Risk appetite continued to strengthen yesterday

Allan von Mehren Danske Bank A/S

Market movers today

On a day with only tier-2 data out on the global front, focus is likely to continue to be on the situation with North Korea, where markets will digest the UN vote yesterday. Further reports on the cost of Hurricane Irma may also affect whether the boost to risk sentiment over the past days has more legs (see below).
It is fairly quiet on the global data front today. The UK is due to release CPI for August where we look for a rise in CPI of 0.5% m/m (rounded up), which should be enough to push CPI inflation up from 2.6% to 2.8% y/y – in line with consensus.
The US is due to release the NFIB small business optimism index for August. The index rose sharply after the election of Donald Trump but levelled off in early 2017. However, last month it jumped higher again, adding to signs that US activity is re-gaining momentum. Consensus is for a small decline to 104.8 from the very high level 105.2 in July.
In Scandi it is time for Swedish inflation and the regional network survey from Norway. We look for Swedish inflation to be higher than consensus and the Riksbank's estimate, see Scandi Markets on the next page for more.

Selected market news

Risk appetite continued to strengthen yesterday. US stocks rallied more than 1% to a new cycle high as easing event risks are letting the strengthening business cycle shine through. See also Strategy – Strong cycle while US debt limit risk is postponed, 8 September 2017. The three event risks weighing on markets (North Korea, hurricanes and the US debt limit) have all eased and paved the way for a risk rally. US bond yields moved higher in response and EUR/USD corrected a bit further falling below 1.20 yesterday.

The UN Security Council last night agreed unanimously to step up sanctions against North Korea following its sixth and most powerful nuclear test on 3 September, see Reuters. After a week of negotiations a watered down resolution was voted through the Council as the US had to drop several measures to gain support from Russia and China. Instead of a full oil embargo, the resolution implies a reduction in oil and fuel exports to North Korea. New language was also added urging ‘further work to reduce tensions so as to advance the prospects for a comprehensive settlement'. The latter is likely to be a demand from Russia and China that do not believe sanctions are likely to stop the regime in Pyongyang from its nuclear ambitions.

In the UK, Prime Minister Theresa May won a small victory as the EU withdrawal bill passed in parliament with a vote of 326 to 290, see Bloomberg. It has been controversial as it gives ministers strong powers to change legislation without it being fully accepted by parliament (so-called ‘Henry VIII powers' named after the Tudor King).

In Norway, the parliamentary elections led to the re-election of the conservative government. Hence, any short- or long-term uncertainty regarding economic policy should be reduced.

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Allan von Mehren

Danske Bank A/S

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