The oil price fell again yesterday after recovering a bit during the day

Market Movers

• Following a sharp sell-off in US stocks late in yesterday’s trading session, focus today will be on whether European markets will take another turn for the worse.

• Data on US oil inventories this afternoon will be watched closely. The oil price fell again yesterday after recovering a bit during the day.

• ECB's Peter Praet speaks today on the euro crisis and is likely to be questioned about the current market situation. This afternoon Fed's vice chairman Bill Dudley (voter, dove) speaks. The theme is regional economy but Q&A is expected. Dudley is at the core of the Fed and may have coordinated today’s remarks on the policy outlook with Fed chairman Janet Yellen.

• On the data front, US durable goods orders for July are due for release. These are very volatile, though, and should have a limited effect on the markets.

• We will also receive Swedish confidence measures and Norwegian unemployment data. For more on Scandi markets see page 2.

Selected Market News

People’s Bank of China (PBoC) yesterday cut its leading interest rate by 25bp and the reserve requirement ratio (RRR) for commercial banks by 50bp. This was the fifth interest rate cut since November last year and we regard it as a reluctant easing move forced by the sharp decline in the stock market today and yesterday. Policy-wise, PBoC in our view is in a very difficult balancing position. On the one hand, financial markets want monetary easing but, on the other hand, financial markets do not want the CNY to depreciate too fast. If PBoC really wants to ease monetary policy and push money market rates lower, it might have to accept more flexibility in the USD/CNY exchange rate and allow the CNY to weaken a bit. The initial market reaction was positive and European stock markets rebounded yesterday but the risk rally faded in late US trading. The US S&P500 ended the day down another 1.4% and this morning both the Hang Seng and Shanghai indices are up only marginally. In terms of the CNY, the depreciation pressure has continued overnight.

European bond markets saw a significant sell-off yesterday with the German 10-year yield up 14bp on the day closing around the highs of the month and a much steeper curve, in a move which seemed very flow driven. The moves in the US treasury market were also significant but the late session dip in risk sentiment lent support to treasuries in late trading and yields were up around 7bp at the close.

In FX markets, EUR/USD is now trading close to 1.15 again and in Scandies EUR/SEK has moved higher overnight.