Focus remains in particular on the economic situation in China

Market Movers

Focus remains in particular on the economic situation in China. Financial markets are keeping a close watch on news out of China as well as hints from major central banks about the short-term direction of monetary policy.
In terms of data releases euro area inflation will attract attention today. We expect a small decline in the headline figure to 0.1% y/y in August from 0.2% y/y in July driven by the drop in the oil price but also due to an expected decline in core inflation. Looking ahead focus will be on core inflation and any second-round effects of the lower oil price as this would likely imply the ECB will ease again.
Later this week there are a number of interesting data releases including the US labour market report and manufacturing ISM. In the euro area the main event is the ECB meeting where there is increasing pressure on president Draghi for more easing. In China, the release of the official NBS manufacturing PMI could be a hurdle for China’s stock market.
In Denmark, focus will be on Q2 GDP growth, in Norway on July’s credit indicator and in Sweden on wage growth. For more on Scandi markets see page 2.

Selected Market News

According to an article in Financial Times this morning the Chinese government will end large scale share purchases, which it conducted as recent as last week to support the equity market, and instead focus on coming down on those suspected of destabilising the market. Financial markets are off to another nervous start to the week. At the time of writing, the Chinese stock market has dropped close to 3% pulling down commodity prices with it. The price on Brent crude has dropped 2% to USD49/bbl.

Fischer delivered a speech, which was somewhat more hawkish than what we heard from NY Fed President Dudley last week – see Fed update: Wrap up on Jackson Hole. In terms of when to hike rates, we view his comments as consistent with a Fed rate hike in December. It seems that the Fed would like to get a little more confidence that inflation is moving in the right direction before hiking. However, it is also worth noting from his comments that we do not need to see inflation rates anywhere near 2% before lift-off, as long as the trend in core inflation is not down.

The comments from Fischer halted the strong rally in financial markets on Friday putting upward pressure on the front end of the USD curve and stalling the recovery in commodity markets with the price for Brent crude making it above the USD50/bbl level and the price on LME copper 3M inching close to USD5.200/MT before Fischer’s speech. Apparently markets started to second guess whether a US rate hike is imminent, which then weighed on risk sentiment.

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