Swedish inflation prints in focus ahead of Riksbank's September decision

In focus today

In Sweden, the most important event of the week is the inflation figures for August, which will be published at 8.00 CET. These are the preliminary flash estimates, meaning we do not get any details, but today's outcome will likely be decisive for market pricing ahead of the Riksbank's September decision. Currently, the market is pricing in 11 basis points for September, and a full rate cut by the end of the year (11+7+7). We estimate that CPIF will rise to 3.4% and a print for underlying inflation, CPIF ex. energy, at 3.1% - which is too high for the Riksbank to cut rates already in September. An outcome in line with our expectations should push rate cut pricing towards November, in line with our forecast of a November cut.

In the US, the ISM Services index is due for release for August. The flash PMI released earlier pointed towards steady growth in business activity. Considering the concerns surrounding the Bureau of Labor Statistics (BLS), markets will also pay attention to two private labour market data releases for August, the ADP private sector employment report and the Challenger report for layoff announcements.

Economic and market news

What happened yesterday

In euro area, the final report for August's services PMI showed a downward revision, coming in at 50.5 compared to 50.7 in the flash release and 51.0 in July. The weakening in services data is a sign of subdued domestic demand despite solid fundamentals such as rising real incomes and employment. We see downside risks to the near-term growth outlook, particularly as private consumption could be weaker than expected due to low confidence.

In the US, JOLTs data revealed a sharper-than-expected decline in job openings, which fell to 7.181m in July, below the forecasted 7.378m, suggesting weaker-than-expected US labour demand. Hiring rose modestly, while layoffs remained elevated at 1.808m. These figures reinforce the picture of a cooling US labour market, with markets now pricing a 25bp Fed cut in September at 95%. Markets now look ahead to the August NFP report on Friday for further insights.

In Norway, house prices rose 0.6% m/m in August, continuing the moderate price increases observed since May. This figure is slightly higher than Norges Bank's June MPR forecast of 0.5% but is unlikely to influence the monetary policy decision on 18 September. Meanwhile, unfilled vacancies fell from 96,000 to 88,000 in Q2, lowering the vacancy rate to 2.7% from 3.0%, the lowest level since Q1 2021. This indicates that while demand for labour remains high, it is gradually easing, suggesting below-trend growth and a reduction in labour shortages. This highlights the positive supply-side effects following the strong Q2 GDP figures.

In Sweden, PMIs rebounded strongly in August, with services rising to 53.4 and the composite to 53.9, recovering after a weak July. The July decline was driven by a broad setback in services PMI where all components fell, most notably employment, which had the lowest reading since March 2020. In August, all components recovered.

In Poland, the central bank cut its main policy rate by 25bp to 4.75%, as expected. The move is primarily driven by the decline in inflation towards the central bank's target range.

Equities: The market narrative yesterday centred around rate cut expectations, following the soft JOLTS data release. A late-stage rally in equity markets led to S&P500 ending the day 0.5% higher. NASDAQ ended +1.2% while VIX ended 0.8pp lower mirroring the late-stage move. Tech was clearly performing primarily dragged higher from a US antitrust ruling against Alphabet which was not perceived as being as severe as expected.

FI and FX: The weak JOLTS report from the US yesterday sent US rates and the USD lower. The market is now about fully priced for a rate cut from the Fed in two weeks and another before the end of the year. The 10Y US Treasury yield fell to 4.20, USD/JPY dropped to 148 and EUR/USD briefly bounced above 1.1680. EUR/SEK has held steady around the 11.00 level since Monday. EUR/NOK traded around the 11.70 level yesterday.