Fra Danske Bank:
- In the US, today’s main data focus will be on the July PCE. Consensus expects headline to decline to 0.2% m/m and core PCE inflation to remain steady at 0.3% m/m. In the afternoon, University of Michigan’s revised August consumer sentiment survey will be released. While inflation expectations declined from May to July, the preliminary data showed that new tariffs appear to have caused renewed concerns in early August.
- Today, we receive the main data highlights of the week with the flash August inflation data from Germany, France, Italy, and Spain, which is released ahead of the euro area aggregate. We expect euro area HICP inflation to increase to 2.1% y/y in August from 2.0% y/y in July driven by an increase in energy inflation while core inflation is expected to remain unchanged at 2.3% y/y.
- In Sweden, a whole battery of interesting and important macro data is released today at 08.00 am CET. At the top of the macro food chain is the GDP figures for Q2, which will serve as a key input (together with next week’s inflation data) for the Riksbank’s September meeting. We see GDP growth of 0.3%/1.2% q/q/ y/y, with a slight downside risk posited by some of our leading indicators. Additional data releases consist of retail sales for July and wage data for June, both of which are interesting in their own right.
- In Norway, we expect the NAV unemployment rate to have fallen to 2.1% (cons: 2.2 %) in August, though we see downside risks as labour supply has increased significantly. Also keep an eye on the development in new vacancies, which appears to be falling somewhat, thus indicating somewhat lower demand for labour.
- After moving sideways for two months, retail trade in Norway appears to have picked up again in July, and we expect +1% m/m.
Have a great weekend!
Economic and market news
What happened overnight
In China, the rally in Chinese benchmark equity indices has extended amid new turnover highs. Retail investors have over the last month sent onshore benchmarks close to 10% higher as economic easing and AI optimism have outweighed concerns regarding the Chinese property market and US trade relations. Going forward markets will closely monitor Chinese authorities’ communication on the soundness of the rally and to what extend regulators stand ready to cool down the bull run. So far investors have taken it as a positive sign that the People’s Bank of China has lifted the CNY reference rate despite little change in the trade weighted USD.
In the US, following the recent batch of US figures markets still price around 20bp worth of Fed rate cuts for the upcoming FOMC meeting on 17 September. Overnight, Fed’s Waller repeated his stance that a 25bp rate cut is the most likely for this meeting but that he would back a larger size cut should the August nonfarm payrolls report (released on 5 September) show “substantial weakening”. Our base case still entails quarterly 25bp reduction in the Federal Funds target range until September next year.
What happened yesterday
In the US, Q2 GDP growth was revised up to 3.3% (prior: 3.0%), driven by strong consumer spending and increased investment in AI.
In Sweden, the NIER Economic Tendency Survey (ETI) headline claimed improved sentiment across all sectors. However, consumer sentiment showed only a very minor improvement and remains substantially below normal levels. Retail firms’ expectations for sales prices over the next three months declined and are now below the historical average. A further decline in selling price expectations supports the board’s view that the recent inflation uptick ought to prove temporary, which is seen as dovish. On the other hand, the broad, albeit minor, uptick in the ETI supports the recovery narrative, and makes it marginally hawkish. In our view, the relief regarding selling price expectations likely outweigh the cyclical factors at play, lowering the bar ever so slightly for another cut. That said, next week’s inflation data remain the key input for the September meeting.
In the euro area, the growth in bank lending came to a two-year high in July on the back of lower interest rates and a gradual economic recovery. Loans to households grew by 2.4% (prior: 2.2%), while credit to companies increased by 2.8% (prior: 2.7%).
In geopolitics, Britain, France, and Germany triggered the snapback mechanism, launching a 30-day process to reinstate U.N. sanctions on Iran over alleged violations of the 2015 nuclear deal. The E3 cited insufficient progress in talks with Iran and declining cooperation with U.N. nuclear inspectors. Iran criticised the move as harmful to diplomacy but left the door open for engagement, while the U.N. Security Council is set to discuss the issue further behind closed doors today.
Equities: Equities were mixed again on Thursday, with US outperforming for a fifth session (S&P 500 0.3%) while Europe drifted lower (Stoxx 600 -0.2%). This takes US outperformance to a staggering 2.5p.p. in only a week! What we are seeing is the aftermath of Powell’s dovish Fed guidance. This is visible in the sector performance where yield sensitive growth sectors like consumer discretionary, tech and communications are up 3-4% in a week. It is this renewed growth preference that have sparked the divergence between US and European markets. Speaking of tech, Nvidia managed the delicate balance to guide down consensus on 34x 12m fwd earnings yesterday, without a panic reaction in markets. The share closed a modest -1% lower. The defensive rotation in European markets stalled yesterday, but defensives have still outperformed cyclicals by 2-3p.p. since the peak in August.
FI and FX: US stocks closed at all-time highs while 10Y UST fell 2bp to around 4.22% in a flattening move during yesterday’s session, with small moves overnight. Today, focus turns to the US PCE data for July and with 22bp of cuts priced for the upcoming September meeting it will likely require a clear overshoot to change the anticipation of a rate cut. After EUR/USD moved higher during much of yesterday, the USD recovered parts of yesterday’s move overnight, now at 1.1660. USDJPY is stable around 147-level after Tokyo inflation data came out as expected. EUR/SEK and EUR/NOK have traded sideways since yesterday afternoon. Notably, Swedish yields continued to widen yesterday, and the 10y SGB is some 12bp wider vs Germany since last Friday.
