Today ECB's vice president Constancio will speak

Market Movers

• Focus remains on Emerging Markets and the spill-over to global equity markets, although there are some signs of stabilisation this morning (see below).

• Today ECB’s vice president Constancio will speak. His comments will be followed closely in light of the equity sell-off and as the drop in the oil price is threatening the ECB’s outlook for higher inflation. Focus is likely to be on the drop in market-based 5Y5Y inflation expectations, which could result in a more dovish tone from the ECB.

• In Germany, we expect a small increase in Ifo expectations in line with last week’s positive surprise in the German manufacturing PMI. The PMI figure suggests GDP growth will strengthen in Q3 after disappointing a bit in Q2, when low investments and higher inventories were a headwind to activity.

• US consumer confidence should be supported by solid job growth and lower gasoline prices. We expect Conference Board consumer confidence to rebound to 92.3 in August after it dropped almost nine points in July to 90.9.

• In Scandinavia focus will be on the Norwegian Q3 oil investment survey, which will attract attention, as the recession in the oil-related sectors has slowed domestic growth. For more on Scandi markets see page 2.

Selected Market News

Most Asian stocks together with US index futures are higher this morning following yesterday’s global equity sell-off. The better sentiment followed after the major US indices followed global markets lower yesterday, but closed off the session lows. The oil price is also trading slightly higher after yesterday’s close at the lowest level since the beginning of 2009. However, it is probably still too early to call the end of the sell-off.

The mainland Chinese stock market is still markedly lower with the Shanghai composite index down 4.3% but off earlier lows. On the offshore market in Hong Kong Chinese stocks are slightly higher with the Hang Seng Chinese Enterprise Index up 0.5%.

People’s Bank of China (PBoC) have injected liquidity into the money market using its reverse repo instrument mainly to offset the negative liquidity impact from the FX intervention. PBoC could instead have cut the reserve requirement ratio to inject liquidity but the use of the fine-tuning liquidity instrument underscores that PBoC is reluctant to ease more aggressively. There are signs that PBOC is losing its grip on the USD/CNY exchange rate a bit. Today PBoC raised the USD/CNY fixing by 0.2% to 6.3987.

Yesterday Fed’s Lockhart repeated that he expects the Fed’s first interest-rate hike this year. His unchanged view on a rate hike followed despite his comments that ‘currently, developments such as the appreciation of the dollar, the devaluation of the Chinese currency, and the further decline of oil prices are complicating factors in predicting the pace of growth’. A delayed hike from the Fed would support financial markets but Lockhart continues to expect a hike as he looks for a gradual improvement in consumer and investment spending and wages.