Riksbank minutes expected to reveal division

In focus today

In Sweden, today's main focus will be on the Riksbank minutes. Last week, the Riksbank left the policy rate unchanged at 1.75% and raised the rate path. In May, the board was split, and our best assessment is that it remains divided. Therefore, the minutes will be particularly interesting to see how each member views the outlook for policy given the new information.

In Germany, the Ifo indicator for June is released. Yesterday's PMI report surprised significantly on the downside for the services sector. It will be interesting to see if the Ifo indicator shows the same picture of the German economy, which would be worrying. 

In Norway, the latest figures from the Norwegian Labour Force Survey are released. Last month the unemployment rate came in at 4.8%. In general, weaker labour market conditions in Norway could result in a lower policy rate than indicated by the Norges Bank MPR rate path.

Economic and market news

What happened overnight

In the US, the Senate has passed a war powers resolution by 50-48 seeking to limit President Trump's authority to resume military action against Iran without Congressional approval. Although its legal force is disputed, the vote signals growing bipartisan scepticism over the administration's Iran policy.

What happened yesterday

Euro area PMIs in June surprised on the upside with the composite PMI rising to 49.5 (cons.: 49.2, prior: 48.5). Manufacturing was slightly weaker at 51.3 (cons.: 51.6, prior: 51.6) while services surprised on the topside at 48.9 (cons.: 48.6, prior: 47.7). The decline in manufacturing was due to delivery times falling while both new orders, employment and output rose, which makes the manufacturing print slightly stronger than what face value suggests. The positive surprise in services comes after Germany surprised significantly to the downside which suggests that Southern Europe have seen decent increases.

In the UK, PMIs were weaker than expected with the service sector contracting at the fastest rate in more than 3 years, dragging the composite index slightly lower to 49.4 (cons.: 50.0, May: 49.7). Price indexes edged lower, but continue at elevated levels, keeping the Bank of England alert despite the lost economic momentum through Q2.

In the US, June PMIs surprised on the upside. Manufacturing rose to 55.7 from 55.1 in May (cons.: 54.6), the strongest reading since 2022, while services increased to 51.3 from 50.7 (cons.: 51.1). Price pressures eased yet are still elevated. Market reaction was limited, with investor focus remaining on tech stocks.

In Denmark, overall business confidence has eased, and the indicator has fallen to 101.0 from 104.1 in May, the lowest level in more than two years but still just above the historical average of 100. Businesses still expect to increase employment in the coming months, although the pace appears to be slowing.

The National Bank of Hungary decided to cut rates by 25bp to 6.00%, following signals of easing at its last meeting.

Equities: Equity markets sold off sharply yesterday, driven by one sector in particular. Global tech was down more than 4%. Yet even with the broader equity market down almost 2%, four sectors still ended higher, with consumer staples and healthcare both up more than 1%.

That says a lot about the current setup. The underlying growth and earnings picture remains solid, and investors are rotating across equities rather than engaging in a broad based sell off. That said, when a sector of this size can fall 4% in a single session without major sector specific news, we also know where we are in the cycle.

We keep coming back to the fundamental picture. Earnings momentum is still moving in the right direction, and valuation is not a challenge.

What is extreme is positioning and the momentum we have seen since late March. That means we should expect setbacks when markets have moved this fast, and we should expect more of them.

It does not change our view that the broader direction typically remains positive as long as the fundamental backdrop stays this strong.

This morning, Asia is more mixed. Most markets are higher, led by South Korea, while Japan is dragging lower.

US futures are broadly higher, while European futures are slightly lower.

FI and FX: The USD appreciated against the rest of G10 yesterday, which sent EUR/USD below 1.14, USD/SEK above 9.70 and USD/NOK above 9.80. Meanwhile, equities fell, VIX rose and oil prices have also dropped back to more normal levels, with Brent crude falling below USD77/bbl yesterday. Global yields edged lower across tenors.