Market movers today

In terms of economic data releases, it is another quiet day today. In the UK, the monthly GPD indicator for June (and hence the full estimate of Q2 GDP) is released at 10.30 CEST, which is expected to show that GDP growth has slowed in Q2 compared to Q1, as the original Brexit stockpiling effect is no longer artificially boosting GDP growth.

In the Scandies, we have a couple of interesting releases. In Sweden, we could see a rebound in the household consumption indicator for June, given the fact that retail sales rebounded sharply. In Norway, we expect a further slowdown in core inflation to 2.2% in July. For more see overleaf.

 

Selected market news

The coherence of the governing Italian coalition of League/Five Star went from bad to worse yesterday evening, as Salvini followed up on recent days' comments and called for a parliamentary vote of confidence, which, if resulting in Prime Minister Giuseppe Conte losing the ballot, could lead to swift elections to be held already in October. Based on opinion polls, Salvini and the League would be set for almost 40% of the popular vote, whereas the Five Star movement has plummeted in polls to just above 15% down from 32% at the general elections in March 2018. However, Salvini cannot himself summon the parliament, which is currently in recess, and even if Conte loses the ballot, it will be the president deciding whether new general elections will be held, or instead trying to arrange for an alternative governing coalition. Salvini's comments put BTPs under pressure already yesterday and we expect more of the same today, even though the Salvini announcement actually removes uncertainty from the market.

Japanese GDP figures covering Q2 showed that the economy grew at an annualised rate of 1.8% compared to Bloomberg consensus of just 0.5%. Q1 growth figures were also revised up to 2.8% from 2.2%. Net exports fell for a seventh straight month, as private consumption and investments have kept the economy on course this year. However, the outlook for private spending is gloomy due to a sales tax hike taking effect from October, and given that no solution seems in sight regarding the trade war (see US-China Trade: Three trade war scenarios - 'no deal' now our baseline ), GDP forecasts for 2019 are at just 0.7%.

The Bank of Japan has addressed the excessive curve flattening (2y10y close to zero) by moving its asset purchases into shorter maturities and by doing so hopes to halt the appreciation of the yen.

US stocks rallied from the open on the back of the positive trade figures out of China last night - S&P was up 1.6%. The risk-on sentiment was further confirmed with the 30Y Treasury bond auction slightly weaker than expected and 10Y yields subsequently up 8bp. The yield moves were reversed during the afternoon following the news from Italy and trade war tensions: US 10Y yields closed 1.7bp lower, while stocks extended gains.

 

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