Soft inflation supports hold from Norge's Bank

In focus today

In Norway, we expect Norges Bank to stay on hold at 4.25% at today's policy rate meeting, after the low inflation figures for June and July. However, we expect the Monetary Policy Committee to keep some form of tightening bias, and signal that further tightening may be needed. Focus will be on any forward guidance and comments regarding expectations on August inflation, especially the effect from kindergarten prices.

Ahead of the rate decision, Statistics Norway releases the Q3 oil investment survey and Q2 wage figures. We expect little change to the oil investment outlook but see a good chance that Q2 wage growth was below Norge's Bank's 4.5% forecast for 2026, reinforcing the signal from recent inflation data that wage and price pressures are easing.

Out of Sweden, the final July inflation figures are due and will shed more light on the upside surprise in the preliminary release, which was mainly driven by goods prices. We suspect that higher commodity prices and supply disruptions in the spring played a role.

In the UK, the June GDP estimate, and thus also the Q2 GDP estimate, is released today. PMIs suggest close to zero growth, although the carryover from Q1 will push the Q2 total higher. The economy looks to have regained some momentum in July.

From the US, July PPI is due for release today, with focus on whether producer prices echo yesterday's in-line CPI release. The Fed's Hammack and Barkin will also be on the wires in the afternoon. 

In the euro area, we receive June industrial production figures. After declining 0.2% m/m in May, consensus expects unchanged industrial production in June.

Economic and market news

What happened overnight

In Japan, July PPI increased 7.2% y/y (prior: 7.3%, cons: 7.4%), as lower-than-expected oil-related costs were offset by rising metals prices, AI-related demand and price pressures from the weak yen. The Bank of Japan has highlighted the recent rise in PPI as a key sign of building inflation risks, reinforcing expectations of a possible rate hike in September.

What happened yesterday

In the US, July CPI was broadly in line with expectations, with headline inflation at 3.4% y/y and core inflation at 2.5% y/y. The monthly details were also close to expectations as headline inflation increased 0.1% m/m and core inflation increased 0.2% m/m. The report did not deliver the upside surprise that some Fed officials had suggested could prompt them to support a hike at the coming meeting. Together with the recent jobs report, the CPI release reduced market pricing of a September hike, with markets now pricing around 40% chance of hikes by the meeting, down from approximately 50/50 yesterday morning.

In commodities, Brent crude traded around USD88-89/bbl yesterday as the International Energy Agency reported that global oil supply is set to fall by 4.3 million bpd this year, creating a 1.8 million bpd deficit in Q3 amid renewed Middle East hostilities and disrupted trade flows. The IEA also expects demand to contract by 1.6 million bpd as tighter refined-product supply and higher prices weigh on consumption.

Equities: Global equities rose 0.3% yesterday, with the S&P 500 up 0.3% and Nasdaq up 0.5% as the July CPI print landed close to expectations and removed the immediate risk of an upside inflation surprise, thus we take it as a relief, but not a full risk-on signal in itself. After two days with defensives performing better than cyclicals it was the other way around yesterday, with tech and industrials at the top. Semis led the tech performance. Overnight, Asian equities are also in the green, while futures point to a flat opening in Europe this morning. In particular, it is worth highlighting Japan, which is rising 1.8% at the time of writing, supported both by the AI trade and the lower Fed pricing.

FI and FX: The Scandi currencies were on diverging paths yesterday. EUR/SEK rose above 11.00, while EUR/NOK fell a little on the back of the still high oil price and despite the recent easing of rate hike expectations. The 2Y US Treasury yield fell a little as US inflation dropped as expected. German government yields were largely unchanged. EUR/USD was broadly steady yesterday.