Back in business

In focus today

• Danish CPI is due this morning, and we expect inflation to decline from 1.8% in June to 0.9% in July, as last year's temporary suspension of the electricity fee exits the inflation measure.

• In the week ahead, we will watch out particularly for US inflation for July, due on Wednesday. We will also keep an eye on a Norge's Bank meeting, US retail sales, ZEW data out of Germany, and Q2 Japanese GDP data.

Economic and market news

What happened on Friday

Norwegian inflation came in line with market consensus with core printing at 3.3% y/y, well below Norges Bank's estimate of 3.7% from the June MPR, which could pave the way for a more dovish Norges Bank this week. Otherwise, markets were generally calmer on Friday after a week with high volatility across asset classes, as the VIX dropped 8% during the day.

This morning started off in a similar fashion as Japanese markets are closed for a public holiday today.

Market movements

Equities: Global equities ended higher on Friday, closing the week almost unchanged despite Monday's heavy sell-off. It seems like much more than just one week has transpired in the equity space. There was a market crash in Japan, which quickly returned to normal. The VIX spiked to over 65 before settling down to 20 by the end of the week. In our opinion, this volatility could lead to false assumptions among investors. It might cause some to think this was just another minor blip before the markets march towards new highs. However, we argue that things have changed compared to other blips we have experienced over the last few years, and therefore, one should act differently this time around. In the US on Friday, Dow +0.1%, S&P 500 +0.5%, Nasdaq +0.5%, Russell 2000 -0.2%. Markets are mostly higher in Asia this morning, with the most cyclical markets leading the advances, while Chinese markets are mostly lower. European futures are higher, while US ones are mixed.

FI: Global yields drifted marginally lower on Friday, with 10y Bunds ending 3bp lower at 2.22%. Following the initial rout early this month, the latter part of last week saw mostly sideways trading with 10y Bunds around the 2.2-2.25% level and 10y US treasuries just shy of 4%. After a rather violent repricing of ECB expectations earlier this month, markets are now pricing 68bp of rate cuts by year end with the September meeting priced to be a"“done dea"” at 24.7bp. Importantly for ECB, starting on Wednesday this week, we will have a sequence of important data indicating the evolution in the triangulation between wages, profits and productivity growth, which will be decisive for the rate outlook from the ECB. The focus this week is on the US CPI (Wednesday) and to lesser degree on the German ZEW tomorrow.

FX: The stock markets, bond yields and initially hard-hit risk-sensitive currencies recovered through the better part of the week following the blow-outs on Monday. The alleged recession risk seemed to moderate somewhat in the wake of some more encouraging data from the US. For example, the NOK fully erased losses vs the EUR as the cross first soared above 12.10 in light trading and closed the week around 11.80. Meanwhile, the SEK has been relatively stable in a balance act between risk off and closing of carry trades. USD/JPY is back above 146 whereas EUR/USD was range-bound within 1.0900-1.0950 most of last week. An exciting week ahead with focus on inflation (Sweden, US), activity (EA GDP, US retails sales) and central banks (Norge).