US producer prices on the rise

In focus today

In the US, focus will be on July retail sales and industrial production data. Retail sales are expected to showcase still solid consumer demand, but markets will keep a close eye on potential signs of consumers turning more cautious amid the tariff uncertainty. Have a great weekend!

Economic and market news

What happened overnight

In China, weak data points to new stimulus soon. The monthly batch of data for July for a wide range of areas including retail sales, housing and industrial production were weak and showed a further softening of economic growth on top of the loss of momentum seen in recent months. Retail sales dropped from 4.8% y/y to 3.7% y/y (consensus 4.6% y/y) and industrial production declined from 6.8% y/y to 5.7% y/y (consensus 6.0% y/y). The housing sector also weakened again with home sales falling back to cycle lows after some improvement in H1. Home prices also dropped again (new home prices down -0.31% m/m from -0.27% m/m in June). The only bright spot currently is strong exports, but it is paramount for the economy that domestic demand gets on a stronger footing. It is also a high priority for China's leaders, and we expect to see a new batch of stimulus soon to underpin consumption and housing, see also China Headlines released yesterday. Chinese offshore stocks dropped a little more than 1% overnight while USD/CNY moved slightly higher above 7.18.

What happened yesterday

In the US, producer price inflation surprised to the upside, contrasting with the CPI release earlier this week. Core goods PPI rose relatively modestly (+0.38% m/m SA), while services and the volatile trade services recorded sharper increases. Food price inflation accelerated notably from June (+1.4% m/n SA, from +0.12%). The mixed details suggest tariff pressures are building but not as much as the headline figure implies, which may explain why part of the initial market reaction seemed to fade quickly.

In the euro area, the first estimate of Q2 employment growth landed at 0.1%, slowing slightly from 0.2% in Q1. The slight rise was in line with market expectations and seen as a continued sign of a resilient labour market. The second estimate of Q2 GDP growth was unchanged from the first release at 0.1% q/q, in line with consensus. The low growth rate follows a very strong first quarter of the year, where the economy grew 0.6% q/q. Evaluating the first half of the year, growth has been higher than expected.

In Sweden, the final inflation figures confirmed last week's flash estimate: CPI m/m at 0.2% and y/y at 0.8%, CPIF m/m at 0.3% and y/y at 3.0%. CPIF-XE m/m at 0.2% m/m and y/y at 3.2%. However, food prices surprised on the upside, rising by 1.1% m/m, and the overall picture is still that inflation is too high and higher than Riksbank's forecast.

In Norway, Norges Bank kept the policy rate unchanged at 4.25%, as expected. In the press release, the MPC reiterated the signal of a rate cut in September: "The economic outlook is uncertain, but if the economy evolves broadly as currently envisaged, the policy rate will be reduced further in the course of 2025."

In geopolitics, President Trump expressed optimism about discussions with Russian President Putin to end the Ukraine war, as Putin mentioned the possibility of a nuclear arms agreement ahead of their summit. Ukrainian and European leaders remain wary, concerned that any agreement could risk Ukraine's security or reward Russia's territorial advances.

Equities: Equities were mixed on Thursday. Regional leadership reversed as Europe caught up to the prior session (Stoxx 600 +0.6%), while US took a breather (S&P 500 unchanged). There was some risk-off sentiment in the US, reflected in negative market breadth, with the equal-weight index down nearly -0.7%. Similarly, the small-cap Russell 2000 pulled back -1.3%. The trigger for the pullback was a hotter-than-expected PPI print, which sparked significant moves in the bond market. European and Nordic markets were more buoyant, with banks performing extremely well - the sector is up 4% for the week. Asian markets are higher this morning, and futures are modestly higher in both Europe and the US.

Asia is outperforming this morning, led by the tech-heavy Shenzhen index, up 1.4%. Emerging markets have performed very well over the past month in general, with gains ranging between 5-10%. We have held a regional preference for Emerging markets over summer, as a weaker dollar and stronger Chinese stimulus have provided a solid tailwind. That said, some positive drivers have recently lost momentum, including a Chinese credit impulse that has stalled for three consecutive months and a pause in the dollar's decline. Fresh data this morning showed another weak set of Chinese macro numbers, including falling house prices and softer-than-expected retail sales. In short, household sentiment has yet to turn the corner.

FI and FX: Global yields moved higher in yesterday's session, with a much hotter-than-expected US July PPI print acting as the catalyst. Markets responded with a risk-off tone: yields rose, equities declined, and the USD broadly appreciated across the G10. EUR/USD slipped below 1.17, while USD/JPY fell below 147 as markets gained renewed confidence that the BoJ could hike again before year-end. GBP FX has had a strong week so far edging closer to the 0.86 mark as data releases over the past week have been to the hawkish side. As expected, Norges Bank kept its policy rate unchanged at 4.25%, with NOK initially strengthening before partially reversing, leaving EUR/NOK around 11.90.