Following the upward surprise in US CPI inflation yesterday

Market movers today

  • Following the upward surprise in US CPI inflation yesterday, focus on the macro front today turns to US retail sales for August, which we estimate increased by 0.3%. Preliminary consumer confidence for September from the University of Michigan is also released. Like business confidence, consumer confidence is still very high, but Hurricane Harvey and an unstable political environment within the US may have weighed on it and we estimate a slight fall to 95.0. Also, keep an eye on the five- to 10-year inflation expectations in the survey. They trended lower during 2015 and 2016 but have moved sideways at around 2.5% for a year now.

  • The US Empire index (business confidence) is likely to retreat a bit in September after hitting the highest level in three years in August. The indicator is quite volatile and the August level was likely to be ‘too strong’ relative to the underlying development. US industrial production for August is also due and estimated to increase 0.1% m/m.

  • On the central bank front, we have speeches today by ECB members Nouy (8:00 CEST), Visco (09:00 CEST) and Lautenschläger (10:15 CEST).

  • With the German parliamentary election less than 10 days away, we have published another German election monitor No. 2, 14 September, looking at some of the most pressing issues that politicians will have to deal with in the future.


Selected market news

US stock futures and Asian shares dipped after North Korea fired another Intercontinental Ballistic Missile over Japan into the Pacific Ocean this morning, demonstrating its defiance to new UN sanctions agreed on 3 September. Save haven assets were consequently in demand this morning, with gold firmer and USD/JPY dipping back below 110. The launch is likely to weigh on risk sentiment today, but the market impact should be short-lived unless the conflict escalates, given that we have already seen similar launches from North Korea in past weeks and months.

As we expected, the Bank of England (BoE) left its policy unchanged at the meeting yesterday, but it surprised with a warning of a possible forthcoming rate hike ‘over coming months’ if underlying inflation moves higher and the unemployment rate moves lower. The comment fuelled a GBP rally (see FX section). We think a hike in November is a close call but given that one condition is ‘a gradual rise in underlying inflationary pressure’, which we interpret as higher wage growth, we still think the BoE will stay on hold this year. Our base case is now a hike in Q1 18, as the BoE is less worried about political uncertainty and more focused on economic data.

Japanese manufacturers' confidence worsened for the first time in four months in September from the previous month's decade high. Manufacturing PMIs have shown similar signs of a slowdown, but we still expect the recent growth momentum to continue in 2017, supported by a very strong labour market, the global economic recovery and extremely accommodative economic policies.


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