Euro area money and credit growth are expected to show solid gains

Market Movers

• Focus continues to be on the Emerging Markets rout and moves in the oil price. Tentative signs of stabilisation have emerged but uncertainty is still high.

• Euro area money and credit growth are expected to show solid gains. Real M1 growth is a good leading indicator and points to acceleration in growth over the next year.

• The annual symposium in Jackson Hole hosted by the Kansas Fed will run from 27-29 August. The topic will be inflation dynamics and monetary policy. Research presented at previous symposiums has been important in shaping the thinking of the FOMC and with a very timely topic this could be the case thisa year as well. The programme will be released tonight at 01:00 CET.

• The second release of the Q2 GDP data is likely to show a solid upward revision to 3.1% q/q AR from 2.3%. The main factors behind the revision are a larger contribution from net exports and better growth in non-residential investments. US initial jobless claims and pending home sales are also up for release.

• The Danish central bank took a step towards normalisation of the Danish fixed income and FX market yesterday. For more on Scandi markets see page 2.

Selected Market News

Yesterday the Danish central bank announced that bond sales will be resumed in October. It also announced that the current account limits will be lowered reflecting the drain in excess liquidity over the past two months mainly due to intervention in the FX market. The comments from the central bank that intervention has been ‘substantial’ and that there is ‘no need for extraordinary measures anymore’ underline that the move should be seen as a part of the normalisation of the Danish fixed income and FX markets. All in all, a first Danish independent rate hike has moved closer.

US stock markets once again showed large volatility on the day but this time the move was up, with the S&P500 ending the day 3.9% higher with gains accelerating in the last trading hours. The positive sentiment has carried over to Asia this morning where all major indices are up.

Dovish comments from ECB’s Praet yesterday were not enough to fully reverse yesterday’s substantial sell-off in German bonds but 10-year Germany ended the day 4bp lower. A solid US durable goods orders report, suggesting that momentum in business capital investment was improving before the latest flare-up in financial market volatility, combined with the increase in stock markets, sent US yields higher. The curve steepened as dovish comments from NY Fed President Dudley, stating that a September hike was ‘less compelling’ now than a few weeks ago due to ‘international’ and ‘financial market’ developments kept a lid on short-end yields. The USD bounced back on the combination of better risk sentiment and dovish ECB versus better US data.