US CPI to set the tone

In focus today

Today's most important data release will be the US July CPI, where we forecast headline inflation at 0.2% m/m SA, 3.4% y/y (prior: -0.4% m/m, 3.5% y/y) and core inflation at 0.2% m/m SA, 2.5% y/y (prior: 0.0% m/m, 2.6% y/y). Inflation was broadly lower-than-expected in June, and markets are now pondering whether it marked the beginning of a trend, or just a one-off. 

The remaining part of the calendar is relatively thin. We receive final headline inflation from Germany and Italy, as well as consumer confidence figures out of Norway.

Economic and market news

What happened overnight

In commodities, Brent crude yesterday briefly climbed above USD 90/bbl before reversing course, as headlines from Pakistan suggested the US and Iran may be close to some form of deal. On the news, Brent crude fell back to around USD 87/bbl. However, overnight fresh attacks on shipping renewed concerns over regional escalation. Reports of a suspected Houthi attack in the Bab el-Mandeb Strait and a US strike on a vessel in the Gulf of Oman have added to uncertainty causing Brent crude to climb back towards USD 90/bbl. Although deal optimism is fading, any renewed diplomatic progress could quickly pull attention back towards last week's low near USD 80/bbl.

What happened yesterday

In the US, the NFIB Small Business Optimism Index increased 2.4 points to 99.8 in July. Notably, labour market-related indicators strengthened, with more firms reporting job openings they were unable to fill, while three-month hiring and capex plans also moved higher. This contrasted with actual employment changes which remained low, in line with the earlier NFP data. Quality of labour was the most frequently cited "single most important problem", suggesting that forward-looking labour market indicators are improving despite recent weak realised data.

Equities: Global risk sentiment was on a weak footing yesterday with the oil price and the SoH being the key market driver ahead of today's US CPI. Early optimism after comments from Pakistan's defence minister suggesting progress towards reopening the strait briefly lifted risk appetite, with US futures 0.2% higher before open, however the mood faded as Iran reiterated that the strait would remain closed and Trump maintained a hardline stance. Brent crude ended 2.6% higher and is trading at USD90/barrel this morning. S&P500 ended 0.3% lower, with Nasdaq 0.6% lower. Energy was unsurprisingly at the top of the table, with communication services (dragged by Alphabet) lower. Overnight, Asian equities and US futures are mostly in green.

FI and FX: Major FX crosses were relatively steady yesterday. SEK and JPY lost a little ground while the USD recovered. News related to the Middle East and the oil market dominated with brief hints that a deal might draw closer. Oil prices remained elevated which underpinned the NOK. Bond yields dropped across the curve following equity market declines.