EA labour market resilience in focus

In focus today

In the euro area, we receive the second estimate of GDP growth for Q2 2025 and the first estimate of employment in Q2. The key focus of the release is the employment data, expected to reflect a slight rise, which would be a continued sign of a resilient labour market. The first estimate of GDP showed a growth rate of 0.1% q/q, exceeding the consensus expectation of 0.0%. The low growth rate follows a very strong first quarter of the year where the economy grew 0.6% q/q. Evaluating the first half of the year, growth has been higher than expected.

In the US, focus will be on the July PPI. The CPI, released on Tuesday, suggested that tariff-driven inflation has so far remained more muted than expected, but PPI could offer further insight into the cost pressures that companies are facing currently.

In Norway, we expect Norges Bank to keep the policy rate unchanged at 4.25%. This is an interim meeting without new forecasts, only a press release and a press conference. Since the June meeting, growth and inflation have been very much in line with expectations, so we expect the MPC to signal that the policy rate most likely will be cut in September. This is well in line with consensus and current market pricing, so we expect the market reaction to be muted.

Economic and market news

What happened overnight

In Australia, the unemployment rate dipped to 4.2% in July (cons: 4.2%, prior: 4.3%), easing from a 3-1/2 year high and reflecting resilience in the labour market.

What happened yesterday

In China, credit and money data were released. Credit figures were slightly weaker than expected at 23,990bn CNY ytd (cons: 24,456 bn CNY ytd). However, money growth exceeded expectations, with M2 at 8.8% y/y (cons: 8.3%, prior: 8.3%) and M1 growth at 5.6% y/y (cons: 5.2%, prior: 4.6%). Overall, a fairly neutral release, with credit slightly softer but money growth stronger than expected.

In Japan, pressure is building within the Bank of Japan to shift its monetary policy communication towards a more hawkish tone, as inflation surpasses the 2% target. Some board members are calling for a focus on headline inflation, reflecting concerns over persistent price pressures and the risk of being "behind the curve" on rate hikes.

In geopolitics, US President Trump has threatened 'severe consequences' if Russia's President Putin does not agree to peace in Ukraine during Friday's Alaska summit. Trump emphasised that any territorial decisions must involve Ukraine, offering reassurance amidst concerns of an unfavourable deal. European leaders and President Zelenskiy laid out red lines during a virtual call, stressing that Ukraine's borders cannot be changed by force. Meanwhile, escalating Russian advances in eastern Ukraine heighten tensions ahead of the talks.

Equities: Equities notch fresh highs, volatility grinds lower. Global equities extended gains yesterday, with several major indices - including MSCI World - printing new highs. Implied equity volatility continued to decline, with the VIX settling at 14.5, the lowest year-to-date. Interestingly, sector performance did not resemble a classic "risk-on" session. Defensive sectors outperformed on both sides of the Atlantic, led by a notable recovery and renewed appetite for healthcare. Small caps also posted another strong day, trading at a historically wide discount to large caps - a dynamic mirrored in healthcare, which has shifted from a nearly 20% valuation premium two-and-a-half years ago to a ~20% discount today. The drivers remain twofold: a robust macro backdrop typically compressing healthcare's relative valuation, and persistent uncertainty around pharma tariffs.

In the US yesterday, Dow +1.0%, S&P 500 +0.3%, Nasdaq +0.1% and Russell 2000 +2.0%.

Asian equity markets show modest weakness this morning, led lower by Japan, while European and US equity futures trade marginally in the red.

FI and FX: Global yields moved lower across the curve yesterday, as markets increasingly price in a resumption of Fed rate cuts in September. The low-volatility, risk-on environment remains intact, with Treasury yields declining, equities advancing, and the USD weakening. In FX, the USD continues to trade on the back foot following the benign US July CPI print. EUR/USD has stabilised around 1.17, while the JPY and GBP were standout performers, broadly appreciating across G10 in yesterday's session. The JPY strengthened after US Treasury Secretary Scott Bessent said he expected the BoJ to hike to tame inflation.