Thin data day ahead: time to digest big central bank week

Danske Research Team Danske Bank A/S

Market movers today

Following a busy central bank week, today is very thin on scheduled events and economic data. Focus is on the developments in the Iran-Saudi crisis. US Secretary of Defence Mike Pompeo has been in Saudi Arabia to discuss a response to the attack on Saudi Arabia's oil facilities.

Any signals coming out of the lower-level trade talks between the US and China in Washington should also be on the watch list today.

Yesterday was the final day of the Supreme Court hearings on UK Prime Minister Boris Johnson's suspension of the Parliament. However, no time has been given for a ruling.

This afternoon consumer confidence for the euro area is released . It should give more clues to the extent of any spill-over from the weak manufacturing sector to consumers.

Today the German government is expected to decide on the concrete measures in its climate package, with some media putting the total cost as high as EUR37bn. Any indication of more expansionary fiscal policies could cheer the market, but German fiscal space remains restricted by the 'debt brake', see also Research Germany - Loosening the brake, 5 September.

Selected market news

Asian stock markets rallied for the first time in five days, while US equity-index futures were in green and American stocks almost unchanged on sprouts of positivism in trade war developments. US treasuries, oil, gold and the JPY climbed further. Crude followed speculations whether Saudi Arabia referred to Iraq to pile up Saudi oil refineries.

Yesterday China's and US deputy trade negotiators restarted face-to-face talks for the first time in almost two months in order to prepare top-level trade negotiations in October. Reuters reported that according to its source, the talks discuss mostly agricultural issues such as including US demands that China substantially increase purchases of American soybeans and other farm commodities.

Yesterday Norges Bank raised the policy rate by 25bp from 1.25% to 1.50%, as we expected, while it was a surprise for economists in Bloomberg consensus. The rate path was adjusted downward, as global headwinds have lowered global forward rates, even though the weaker currency partly counteracted the effect in the short term. Signs of higher growth in labour supply are considered to increase potential growth, hence pushing the rate path downward. The rate path now suggests a 40% probability of a rate hike in H1 20, with a high probability of this happening already in Q1 20. Importantly, this indicates that rates are more likely to rise than fall in 2020. Further out the rate path signals unchanged rates and then a roughly 30% probability of a rate cut in 2022. See more in our note Norges Bank Review - Rate hike and tightening bias, 19 September.

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Danske Research Team

Danske Bank A/S

Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.

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