Growth, inflation and unemployment expected to converge around structural levels

In focus today

US final services PMIs for August are due. The August flash release increased markedly for the second month in a row to the highest level since December 2024. The details pointed to solid demand, rising backlogs and firmer hiring, while output charge inflation eased to a six-month low despite still-elevated input cost pressures.

Also in the US, the Challenger layoff report for August is released. In July, layoff announcements were at their lowest level in two years, while levels are already low from a historical perspective. AI has accounted for around one third of layoffs in recent months.

On the wires, Fed's Waller (voter) is expected to speak. In July, Waller mentioned that if core inflation was "hot", FOMC would need to consider tightening policy in the near-term.

The final euro area service and composite PMIs for August are released today, which we expect to confirm the flash release. The flash services PMI was unchanged at 51.7 but still came in above expectations. Tuesday's final manufacturing PMI, which makes up 35% of the final composite PMI, showed a solid rebound, with Germany in the driver's seat.

UK final services PMI is released. The flash release increased to 52.8 in August (July: 52.1), suggesting that the services sector continued to expand in August as demand conditions improved.

In Sweden, services PMI for August is due. Services PMI eased in July to 54.2 from 56.5 in June. Broader indicators have remained strong and manufacturing PMI also increased on Tuesday, so we expect the services sector to continue to follow the strong trend seen so far this year.

Economic and market news

What happened overnight

We have published our new Nordic Outlook - New sources of growth, 3 September, with updated economic forecasts for the Nordic economies, the euro area, the US and China. Broadly speaking, we expect growth, inflation and unemployment to converge around structural levels, although with major risks not least related to energy supplies. Consumer demand in many countries is dented by higher energy prices, but other sources, not least AI-related investments, largely offset this.

Overnight in China, the private RatingDog services PMI increased to 51.4 in August (prior: 50.4), with the improvement being driven mainly by stronger domestic demand, signalling a faster expansion in activity. The reading was in contrast with a softer official survey earlier in the week, where non-manufacturing PMI came in at 49.0. The divergence between the private and official PMI indices likely stems from differences in the surveys' coverage and sampling methods, according to Reuters.

In Japan, the final S&P Global services PMI increased to 52.5 in August (flash: 52.3, prior: 51.2), marking the fastest expansion in five months, as stronger domestic demand supported business activity and new work. Cost pressures remained elevated, with output charges rising at the second-fastest pace on record, which S&P Global said could strengthen the case for another Bank of Japan rate hike. The composite PMI also improved to 53.5 (prior: 52.7), the strongest reading in six months.

What happened yesterday

In the US, ADP private payrolls increased by 38k in August (cons.: 48k), while the July print was revised slightly higher to 46k from 44k. Sector details were mixed: Education & Health Services, Leisure & Hospitality and Construction had higher payrolls growth than in July, while Manufacturing and Professional & Business services declined by 17k and 16k, respectively. The release points to softer hiring momentum ahead of Friday's official jobs report, although ADP has been a poor guide historically to the BLS private payrolls estimate.

The Bank of Canada kept its policy rate unchanged at 2.25%, as widely expected and fully priced ahead of the meeting. The statement was broadly balanced but with a slightly hawkish tilt, as the Governing Council repeated that it is "prepared to adjust monetary policy as needed", while noting that "the upside risks to inflation have increased" and that new tariffs make the growth outlook more uncertain. USD/CAD edged lower on the release, slipping below 1.39, although near-term direction should be driven more by Friday's labour market data and external drivers.

In Denmark, the central bank resumed FX intervention in August, selling DKK5.6bn after no intervention in July and DKK0.7bn in June. This brings total intervention since June to DKK6.3bn. In our view, the amount remains modest and should not trigger speculation about an imminent unilateral 10bp rate hike in Denmark. We still expect the central bank to keep the policy rate spread at -40bp over the next 12 months.

Equities: Global equities were mixed yesterday with the overall index being virtually zero, with a slight defensive twist to it, after three days of declines. In the US, S&P500 rose 0.5%, with real estate being the only sector posting declines. Nasdaq rose 0.5% and Russell2000 rose 1.1%. Materials and com services were at the top of the table. There was no particular theme within the equity sector performance yesterday, to what we rather would call a relief rally. Overnight Asian markets are in green, also Kospi despite Broadcom's afterhours consensus-disappointing Q4 revenue forecast that led to its post trading declines. That said, Broadcom still saw a surge in sales during the coming years. European and US futures are in green.

FI and FX: European government bond yields continued to rise yesterday, while it was a more mixed picture in the US. 10Y German government bond yields have now risen 50bp since early July, while 10Y Treasuries have risen almost 40bp. The German curve has steepened between 2-10Y as the 2Y German bond has risen 40bp. The US curve has also steepened some 10bp. Today, we have several Fed speeches ahead of the US labour market report tomorrow.

In the currency market, there is again speculation of intervention in the JPY as it has strengthened from almost 160.5 to 157.7. Japan has already spent some USD 96bn over the past month in defending the JPY according to the Ministry of Finance. EURUSD is trading around the 116-level.