Riksbank minutes in the limelight

In focus today

Today is a relatively quiet day in terms of macroeconomic data.

In Sweden, today is all about the Riksbank. First off, the minutes from last week's meeting will be published at 09.30 CET. As always, we are excited to dissect the separate viewpoints of the board members, especially in terms of the balance of risks with regards to the inflation and growth outlooks. Throughout the day three board members will be speaking; Governor Thedéen and Bunge at separate events (Bunge x2) at the Swedish political summit "Almedalen week", whereas vice Governor Anna Breman will participate at a conference arranged by the Bank of England, on the topic of "The Riksbank's monetary policy communication".

In the US, Fed Chair Powell returns to Capitol Hill for a testimony before the Senate Banking Committee, following his appearance yesterday before the House Financial Services Committee. Fed's Goolsbee will also be on the wire.

As the NATO summit in the Hague enters its second day, attention remains on discussions around the proposed increase in defence spending to 5% of GDP.

Economic and market news

What happened overnight

In Japan, the BoJ's June policy meeting summary highlighted a division among policymakers, with board member Tamura advocating for decisive interest rate hikes to address rising inflation risks, contrasting with Governor Ueda's call for a pause due to ongoing US trade uncertainties. While the BoJ kept rates steady at 0.5% on June 16-17, Tamura's hawkish stance underscores the board's split between managing inflationary pressures and assessing the economic impact of US tariffs.

What happened yesterday

In the Middle East conflict, a fragile US-brokered ceasefire began between Israel and Iran, with early accusations of violations from both sides. Despite tensions, the ceasefire appears to be holding for now, as Israel lifted emergency measures and Iran's president declared an end to the 12-day war. Israeli PM Netanyahu claimed Israel had disabled Iran's nuclear project, but a preliminary classified US report stated the strikes only delayed Iran's program by months. Netanyahu warned of full force action if Iran tries to rebuild. Stocks rallied and oil prices dropped further amid prospects of de-escalation.

In the US, the June Consumer Confidence Index came in weak at 93.0 (cons: 100). The 'Jobs Plentiful' index hit its lowest since 2021, reflecting concerns about employment. However, more people planning overseas vacations and lower inflation expectations offer some optimism amid economic uncertainty.

Speaking in Congress, Fed Chair Powell indicated resistance to immediate rate reductions, citing a robust economy and uncertain trade policy impacts. Despite calls for rate reductions by two board members, Powell remains cautious about inflation risks, with the benchmark target range remaining in restrictive territory at 4.25% to 4.5%.

In Germany, the Ifo index rose in June broadly as expected. The current assessment remained stable at 86.2 (cons: 86.5, prior: 86.1) while the expectations compensated for this by rising more than expected to 90.7 (cons: 89.9, prior: 89.0). The current assessment is slightly weaker than the signals we got from the PMI survey, which rose more than expected to 50.4. A weak Ifo current situation and PMIs close to 50 supports our outlook for near-term stagnation with improvements expected next year. We forecast 2025 growth at 0.3% y/y and growth to rise by the end of 2025, driven by monetary easing passthrough and higher real incomes. The fiscal package is expected to boost GDP growth to 1.1% y/y in 2026 and 1.5% y/y in 2027.

In Hungary, the central bank left its base rate steady at 6.50%, as widely expected.

Equities: Equities staged a powerful risk-on rally yesterday, with broad-based gains across countries, regions, sectors, and industries. S&P 500 and Nasdaq are now within roughly 1% of their previous highs from February and December, respectively.

What's worth highlighting is that the moves yesterday were yet again not macro-driven but rather driven by the geopolitics. This was also very visible through a cross-asset perspective, oil prices were lower together with yields as a sign of stabilisation in the Iran-Israel conflict - potentially even a sustainable ceasefire. Hence, we did not see the typical rotation risk-on move into cyclicals. Instead, the rally was balanced between defensives and cyclicals. In the US yesterday, Dow +1.2%, S&P 500 +1.1%, Nasdaq +1.4% and Russell 2000 +1.3%. Asian equities followed through with gains this morning, while European futures are pointing higher. US futures are more mixed.

FI and FX: Energy prices dropped sharply yesterday amid signs of de-escalation of the conflict between Israel and Iran, which led to easing fear of the risk that Iran would try to close the Strait of Hormuz and disrupt global oil and gas flows. The improved risk sentiment provided support for equities and cyclically sensitive currencies such as GBP and SEK during yesterday's session. The USD on the other hand continues to struggle to find firm footing with EUR/USD remaining above the 1.16 mark. There was a solid decline in the US Treasury yields yesterday on the back of comments from Federal Reserve Chairman Powell on monetary policy. He stated that if inflation was contained, they were prepared to cut policy rates sooner rather than later.