CPI from US, Norway and Denmark

In focus today

In the US we get the September CPI figures, which is the most important data release this week. We forecast headline inflation slowing down to 0.1% m/m SA and 2.4% y/y (from 0.2% and 2.6%) mostly driven by lower energy prices, and core inflation to 0.2% m/m SA and 3.2% y/y (from +0.3% and 3.3%). Signs of stickier price pressures especially in the services sector would add to expectations that the Fed opts for only smaller 25bp rate cuts at the coming meetings.

This morning at 10.00 CET, Danske Research hosts a US election webinar, covering fiscal and trade policy outlooks and implications for financial markets.

In Norway, we receive September CPI. We believe that the disinflationary tendency continued, but still expect core inflation to rise to 3.4% y/y, because of unusually low inflation in September last year. If we are right, this will be 0.1 percentage points higher than Norges Bank assumed in the MPR in September and in isolation confirm that there will be no rate cut this year, like we continue to expect.

We expect Swedish August GDP, production and consumption indicators (08.00 CET) all to show some improvement judging from previously released data such as employment, hours worked and retail sales. At 08.30 CET, Riksbank head Thedeén will be discussing the economic policy frameworks together with the head of the Swedish Fiscal Policy Council, Lars Heikensten (previously also head of the Riksbank).

In Denmark September CPI is due for release. Energy prices will drag inflation lower, and we expect a decline to 1.2% from 1.4% in August. The underlying price pressure has remained muted in Denmark despite solid wage growth.

Economic and market news

What happened yesterday

In the US, FOMC minutes suggest that the September rate decision was indeed a close call. The minutes describe that FOMC participants had somewhat differing views on how the easing cycle should be started. 'Some' participants would have preferred a 25bp cut and 'a few others' could have supported such decision. Ultimately, only Bowman dissented from the 50bp cut in the vote. Some emphasized that communicating the outlook for more cuts was more important than the size of the initial cut. So indeed, it was a close call between a 25bp and 50bp moves, as market pricing implied ahead of the meeting. Going forward, we stick to our call for a 25bp rate cut at the next meeting.

In the euro area several ECB members spoke about monetary policy. Villeroy said that a cut is very likely, and that it will not be the last one in this rhythm, but the pace is still dependent on how inflation evolves. In his support to cuts at the two remaining meetings this year, Stournaras argued that monetary policy will still be restrictive after cutting in both October and December. This adds to other members who have spoken for rate cuts over the last couple of weeks, even the traditional hawks Nagel and Kazaks. However, the hawkish tones still exist, for example Wunsch who is undecided as he still sees domestic inflation pressures as too high, and fears that geopolitical tensions could push energy prices higher.

China's Finance Ministry will hold a briefing on Saturday on strengthening fiscal policy. Fiscal measures are typically announced by the Finance Ministry, which is why we did not get any details from the National Development and Reform Commission on Tuesday. The briefing on Saturday is thus the place to look for China's fiscal stimulus plans. We do expect a clear fiscal stimulus plan, but markets will likely be nervous until we see the plans as there is some risk that they underwhelm expectations that have become very high. Still, calm has been restored in Chinese stock markets for now with offshore shares up 4% this morning.

In the Middle East, US president Biden and Israeli prime minister Netanyahu discussed Israel's planned response to Iran's missile attack last week. They also spoke about the Israeli offensive in Lebanon, where President Biden apparently urged Israel to find a diplomatic solution to avoid civilian casualties.

Equities: Global equities were higher yesterday, except for China and Latin America. The uplift in equities was relatively broad-based, although the defensive sectors lagged, particularly utilities which underperformed yet again. Utilities have been one of the best-performing sectors over the summer as yields have been coming lower and equity markets have been choppy. With the latest reassuring job data from the US and a lift in yields it is not so surprising to see the utility sector underperforming. In the US yesterday, the Dow closed up by +0.9%, the S&P 500 by +0.5%, Nasdaq by +0.4%, and the Russell 2000 by +0.4%. The positive sentiment continues in Asia this morning, including sizable lifts in both Chinese A-shares and H-shares. Futures in Europe and the US are also higher this morning.

FI: Global yields continued rising through yesterday's session, as the market-implied number of rate cuts in 2024-25 continues to fade. The repricing of 10Y US Treasury yields over the past week (+30bp) seems hard to justify based on a single strong jobs report, and the move looks much more like an unwinding of excessive positioning towards a 'very dovish Fed' narrative. The Bund curve rose gradually 3bp across tenors yesterday, while the Bund-ASW spread saw marginal widening (now 27bp). Implied vol remains elevated with the MOVE index trading at the highest levels since April. As the US election approaches, implied rates volatility will likely remain elevated.

FX: EUR/USD has firmly consolidated below 1.10 during what has been a relatively uneventful week so far with focus turning to the release of September CPI print this afternoon. NOK continues to trade heavy amid not least oil coming lower and the sell-off in NOK FI losing steam. This morning, we could see some support to NOK though as we expect the monthly CPI release to reveal a print slightly above both markets' and Norges Bank's projections. Akin to EUR/NOK, EUR/SEK edged slightly higher during yesterday's session but remains below the 11.40 mark.