Further signs of easing US price pressures support markets

In focus today

• In the US, US July retail sales data is due for release today. Private consumption was the most important growth driver in Q2, and the release will provide markets with the first hard data evidence of whether the strength also continued into late summer. The August flash consumer sentiment survey from the University of Michigan will provide an even more forward-looking signal. 
• From the euro area, we will receive the second estimate for Q2 GDP growth, including details such as employment figures and further country by country breakdowns. The flash estimate showed strong Q2 GDP growth at 0.4% q/q, which we expect the release to confirm.
• Early Monday morning, China releases the monthly batch of data for July, including retail sales and housing. Retail sales have been weak in recent months, and the housing crisis has continued, which we expect to be evident in July figures as well. That said, home sales have shown tentative signs of stabilisation, so it will be interesting to see if this picture is reflected in the data. 
• Also early on Monday, Japan releases Q2 GDP figures. The Bank of Japan's (BoJ) quarterly Tankan survey and PMI data suggests growth has remained solid, with private spending in particular picking up as wage growth has outpaced inflation, helped by government energy subsidies. Continued solid growth remains a prerequisite for further hikes from the BoJ.

Economic and market news

What happened overnight

In the US, President Trump said he will impose new tariffs on drone imports and components, arguing the country is "too reliant" on foreign suppliers. The measures include 100% tariffs on larger drones, 25% on smaller drones, 15% on drones and components from the EU, Japan, South Korea, Switzerland, Taiwan and Liechtenstein, and 10% on imports from the UK. The White House said the tariffs will generally take effect 21 days after signing, with some component tariffs delayed by 180 days.

What happened yesterday

In Norway, Norges Bank kept the policy rate unchanged at 4.25%, as expected. The Monetary Policy Committee maintained its tightening bias, acknowledging weaker-than-expected inflation over the summer but stressing that inflation is still too high. They repeated that it "may still become necessary to raise the policy rate". We maintain our call for a final hike in September, although the probability has clearly fallen and it is now a close call. Much will depend on whether August core inflation moves back above 3% and on the incoming growth figures.

Also in Norway, Statistics Norway's quarterly oil investment survey showed upward revisions for both 2026 and 2027. The revisions point to small nominal declines in oil investment of 0.1% this year and 0.9% next year, leaving the release broadly neutral for Norges Bank. The more important signal came from the wage figures, where annual wage growth slowed to 4.0% y/y in Q2 from 4.3% in Q1, below Norges Bank's 4.5% estimate for 2026. Together with the latest inflation figures, this should be positive news for Norges Bank and may suggest that wage growth is slowing faster than expected.

In Sweden, the final July inflation figures confirmed the flash estimate. Headline inflation came in at 0.2% y/y, CPIF at 0.7% y/y and CPIF excluding energy at 0.6% y/y. The details confirmed that goods prices surprised on the upside, likely reflecting the high global prices seen during the spring. Fuel tax cuts continued to have a significant impact, leaving CPIF 1.4 percentage points lower than it otherwise would have been. Without these tax cuts, CPIF would have been 2.1% rather than 0.7%. Public transport prices were also cut in half from July, with an estimated effect of around 0.1 percentage points.

In the UK, Q2 GDP grew by 0.4% q/q (cons.: 0.4%, prior: 0.6%) largely driven by business investments. The figures suggest the economy weathered the energy price shock well. However, growth is still expected to slow in the coming months, with the Bank of England estimating underlying growth at only around 0.1% and expecting it to fall to zero in Q3. Markets continue to price in one hike from the BoE this year and a second one in 2027. We think the most likely scenario is that we get no hikes and then the first rate cut by next summer.

In the US, July PPI was slightly softer than expected at 4.7% y/y (cons.: 4.9%). Volatile trade and transportation services pulled the reading lower, while broader services price pressures were a little stronger than expected. Core goods were steady and energy was in line with expectations. Weekly jobless claims, released at the same time, were also mixed, with continuing claims a touch lower than expected and initial claims higher. Overall, the market reaction was muted.

Also in the US, long-term borrowing costs rose to their highest level since 2001 at a USD25bn auction of 30-year Treasury bonds. The auction reflected growing investor concern over the growing federal debt burden and inflation that remains above the Fed's target. The higher borrowing costs add pressure as debt servicing already exceeds defence spending, while the large fiscal deficits and a shift towards more short-term issuance leave public finances more exposed to interest rate moves. On the wires, Fed's Hammack, one of the dissenters who voted for a hike at the last meeting, reiterated that she continues to see the case for higher policy rates and said the Fed needs to act now to bring inflation under control.

Euro area industrial production was unchanged in June, as expected. Behind the unchanged figure is a strong rebound in non-durable consumer goods and continued growth in energy output, which was offset by steep declines in capital goods and intermediate goods production. Notably, the May figures were revised sharply upward from the initially reported -0.2% m/m to +0.3% m/m.

Equities: Global risk sentiment was positive yesterday with global equities rising 0.6%, on a new push to the disinflation story from the US. S&P500 rose 0.7% to reach new record highs, Nasdaq 0.8% while Russell2000 rose 0.2%. Tech (driven by software) and comm services were amongst the top performers, where only materials stood back amid a commodity setback yesterday. Overnight Asian equities are mixed, with the tech heavy indices in green. Noticeable, Kospi has entered a bull market, and is now 25% higher than the 30 July lows. US futures are broadly unchanged.

FI and FX: The most notable movement in the FX market yesterday was the NOK that weakened after Norges Bank held interest rates unchanged and the oil price dropped. SEK recovered a bit and EUR/USD was about flat on the day. Yields fell across the curve and the Atlantic driven by the before-mentioned drop in oil prices, but also the slower-than-expected rise in the US PPI.