Markets eye US CPI and ECB rate decision

In focus today

In the US, today's main data focus will be on the August CPI. Markets will closely follow signs of rising tariff-driven price pressures. We forecast headline CPI at 0.3% m/m SA (2.9% y/y) and core CPI at 0.3% m/m SA (+.1% y/y). It will be interesting to see if the CPI will reflect the limited cost pass-through hinted at by yesterday's downside surprise in PPI.

In the euro area, we expect the ECB to leave the deposit rate unchanged at 2.00% at today's meeting, in line with consensus and market pricing. We expect Lagarde to sound confident in the economic outlook and that the current monetary policy stance is appropriate, with staff projections likely to show little changes in the forecast for 2026-27. We expect Lagarde to be satisfied with current market pricing, aiming for a limited market reaction during the press conference. Read more in our ECB Preview - Confident in the current monetary policy stance, 5 September.

In Norway, all eyes turn to the Regional Survey from Norges Bank, which is very important in assessing the strength of the Norwegian economy. We expect that the aggregate production index will be around 0.4-0.5% for both this and the next quarter. Even more important will be the indicators for capacity utilization and labour shortages, as some of the pick-up in growth seems to be supply side driven. As the current wage statistics point to sticky wage growth, keep an eye on wage expectations as well.

In Sweden, details of the Swedish August inflation data will shed light on underlying price pressures and Riksbank pricing. The flash estimate showed core inflation at 2.9% y/y, CPIF at 3.3% y/y, and headline at 1.1% y/y. Food prices appear stable according to data from Matpriskollen, but their method differs significantly from Statistics Sweden. Riksbank governor Erik Thedéen speaks at 13:00 CEST - we welcome any comments on inflation. PES unemployment figures are also due, which showed a 7.1% unemployment rate in July, and follows weak labour market data over the summer.

Economic and market news

What happened overnight

In the trade war, Mexico announced plans to raise auto tariffs on China and other non-trade deal countries to 50%, lifting existing tariffs to the maximum allowed. Analysts see it as a response to US pressure to limit ties with China. The plan requires congressional approval.

In the US, the Trump administration has filed an appeal against the court ruling blocking the removal of Fed Governor Lisa Cook. The move aims to resolve the matter before the Fed's interest rate meeting on 16-17 September 2025.

What happened yesterday

In the US, the August producer prices for final demand ex. food and energy declined by -0.1% m/m (cons: 0.3%, prior: 0.9%). The downside surprise was driven by trade services, which also drove the upside surprise in July. Trade services PPI reflects sales margins of retailers and wholesalers, suggesting firms may have raised prices ahead of expected August tariff impacts, with margins now adjusting due to higher costs. Overall, underlying price pressures appear to have remained stable.

In geopolitics, NATO fighter jets shot down Russian drones over Polish airspace during a massive attack on Ukraine in the early morning hours. Polish PM Tusk described the incident as "a large-scale provocation" and invoked Article 4 of NATO's treaty, which allows member states to demand consultations with allies. While Moscow denied responsibility, NATO leaders strongly condemned the incursion. The incident suggests that Russia is testing the limits and NATO's intervention threshold. European leaders have now joined the US in calling for heightened sanctions on Russia, including targeting shadow fleet tankers.

In Norway, August core inflation came in at 3.1% y/y (cons: 2.8-3.1%, Danske: 2.8%, prior: 3.12%), in line with Norges Bank's (NB) forecast. However, factoring in the summer childcare subsidy, the "real" NB estimate was closer to 2.8-2.9%. Headline inflation came in at 3.5% y/y - a topside surprise to NB's "real" forecast of 3.2-3.3%. Imported prices, domestic goods, and food showed disinflation, while higher transportation costs drove up services ex. rent.

In Sweden, the latest economic data batch came in better than expected. The GDP indicator showed growth of 2.0% y/y, with June's indicator revised up from 1% y/y to 2.7% y/y. However, as the GDP indicator is volatile and has limited reliability, it should be interpreted with caution. More notably, the consumption indicator, considered a more reliable measure, remained robust at 2.4% y/y, with an upward revision for June to 2.6% from 2.4% y/y. The PVI and services production came in strong, although industrial orders and the construction sector showed relative weakness.

In Denmark, CPI declined to 2.0% y/y in August from 2.3% y/y, as we had also expected. The primary driver was a significant m/m decline in electricity prices, coupled with a strong base effect. Food prices declined 1.1% m/m, a modest decline following surging prices over the summer, indicating that the upward pressure on food prices persists. Aside from that, underlying price pressures remain muted in the Danish economy.

Equities: Equities continued higher yesterday, with US indices driving the move while European markets underperformed. Under the surface, sector rotation was significant, partly earnings-driven but also linked to the softer PPI print. Cyclicals and defensives both saw notable swings with consumer sectors underperforming, yet despite this rotation, momentum factors still outperformed while value lagged - leaving the broader investment narrative intact. In the US yesterday, Dow -0.5%, S&P 500 +0.3%, Nasdaq +0.03%, Russell 2000 -0.2%. Overnight, Asian equities traded higher, and both US and European futures are pointing up.

FI and FX: US yields moved lower yesterday reversing the move higher from Tuesday. The catalysts behind the move lower were a downside surprise in US PPI and a strong UST auction. In FX markets the PLN was the clear underperformer yesterday following heightened geopolitical tensions with Russian drones entering Polish airspace. The NOK on the other hand, did well boosted by higher oil prices and a topside surprise in Norwegian inflation. Nether the GBP nor the USD did much vs the EUR.