Focus on FOMC minutes and UK CPI

In focus today

The minutes from FOMC's July meeting will be released this evening but given that the meeting was held before the latest weak Jobs report, markets' main focus remains on the timelier Fed commentary. 

Inflation data will be interesting to gauge after investors have backed off bets on further rate cuts from the Bank of England (BoE) due to the somewhat more hawkish guidance at the recent BoE meeting and a labour market which is probably not as weak as feared. Headline inflation was 3.7% in June after prices increased more than expected. Like we also see it in the Nordics, food prices is a key inflation driver.

Economic and market news

What happened overnight

In New Zealand, the Reserve Bank (RBNZ) continued its easing cycle with a 25bp rate cut early, lowering the Official Cash Rate to 3.00% in line with market consensus.

In Japan, exports recorded their steepest decline in four years as US tariffs weigh on the economy. Exports fell by 2.6% y/y (cons: -2.1%) and imports dropped by 7.5% y/y (cons: -10.4%). Notably, exports to the US declined by 10.1% y/y, driven by the 25% tariffs on automobiles and auto parts that appear to significantly impact trade with the US, which accounts for about 18% of total Japanese exports. The Japanese trade balance saw a significant unanticipated shift into negative territory of JPY -117.5bn (cons: JPY 196.2bn).

What happened yesterday

In the US, President Trump conceded in an interview that Russian President Putin may not be interested in making a deal at all and ruled out sending US troops to Ukraine. Trump plans on monitoring Putin's course of action over the coming weeks and warned Putin that he would risk facing a 'rough' situation in a no deal scenario.

In China, the premier Li Qiang called for more action to boost consumption and investments in a meeting with his cabinet. It follows the weak data report for July released on Friday and the Politburo meeting in July calling on stepping up support at an appropriate time.

Equities: Equities retreated yesterday despite a European rally and with 8 out of the 11 sectors in S&P 500 closing higher. In other words, the sell-off was entirely tech-driven, absent a clear trigger. The result was a sharp defensive rotation and pronounced value outperformance, with small caps even outperforming large caps and, notably, Min Vol outperforming as well. This mini correction in tech comes not only after a strong run recently, but essentially since the post-"liberation day" bottom in April. Over recent weeks, leadership has narrowed further into a handful of mega-cap tech names, many of which had reached fresh absolute and relative highs.

Yesterday's session was broad and largely devoid of macro headlines - neither weaker data, Fed expectations ahead of Powell's Jackson Hole remarks, nor earnings were in play. Rather, this was a textbook case of profit-taking after a powerful tech rally, which then cascaded into a negative feedback loop. In the US yesterday, Dow +0.02%, S&P 500 -0.6%, Nasdaq -1.5%, and Russell 2000 -0.8%. Asia is following suit this morning, with tech-heavy indices under pressure - Taiwan down around 2.5% at the time of writing. Futures in both Europe and the US are pointing lower, again led by weakness in the tech complex.

FI and FX: US equities dropped through yesterday's session with rate-sensitive sectors such as tech underperforming defensives. US rates moved slightly lower in line with the deteriorating risk sentiment, while EUR rates held steady. The volatility in FX markets was very modest as markets await Jackson Hole and August PMI data. EUR/USD closed at its 1.165 starting point. The drop in risky assets during yesterday's US session weighed on energy/commodity prices which in turn triggered NOK FI overperformance and left NOK FX as one of the clear session losers. EUR/NOK is back close to the 12.00 threshold.