Main events are the Riksbank and ECB meetings

Market Movers

• Main events are the Riksbank and ECB meetings. At the ECB meeting the question is in our view how dovish Draghi will be following the latest drop in 5Y5Y inflation expectations. Already in the introductory statement we expect him to emphasise the open-endedness of the QE programme and include that the ECB is ready to use all instruments if needed, see more in ECB preview: Dovish and slightly worried.

• In terms of data releases focus is on global service PMIs and any negative sentiment effects of the weakness in China, although the service sector is mainly driven by domestic demand. For the euro area the increase in the flash estimate of the aggregate figure should be driven by improvements in the periphery countries. In the US we expect non-manufacturing ISM to stay solid but to have fallen back from an elevated level.

• Euro area retail sales are due for release and based on the German figure already released it should rebound in July. The low oil price again supports private consumption, which has been the main driver of the recovery.

• Riksbank monetary policy decision. Our base scenario is that it will leave the repo rate unchanged at -0.35% but it is a close call.

Selected Market News

The source of volatility in Asian markets has been removed temporarily, as China’s stock exchanges are closed until Monday as the country commemorates the 70th anniversary of the end of World War II. US markets closed almost 2% higher and sentiment is positive on Asian bourses this morning with the Nikkei up more than 1% at the time of writing.

The ADP report yesterday indicated that US private payrolls increased by 190k in August, with a small downward revision to the July numbers. This was close to expectations and does not change our forecast that tomorrow’s employment report will show that more than 200k new jobs were created in the US last month.

Brent oil continues to trade above USD50 per barrel despite a relatively large increase in US oil inventories yesterday of 4.7m barrels.

The Danish central bank released foreign reserve data yesterday showing that interventions to keep the DKK from depreciating rose to DKK48bn in August. As EUR/DKK continues to trade above the central rate the central bank is selling foreign currency and has now intervened for a total of DKK190bn since April. Nevertheless, the FX reserve remains roughly DKK90bn above December levels, due to the historical currency inflow into Denmark in Q1 following the SNB’s decision to remove the floor below EUR/CHF.

We expect the central bank to unilaterally raise the interest rate on certificates of deposit within the coming three months but also continue to expect the central bank to use interventions in the FX market in the near term before starting to hike rates.