US personal spending should increase 0.4% m/m in July

Market Movers

• Focus continues to be on China and the oil price but comments from Jackson Hole regarding Fed policy will also be studied closely. See the full program here.

• In terms of data, Germany will release preliminary CPI for August as the first euro area country. It will give insight into the impact on inflation from the continued decline in the oil price. Gasoline prices have started to follow the oil price lower, which should result in a larger drag from energy prices. On the other hand, we look for slightly higher German core inflation and based on this we expect German HICP inflation to be unchanged at 0.1% y/y in August.

• US personal spending should increase 0.4% m/m in July, in line with the solid gain in retail sales and we estimate a similar 0.4% gain in personal income.

• We expect a gain of 0.1% m/m in US core PCE inflation in July, taking the annual inflation rate to 1.3%. Core PCE inflation (the Fed’s preferred measure of inflation) is lagging behind core CPI, which is primarily due to 1) a smaller weight for housing in core PCE than in core CPI – recall that housing inflation has been relatively high lately and 2) medical care expenses. CPI medical care is limited to out-of-pocket expenses incurred by consumers, while PCE medical care includes direct purchases by consumers and spending on behalf of consumers, such as employer-provided health insurance plans, Medicare and Medicaid.

• Norwegian and Swedish retail sales. Unemployment figures for Norway. Danish confidence data and portfolio flows. For more on Scandi markets see page 2.

Selected Market News

Yesterday was another ‘risk-on’ day with European and US equity markets showing good gains. Oil prices climbed more than 7% on the day and WTI is now trading close to USD43 per barrel. The positive sentiment in the US was helped along by strong economic data. With an upward revision to Q2 US GDP to 3.7% from 2.3% and a more favourable composition, growth in the second quarter in the US now looks pretty strong. Jobless claims data also remained healthy. The combination pushed Fed funds rate expectations for this year up a bit but a first Fed funds rate hike is still not fully priced until March next year and the treasury curve flattened.

In China, the PBoC set the fixing rate 0.15% stronger this morning and at the time of writing, the CNY has strengthened 0.2% since yesterday’s close. The Shanghai composite index is up close to 2% this morning. The positive risk sentiment has carried over into Asia in general where most equity indices are in green. Japanese data released this morning showed BoJ preferred inflation measure CPI ex fresh food dropping to 0.0% in July, better than market expectations but still far from the 2% target. Data on retail sales showed a rebound of 0.6% in July after sales dropped in June and household spending unexpectedly declined.