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Focus Turns to Key Data Releases This Week

Market movers today

Focus this week will turn to US non-farm payrolls, ISM manufacturing, Chinese PMI and Euro Flash inflation for August.

We have a slow start to an otherwise interesting week where markets will likely digest the signals from the Jackson Hole speeches on Friday. On the data front, only Euro area money and credit growth and Norwegian retail sales are of interest.

The 60 second overview

Jackson Hole with few new policy signals: The speeches by Fed governor Jerome Powell and ECB President Christine Lagarde on Friday at Jackson Hole did not provide much new information. It is clear they are data-dependent and will take a holistic approach when looking at data to judge if more tightening is necessary. Powell made it clear it was too early to declare victory over inflation saying “there is substantial further ground to cover to get back to price stability”. This is not new, though, and the wording on monetary policy was unchanged from the recent Fed meeting saying “At upcoming meetings, we will assess our progress based on the totality of the data and the evolving outlook and risks”. His speech was interpreted as a bit hawkish by the rate markets, though, and 2-year yields ended Friday higher at 5.07%. Lagarde’s speech was mostly on structural changes affecting monetary policy in general but without policy signals.

China takes measures to lift equity sentiment: China yesterday reduced the stamp duty on stock trading, lowered the margin ratio for margin trading and curbed share sales in an effort to lift market sentiment. The measures had been flagged recently but the scale was wider than expected and Chinese equities have seen a lift of more than 2% in overnight trading. Whether the gains will be sustained will depend on what other policy measures China takes in the near future to lift the economy and reduce financial risks.

Equities swung between gains and losses after Powell’s speech. In the end, it did not change the needle much. Those believing in a Fed pivot early next year still have arguments to do so, and vice versa. Hence, equities finally rose with US equities particularly strong. S&P 500 gained 0.7%, Nasdaq a notch more, while Europe closed unchanged on Friday. More importantly, Powell did not say anything to hinder investor appetite for large cap growth stocks. Consumer discretionary and tech outperformed, large cap outperformed small cap and growth were generally preferred over value.

FI: Friday’s session ended with a bearish flattening as e.g. the 2y point rose 5bp while the 10y point rose 2bp. Powell’s speech in Jackson Hole did not contain new policy signals, nor did Lagarde’s late speech on Friday night. Late on Friday, Nagel and Holzmann repeated their hawkish signals with Nagel particularly saying that it is too early to pause the hiking cycle. Reuters sources reported a growing momentum for a pause in September but the debate is still open without a market impact.

FX: The CNY has stabilised over the last week with Chinese authorities stepping up their efforts to counter currency weakness. Otherwise, the USD continues to trade bid with EUR/USD falling below the 1.08 mark towards the end of last week for the first time since June. Both EUR/SEK and EUR/NOK have been range trading in recent sessions while GBP was last week’s primary underperformer returning EUR/GBP to the 0.858-mark.

Credit: Credit markets exhibited a slight tightening tendency on Friday. iTraxx Xover closed 2.2bp tighter and Main 0.6bp tighter.

Nordic macro

Sweden: Riksbank’s Flodén will give a speech on the topic “Where is the economy heading? Status after the summer.” In the latest minutes, Flodén highlighted (1) the weak SEK, (2) high service sector inflation, and (3) the stronger-than-expected economy as factors supporting a continued tight monetary policy. While he believes that more rate hikes are highly likely, he can still be characterized as the most dovish board member (possibly together with Bunge who speaks tomorrow). In the minutes he opened up for the possibility of an unchanged policy rate if a rapid economic downturn were to occur simultaneously with inflation being in line with the Riksbank’s forecasts, contingent with SEK not weakening significantly. Therefore, it will be interesting to hear his interpretation of the macro data from the summer, not the least the (overly?) negative GDP indicator print for Q2.

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