Market movers today

Markets will continue to follow the tense situation in Hong Kong, where there are signs that China is mobilising forces close to Hong Kong. Should China move in, market sentiment would take a considerable hit, sending stocks, emerging market assets and yields lower.

In the US, we expect a decent retail sales (control group) increase of 0.4% m/m, which is lower than in recent months, however. Consumption fundamentals still seem solid, with increasing employment, solid real wage growth and high consumer confidence. Private consumption is still the main growth driver in the US. That being said, the retail sales indicator is very volatile and prints negative from time to time despite consumption actually growing when looking at the bigger picture, so in that sense we would not be surprised if we get one bad print after some strong months. The numbers for manufacturing production will also be in focus given the difficulties for the sector amid the ongoing trade war with China. For the same reasons, we keep an eye on the release of the Empire PMI manufacturing.

The main event in the Scandi region today is the Norges Bank monetary policy meeting despite it being a so-called 'interim' meeting (see page 2 for more details).


Selected market news

The global fixed income rally has continued unabated over the last 24 hours as risk appetite remains severely under pressure as markets react to rising tensions around Hong Kong, intensifying Brexit fears, second thoughts over whether the Trump China tariff exemptions are of any importance and, not least, as the macroeconomic backdrop in both Europe and China continues to weaken. Both the US and UK 2s10s government curves inverted for the first time since the financial crisis and 30Y treasury yields dropped below 2% for the first time ever in a staggering 18bp drop measured since Wednesday morning. The market is now pricing close to 100bp cumulative Fed cuts over the next 12 months. The yield curve inversion has put focus on the risk of a recession over the coming years and further weighed on risk sentiment, leading to a 3% drop in US equities, a 4% drop oil prices and a sharp rebound in the yen.

US President Donald Trump yesterday made comments about progress in the trade war on twitter, saying: "The American consumer is fine with or without the September date, but much good will come from the short deferral to December" and "Of course China wants to make a deal. Let them work humanely with Hong Kong first".

In a video post yesterday, St Louis Fed's Bullard made some general comments about the US economy and shared his thoughts on the Fed's ongoing review of its monetary policy framework. He called current economic conditions good and suitable for a strategic review. He further said that a key focus should be to avoid getting stuck with an inflation rate below target and that negative interest rates could be looked at.


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