lower food prices due to strong base effects and high June inflation. This would be roughly in line with Norges Bank’s estimate from the June MPR at 6.3 % and should point towards a 25bp hike next week. Headline inflation is expected to drop from 6.4 % to 5.8 % in July.

Danske Bank
Danske Bankhttp://www.danskebank.com/danskeresearch
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