FOMC Minutes to set the tone ahead of Jackson Hole symposium

In focus today

• The spotlight is on the Kansas City Fed's annual Jackson Hole economic policy symposium which begins today. This year's theme will be "Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy".
• On the data front, the PMIs are released for the euro area, US and UK for August. For the euro area, we expect growth to be weaker in the second half of the year due to the unwind of front-loading effects that made growth surprise positively in the first half. 
• In the Nordics, we receive Danish consumer sentiment which we anticipate will continue to decline slightly. This is driven by the continued rise in food prices, which typically have a significant effect on sentiment, despite solid personal finances. In Norway, Q2 mainland GDP growth is expected to come in at 0.3%.
• Overnight nationwide Japanese CPI inflation will be released. Tokyo data indicates that core price pressures were very muted in July, however, that food prices, which are the real headache in Japan, continued higher.

Economic and market news

What happened overnight

In Japan, the preliminary PMI data for August improved as manufacturing PMI rose closer to the 50-mark. The services PMI was slightly softer, dropping from 53.6 to 52.7. Subindices for input prices rose, while the corresponding increase in output prices was more muted. This suggests some margin compression and that the pricing power among Japanese companies is rather modest these days.

In the US, Federal Reserve governor Lisa Cook announced she would not step down following accusations of mortgage fraud from Bill Pulte, whom Trump nominated as the head of the Federal Housing Finance Agency last March. The continuing series of attacks on the Fed by the Trump administration is a concern markets are watching closely.

What happened yesterday

In the US, yesterday's FOMC minutes from the July meeting revealed that most FOMC members remain more concerned about inflation than labour market conditions, with many expecting the full impact of tariffs on goods and services prices to take time to materialise. However, the market reaction was muted, as incoming data - and mainly employment growth - has shifted considerably since the July meeting.

In the euro area, the final HICP print confirmed the flash release of 2.0% y/y in headline and 2.3% y/y in core inflation. Core inflation was revised marginally up to 2.31% y/y from 2.28% y/y, but there were overall no significant surprises in the details of the final print. The 'LIMI' measure of domestic inflation declined from 3.8% y/y to 3.6% y/y, which shows that domestic price pressures are slowly abating as expected given lower wage growth.

In Denmark, the Danish government is planning to cut the electricity fee to the EU minimum in 2026 and 2027. It is not ruling out that it will be permanent, which would be expensive though, with an annual cost of DKK 7bn. Officially the proposal will likely be presented in the budget proposal for 2026, likely next week. This will roughly shave off 0.7% from the CPI index, which comes on top of the 0.1% from the already planned small cut for 2026. Given that the government has a majority, it will likely pass.

In Sweden, the Riksbank kept the policy rate unchanged at 2.0% as widely expected and kept the downside bias from the June meeting, saying in the report that it 'still sees some probability of a further interest rate cut this year'. This formulation is very similar to the one used in the June MPR of 'some probability of another cut this year'(See our review here: Riksbank review - August 2025 Unchanged at 2.0% as expected, keeping downside bias, 20 August).

In the UK, the CPI for July surprised to the topside across the board and above Bank of England (BoE) expectations from the August meeting. Headline came in at 3.8% (cons: 3.7%), core at 3.8% (cons: 3.7%) and services at 5.0% (cons: 4.8). Service inflation remained surprisingly sticky and with goods inflation rising this should make the BoE take a more cautious approach. With recent labour market weakening and weak underlying growth this leaves a very tricky backdrop for the BoE with pronounced signs of stagflation. Note we still have two more CPI prints and labour market reports before the next meeting in November.

In China, the one- and five-year Loan Prime Rate (LPR) remained unchanged at 3.0% and 3.5% as widely expected. The LPRs are based on the banks' lending rates and typically adjusted on the back of prior changes in the reverse repo rate by The People's Bank of China (PBOC). Since there has been no change in the repo rate it is no surprise the LPRs are unchanged. However, we do expect the PBOC to ease their monetary policy over the next month or two, based on the recent soft data and stimulus signals coming from Beijing.

Equities: Equities sold off again yesterday in a session that could almost have been a replay of Tuesday's dynamics. Tech led the decline, while defensive value and low-volatility names outperformed alongside increasing implied volatility. As is typically the case when tech underperforms, US indices lagged Europe, with the Dow again outperforming both the S&P 500 and the Nasdaq. Seven of eleven US sectors still finished higher, echoing Tuesday's pattern. For details on why we see headwinds for tech persisting, we refer to yesterday's Espresso. In the US yesterday, Dow +0.04%, S&P 500 -0.2%, Nasdaq -0.7% and Russell 2000 -0.3%. In Asia, parts of the market are stabilizing this morning, most notably Taiwan and Korea, where tech is driving gains, while the rest of the region trades mixed. Futures point to a modestly firmer tone in US tech. European equity futures are higher as well.

FI and FX: Rates extended the move lower across regions as risky assets and namely tech stocks continue to struggle, and markets disregarded the somewhat outdated hawkish signals in the FOMC minutes. EUR/USD continues to hover in the mid-1.16 to 1.17 range in what has been a very quiet week so far, with the USD modestly firmer across the G10. Despite a topside surprise to UK CPI for July, GBP FX came under pressure during yesterday's session with GILTS outperforming the broader FI market. Brent moved up by 1.75% to USD67/bbl. as US inventories declined according to the weekly EIA report. Asian equities are mixed this morning.