Market sentiment remains cautious

Market movers today

Following up on yesterday's inflation data from Sweden which came in well in line with expectations, this morning the Prospera inflation expectations survey is due.

In the UK, consensus expects inflation to moderate from 7.9% y/y in June to 6.7% in July.

In the US, we get housing data and industrial production for July, but main focus will be on the FOMC minutes released this evening.

There, the focus will naturally be on how the participants saw the balance of risks regarding the potential future rate hikes.

The 60 second overview

US: July retail sales data surprised to the upside, as nominal sales rose by 0.7% m/m (consensus 0.4%) and control group sales (excl. cars, gasoline, food services and building materials) were up by 1.0% m/m (consensus 0.5%). Amazon Prime Day in mid-July likely contributed to the pick-up, as non-store sales rose by 1.9% m/m, while demand for 'big ticket' items such as cars, furniture and electronics declined. Overall, this could reflect still resilient but slightly more cautious consumer demand. On the leading data front, NY Fed's Empire manufacturing survey and NAHB housing market index declined after strong readings earlier in summer. While the former has been very volatile over the past year, it is among the first manufacturing indicators released for August. Nevertheless, in the evening, the Fed's Kashkari was not ready to close the door for further rates hikes, even if he did caution that there 'could be more slowdown still in the pipeline'. We stick to our view that the Fed is already done hiking for now.

China: Following the latest string of weak macro releases, data published overnight showed that Chinese housing prices had declined by 0.2% m/m (-0.1% y/y) in July. Housing sales volumes have remained low this year, in line with broader economic activity, and despite the central government's efforts to stimulate the economy. Catch up with our latest thoughts on China in China holiday wrap-up - part 3 - Risks of a financial crisis resurface, 14 August.

RBNZ: The Reserve Bank of New Zealand kept the Official Cash Rate unchanged at 5.50% in its meeting overnight, in line with market expectations. New Zealand's core inflation pressures moderated in the latest Q2 reading, and yesterday's Q3 households' expectation survey showed a clear downtick in 1-2 year inflation expectations. In line with earlier communication, RBNZ continued to signal that rates would be maintained at the current level for now, although the rate path was adjusted slightly higher. The updated path now points towards a slight risk of another hike, and a later turn towards cutting rates (early 2025, compared to late 2024), which supported NZD/USD modestly overnight.

Equities: Chinese growth worries lingered into the session and overshadowed strong US retail sales data. Equities were pulled -1% lower in Europe and US in a risk-off session. All sectors were lower but value cyclicals suffered the most; such as banks, materials or energy. The latter with a clear connection to China worries. The underperformance of banks related to cautious comments from Fitch on the sector's credit rating. Little distinction between small caps or large caps, value or growth. VIX rose to 16.5 which is a low level but the highest obtained since summer. US futures are unchanged this morning.

FI: Global yields rose during most of yesterday's session, though some of the move was reversed in the afternoon. Yields promptly surged following the release of the stronger-than-expected US retail sales figures for July, briefly pushing the 2Y US treasury yield above 5%. However, the move quickly reversed without a clear trigger, probably partly explained by some short covering activity in markets. The 10Y US Treasury yield ended up by 2bp, while the 10Y German yield rose 4bp throughout the day. In both markets, the 2s10s curve bear steepened throughout the day.

FX: Scandies remained under pressure yesterday on the back of weak global risk sentiment. USD was about unchanged vis-à-vis majors following stronger-than expected US retail sales. The sell-off in CNH continues to grab attention. USD/CNH rose above the 7.30 yesterday after PBOC cut rates.

Credit: The general risk-off tone we have seen in August continued yesterday with Xover closing at the widest level for the month so far, being out some 6.7bp to 411bp. ITraxx main widened 1.5bp to 71.7bp. In spite of this, the Nordic primary markets are showing signs of awakening post the summer lull with deals announced from both Wallenius Wilhelmsen, Sparebanken Sogn & Fjordane and Sparebanken Øst.

Nordic macro

Sweden: In Sweden, we get the monthly Prospera inflation expectations survey at 8.00 CET. This is the smaller survey where only money market participants respond, but is still important input for the Riksbank. The trend over the recent months has been a steady decline for the 1y horizon (CPIF 4.1% in July, down from a peak of 5.6% in Sep 2022) while the 2y and 5y horizons have remained more stable closer to 2% (2y 2.4% and 5y 2.2% in July). We would expect a similar pattern in this print, with the 1y horizon dropping further while 2y and 5y remain anchored close to the 2% target.