Market movers today
While the majors calendar is very thin, today marks another Scandi inflation day with the monthly inflation release in Sweden due. We expect both CPI and CPIF to print 0.2pp below the Riksbank's forecast, marking the beginning of our inflation forecast divergence. For more details see the Scandi Markets section.
In the US, weekly jobless claims data are due. While a volatile series, markets will look for a reversal following last week's highest print in five weeks, albeit the four-week moving average still points to a strong US labour market.
Selected market news
In Norway, the NOK has rallied significantly following yesterday's much higher-than-expected inflation release (core measure jumping from 3.1% y/y to 3.7% in July). Overall, the print see inflation return as a key factor in the Norges Bank's rate setting calculations amid a prolonged shift of focus towards domestic growth and employment. Indeed, yesterday's print alone should (from a historical perspective) lift Norges Bank's rate path in September by close to a full hike (25bps) which is why a substantial amount of rate cut expectations has been priced out in NOK rates. On the other hand, the Nibor-policy rate spread widening alone would counter this effect. Moreover, the move in NOK, which is now also marginally stronger than-expected, should also have a marginal negative effect on the rate path. This leaves a very tight housing market (especially in Oslo) on the one hand, but also a lower oil price and the uncertainties related to the spill-over effects from Brexit. Finally, it is key to remember that in June Norges Bank signalled a '100% probability' of a cut under a Bremain scenario. All in all, yesterday's inflation print makes the coming month's data highly decisive but at this stage we still think it is too early to rule out a September cut.
Overnight, the UK's RICS housing market survey for July showed a rebound in the expectations index for the next three months. Yet the survey – usually quite a good indicator – still points to a sharp decline in both housing market activity and prices.
In the August Bank of England agents' summary, UK company respondents turned more negative on the business outlook than in the July survey that covered only a small post-Brexit period. Specifically, the respondents stated that "the result of the EU referendum would have a negative effect, overall, on capital spending, hiring and turnover over the coming year". The manufacturing sector notably reported that the exports decline had been halted by the GBP depreciation.
After Tuesday's gilt purchase shortfall, the Bank of England (BoE) yesterday reported that the bank intends to cover the relatively small gap-to-target at a later stage as it made no changes to its revived government bond purchase programme of GBP60bn. The failed reverse auction had led to speculation that the bank could run into trouble finding sufficient bonds to buy, albeit thin summer liquidity was arguably a factor. Meanwhile, yesterday's gilt operation was fully covered.
As expected, the Reserve Bank of New Zealand cut the cash rate by 25bp to a record low of 2.00% while signalling more easing to come. As rates markets had priced a 20% probability of a 50bp cut at yesterday's meeting, the NZD rose on the release with NZD/USD up c. 0.75% at the time of writing.
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