The Turkish crisis has been abating this week
|Market movers today
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In the euro area, we have the final HICP figures for July released. The initial estimates showed headline and core inflation at 2.1% and 1.1%, respectively. Judging from the country figures, we do not expect any revisions but we will look for evidence of the ECB's claim that underlying inflation pressures are boarding and are becoming more resilient.
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In the US, University of Michigan consumer confidence for August is on the agenda. Consensus is for a further small increase to 98.0 but it will be particularly interesting to see whether inflation expectations, which the Fed is monitoring closely, will recover from their fall in July. However, even in the case of a miss, we do not think it would necessarily lead the Fed to postpone the expected September hike.
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Brexit talks continue in Brussels and EU chief negotiator Michel Barnier may hold a news conference.
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Tomorrow, German Chancellor Angela Merkel and Russian president Vladimir Putin will meet in Berlin to discuss Syria, Ukraine and the Nord Stream 2 pipeline.
Selected market news
The global equity market continues to see gains with the Asian markets in positive territory and the US stock market increased yesterday. The positive sentiment is spurred by news over the past few days that trade talks are about to resume between China and the US in late August. Yesterday, US President Donald Trump welcomed the relaunch of trade talks with China but cautioned on difficult talks ahead, saying ‘They just are not able to give us an agreement that is acceptable, so we're not going to do any deal until we get one that's fair to our country'. We share this cautious view given that the upcoming talks are really to see whether there is scope to launch broader trade talks and given President Trump is buoyed by the strong US economy and stock markets. As a sign of a precarious relationship between the two countries, the Pentagon yesterday warned that the Chinese military is ‘likely training for strikes' on US targets according to a Reuters story.
The Turkish crisis has been abating this week, after the Turkish authorities took steps to mitigate the pressure on the lira. However, yesterday, the US treasury stepped up the pressure on Turkey, warning that more sanctions will be put on Turkey if the imprisoned US pastor is not released soon. The lira pared some of its recent gains after the comments from the US Treasury.
Yesterday, Norges Bank as expected left the policy rate unchanged at 0.50%. This was an ‘intermediate' meeting, i.e. there was no monetary policy report or press conference, just a press release. Also as expected, Norges Bank continues to signal a September hike despite global turmoil: ‘The Executive Board's assessment is that the upturn in the Norwegian economy appears to be continuing broadly in line with the picture presented in June'. Underlying inflation is below the inflation target but the driving forces indicate that it will rise further out. Overall, the outlook and the balance of risks do not appear to have changed. We still expect Norges Bank to hike rates on 20 September.
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