Deflation fears continue to grow

Market Movers ahead

• In the US, attention continues to be directed at inflation and the housing market.

• US inflation is set to be the main focus next week, as the release of PCE figures should provide us with more information on when inflation is likely to reach the Fed’s 2% target. We expect marginal PCE inflation to come out at 0.1% m/m and 0.2% m/m for core and headline PCE respectively.

• Following a very weak month of June for the US housing market, the first releases of housing market figures for July showed strong recoveries. We expect the same to happen for new home sales.

• In the eurozone, the focus remains on the risk of outright deflation. Hence, we expect a new cycle low of 0.3% y/y in eurozone inflation in August. The persistent low inflation in the euro area has resulted in a considerable decline in market-based inflation expectations in August and a new cycle low in actual inflation could result in new downward movements in inflation expectations.

• The week ahead is crammed with data for Sweden, ranging from producer prices, business and consumer confidence and trade balance data to retail sales. Our overall view is for data to continue on a stronger note.

Global macro and market themes

• US and Chinese growth are set to moderate in H2 but we expect global growth to continue to be robust and provide support to risk assets.

• Euro manufacturing is slowing, while the domestic sector remains strong, which suggests the slowdown is driven by external factors. We look for a pickup in growth again later this year.

• Bond yields have been driven lower by structural flows, data is disappointing and inflation is lower.

• The EUR/USD trend continues lower on strong divergence in policy and economic performance.