US treasuries declined 2.5bp to 2.397%

Market movers today

• Main event is the ECB meeting. We do not expect rate cuts or QE in connection with the meeting but all options are expected to be left open. After Draghi’s dovish speech at Jackson Hole the statement could include comments that there are signs that medium-term inflation expectations have started to de-anchor and that the ECB is ready to go down the QE path in case it continues. We expect the ECB to reveal more details about the ABS programme, which should contribute to further credit easing, see ECB easing – will it work? #5 ECB’s policy going forward, 29 August.

• In the US, focus is on the labour market ahead of Friday’s job report. We look for a positive surprise with a solid increase in non-farm payrolls of 260,000. ADP employment and initial jobless claims are due for release. The latter have been very low in historical context and point to robust job market, see US Labour MarketMonitor: Job growth is strengthening, 1 September.

• In the UK the Bank of England is expected to keep rates unchanged. Minutes from the meeting (due in two weeks) will be more interesting, as they will give information whether the balance of the board has tilted towards the hawks. Minutes from the August meeting showed a split vote of 7-2 in favour of keeping rates unchanged.

• We expect the Swedish Riksbank’s meeting to yield little out of the ordinary.

Selected market news

In Fed’s Beige Book released last night, all 12 districts reported growing activity during the summer, which is a sign of a continued recovery in the US economy in H2. However, ‘none of the districts pointed to a distinct shift in the overall pace of growth’, the report states, suggesting that there will be no acceleration into a new phase of rapid expansion. In respect of the labour market, districts reported little change in wage pressures but nearly all reported difficulties finding certain types of skilled labour.

European markets yesterday reacted positively to the news that Russian president Putin and Ukrainian president Poroshenko have discussed terms of peace and were ‘very close’ to agreeing on a path for resolving the conflict in Ukraine. However, risk appetite has faded overnight and US equity markets ended the day broadly flat, while yields on 10 year US treasuries declined 2.5bp to 2.397%.

As widely expected Bank of Japan (BoJ) did not announce any new easing measures in connection with today’s monetary meeting. However, in contrast to our expectations, the statement from the meeting only turned marginally more dovish than the statement from the August meeting. Most surprising to us, BoJ did not change the wording in its paragraph on the risks to its outlook. It still refuses to acknowledge that the impact from the consumption tax hike is a major risk for its outlook and thus no hints that BoJ has any intention on easing further soon. The market’s reaction has been fairly limited: USD/JPY and Japanese equities only trade slightly lower this morning. See Japan: BoJ only marginally more dovish, no signs of imminent easing, 4 September, for details.