In focus today
From the US, the NFIB’s small business optimism index for August is due for release.
Overnight, China releases CPI and PPI data for August. After a drop from 4.1% y/y to 3.5% y/y last month, we look for PPI inflation to be broadly flat at 3.5% y/y in August, mainly driven by flat commodity price inflation. Headline CPI is expected to rise to 0.9% y/y from 0.5% y/y, partly lifted by food and energy inflation.
Economic and market news
What happened overnight
In China, August trade data were broadly as expected, with exports rising 25% y/y in USD terms (prior: 23.9%), while imports increased 28.2% y/y (prior: 27.5%). The strength was supported by demand for high-tech and AI-related products, with the AI data centre build-out lifting trade in components and chips. Export value growth accelerated further towards Taiwan (+43.7% y/y) and the US (+34.4% y/y) but slowed down towards the EU (+6.6% y/y). The data underline China’s continued reliance on external demand, while the export strength helps cushion weak domestic demand. Trade tensions remain in focus ahead of the Xi-Trump meeting expected later this month. Read more in Research China – Tech Boom Amid Consumer Gloom, 8 September.
In commodities, oil prices rose yesterday, with Brent moving closer to the USD 100/bbl mark and trading around USD 97.5/bbl this morning. The move reflects a higher geopolitical risk premium as tensions around the Strait of Hormuz intensify, with Iran signalling a new Gulf exclusion zone and a possible shipping deal with Oman. US strikes on tankers, renewed attacks near Hormuz and a limited attack on Saudi Aramco’s Jazan facilities near the Red Sea have added to supply concerns.
What happened yesterday
In Sweden, August flash inflation came in below expectations, with CPI at 0.28% y/y (Danske: 0.59%, prior: 0.18%), CPIF at 0.72% y/y (Danske: 1.00%, prior: 0.72%) and CPIF-XE at 0.52% y/y (Danske: 0.74%, prior: 0.57%). Both goods and services came in below expectations, while food and energy were broadly in line with forecasts. The downside surprise appears to be broad-based within both goods and services. Transport prices were higher than usual m/m, but the category includes both fuel and air travel, making it difficult to distinguish the underlying drivers. Last week, markets were still pricing in around 30% probability of the Riksbank hiking rates in its upcoming September meeting, but most of the implied probability was erased after the release. We expect the Riksbank to hike rates for the first time in November.
In the euro area, wage growth declined to 3.3% y/y in Q2 from 3.6% y/y in the ECB’s preferred measure, compensation per employee. The June staff projections saw wage growth falling from 3.3% (estimate before the actual Q1 data) to 3.2% y/y. Hence, the decline was in line with expectations and hints from data on negotiated wages and the ECB’s wage tracker. Wage growth remains on a downward trend which should pull core services inflation lower.
Also in the euro area, Q2 GDP growth was revised up to 0.6% q/q from 0.4% q/q, the strongest quarterly growth rate in four years, while household consumption rose 0.4% q/q. Growth was driven by sharply higher exports, potentially reflecting indirect effects on euro area manufacturing from the global AI boom. Household consumption growth was notable given the large increase in prices following the Iran shock. That said, Ireland accounted for more than half of euro area GDP growth and excluding Ireland growth was closer to potential. Hence, the data is not as hawkish for the ECB as the headline figure suggests.
Equities: European equities were little changed on Monday, while Asian markets rallied sharply, but in thin trading as US markets were closed for Labor Day. The Stoxx 600 finished flat and OMX Nordic gained 0.4%. Tech led performance, with semi-conductors and AI-linked hardware at the forefront, ignited by ChatGPT’s launch of its new Astra model on Friday. Astra is designed to handle more complex reasoning tasks, which also increases the need for compute power, memory capacity and GPU intensity. Astra challenges that narrative.
The market reaction reflected this yesterday. Korean equities rallied 5% and another 2% this morning. European technology stocks also performed well, although gains elsewhere were constrained by another rise in bond yields. Real estate and other rate-sensitive sectors lagged. US equity futures are broadly unchanged this morning.
FI and FX: The JPY has extended its recent strength overnight, with USD/JPY at 153.35, down from the 156-level seen Friday and the 160-level where it traded when we entered September. Yields rose in Europe yesterday as energy prices rose. Overnight, developments have been calm with US yields close to unchanged compared with Friday’s closing level and JGBs a couple of basis points lower in a flattening move. The lower-than-expected Swedish inflation print has put upward pressure on EUR/SEK, while the NOK is supported by higher energy prices, now trading below 10.80.
, CPIF at 0.72% y/y (Danske: 1.00%, prior: 0.72%) and CPIF-XE at 0.52% y/y (Danske: 0.74%, prior: 0.57%). Both goods and services came in below expectations, while food and energy were broadly in line with forecasts. The downside surprise appears to be broad-based within both goods and services. Transport prices were higher than usual m/m, but the category includes both fuel and air travel, making it difficult to distinguish the underlying drivers. Last week, markets were still pricing in around 30% probability of the Riksbank hiking rates in its upcoming September meeting, but most of the implied probability was erased after the release. We expect the Riksbank to hike rates for the first time in November.){kind=link}