German ZEW and UK labour market in focus

In focus today

• In Germany, the ZEW indicator for August is released. The assessment of the current situation is expected to increase by consensus due to the ongoing resilience of the economy amid the energy shock and as the fiscal easing is increasingly supporting growth.
• In the UK, the latest labour market report is released today. The labour market is expected to remain on a cooling trend with modest decline in jobs and easing wage pressures, suggesting limited second-round effects on inflation. Wage growth is expected to come down from an elevated level of average weekly earnings above 4%, while unemployment is expected to stay below 5%. Hence, this alone does not warrant a change in policy stance from the Bank of England (BoE). Markets price one rate hike from BoE by year-end, while we expect the Bank Rate to remain unchanged.
• In the US, July industrial and manufacturing production data is due, with both expected to show slightly stronger growth than in June. Housing data is also due.

Economic and market news

What happened overnight

In commodities, Brent crude rose above USD91/bbl as geopolitical tensions in the Middle East intensified. The original 60-day MoU signed by the US and Iran in June expired without an extension or a final resolution, while Reuters cited a senior official in Iran saying Tehran would shift to a "fully offensive" stance if diplomacy with the US fails. Progress towards normalising tanker traffic through the Strait of Hormuz has stalled, and Trump's threat of military action against Oman added to tensions. Meanwhile, the Houthis claimed an attack on vessels near Bab el-Mandeb.

What happened yesterday

In the US, both the NY Fed Empire Manufacturing Index and the NAHB Housing Market Index came in higher than expected in August. The Empire index rose to 20.6 from 15.6 in July, above consensus expectations of 11, while the NAHB index edged up to 35 from 34, slightly above expectations of 33.

In Sweden, Origo inflation expectations edged higher in August, mainly at the 1-year horizon, rising to 1.97% from 1.83%. At the 2-year horizon, expectations increased to 2.07% from 2.02%.

In China, the July data batch pointed to another weak month. Retail sales slowed to 0.6% y/y (cons.: 1.5%, prior: 1.0%), while industrial production fell to 4.5% y/y (cons.: 5.0%, prior: 5.3%). The housing market remained weak, with new home prices down 0.18% m/m and property investment continuing to contract sharply, by close to 20% y/y year-to-date, although home sales showed tentative signs of stabilisation. The figures underline continued weak domestic demand, with exports and high-tech still driving growth. They also highlight the need for more policy support, although Politburo signals in late July suggest further stimulus rather than a big policy lift.

Equities: Equities were lower on Monday, for a second session in a row, as energy and yields continued higher. S&P 500 edged down -0.5% and Stoxx 600 -0.2%. The move lower in equities did not give "risk off", however. In fact, tech was in green yesterday, and particularly semiconductors, while software sold off -2% after a strong run. AI buildout names like Applied Materials, Micron and LAM all 4-5% yesterday while Meta and Microsoft shed 3-4%. The preference between cyclicality vs defensiveness was less clear though. Health care continues to do well and particularly biotech, which is interesting given how fast risk-free rates have been rising, which would normally limit risky biotech funding. Instead, consumer staples kept underperforming, down almost -2% yesterday, due to higher rates spilling over negatively to the bond-proxy sector, coupled with the increase in energy prices increase costs while also restraining household purchasing power. US futures are negative this morning.

FI and FX: EUR/USD briefly broke 1.16 yesterday before reversing and, in overnight trading, moving back below 1.1580. Oil prices are rising, with Brent crude above USD 91/bbl, as the original 60-day MoU between the US and Iran ended yesterday without any extension or final resolution in sight. Global yields are trading higher in a bearish steepening move, and 30-year US Treasury yields hit the highest level since 2007, underscoring concerns about US debt. NOK is benefiting from higher energy prices and reduced Fed rate-hike expectations, and we maintain a neutral-to-positive near-term view on the NOK. EUR/SEK continues to hover around the 11.00 mark.