Industrial production and inflation expectations in the spotlight

In focus today

In the US, the University of Michigan's preliminary consumer sentiment survey for September is due. With underlying inflation moderating and short-term market-based inflation expectations declining with global oil prices it will be interesting to see if the reading reflects these trends. In August, 1y and 5y inflation expectations stood at 2.8% and 3.0%, respectively.

Focus in the euro area is on the industrial production data for July, which has been declining for over a year now - with PMIs suggesting this trend continues coupled with weak national data. This will be the first hard data point on production for Q3 and offers a hint of expected GDP growth.

Economic and market news

What happened yesterday

In the US, US PPI data aligned with expectations, with the core figure coming in at 0.3% m/m SA, slightly above the consensus of 0.2% m/m. Meanwhile, jobless claims held steady at around 230k.

On the election front, Donald Trump announced he will not take part in another presidential debate with Kamala Harris before the November 5th election.

In the euro area, the ECB delivered a 25bp cut, as widely expected, bringing the deposit rate to 3.5%. ECB President Lagarde provided no guidance on the timing of the next policy move yet given that she did not see the need to impact the market pricing, we believe that the ECB is overall content with the current market pricing of 25bp/quarter through the end of next year, as domestic inflation pressure remains elevated due to high wage growth. Lagarde also highlighted the further confidence of the 2% inflation target being met in the medium-term, while the accompanying staff projections only saw cosmetic changes. For more details, please see Flash: ECB Review, 12 September. 

In Norway, the regional network survey showed that capacity utilisation surprisingly continued to rise, a key concern for Norges Bank (NB) back in June, indicating more sticky domestic inflation. This likely means that NB will not provide any signals for a rate cut next week- at least not to any meaningful extent. While the growth outlook remains weak, slightly below NB's assumptions, the report does not support a dovish turn given the bank's cautious stance on premature rate cuts. Wage expectations for next year remained at 4.3%, slightly below NB's June MPR forecast of 4.5%, while 2024 expectations held at 5.2%. Overall, the report confirms moderate growth with some weak details, aside from higher capacity utilization.

In Sweden, CPIF inflation for August came in at 1.2% y/y (consensus: 1.3%, Danske Bank: 1.1%), while CPIF excluding energy was 2.2% y/y - slightly above our 2.1% forecast but in line with the Riksbank and market expectations. The lower-than-expected headline figure could influence the Riksbank's thinking about the pace of rate cuts.

In commodities space, the International Energy Agency (IEA) has reduced its global oil demand forecast for 2024 by 7.2%, primarily due to a slowdown in the Chinese oil demand. The forecast for 2025 remains unchanged. The revision follows OPEC's announcement earlier this week, in which the cartel also cut its demand growth forecast for 2024 and 2025, also citing weak economic growth in China. The discrepancy between OPEC's and the IEA's 2024 projections corresponds to over 1% of world demand (OPEC: 2,030k/bd, IEA: 900k/bd). As of this morning brent is trading around USD72.30/bbl. 

Equities: Global equities were higher yesterday, with broad-based gains across sectors, styles, and regions. Yes, cyclicals did outperform slightly, but the outperformance versus defensives was not sizeable, considering the significant lift in risk appetite. In the US yesterday, the Dow was up +0.6%, the S&P 500 +0.8%, the Nasdaq +1.0%, and the Russell 2000 +1.2%. The picture is more mixed in Asia this morning. However, it is much more interesting with short-end US yields dropping, following former Fed member William Dudley's strong case for a 50bp cut by the Fed next. This reaction is not visible in futures in Europe or the US, which are both higher at the time of writing.

FI: Lagarde was on a clear mission not to rock the boat at yesterday's meeting, and she succeeded. The deposit rate cut of 25bp was in line with forecasts, while the ECB highlighted its flexible stance on monetary policy, avoiding explicit forward guidance. Movements in EGB yields were relatively subdued, with the 10Y Bund yield rising 5bp and the 2Y segment rising by 7bp throughout the session. The aggregate expectation for ECB rate cuts through end-2025 slightly decreased, settling around 180bps after accounting for yesterday's 25bp. Following yesterday's remarks from Lagarde, the ECB seems satisfied with the current market expectations.

FX: Cyclically sensitive currencies were the clear outperformers yesterday with especially NOK doing well in G10 space. EUR/USD edged somewhat higher during the US session while both JPY and CHF underperformed amid green equity markets. EUR/SEK moved back below the 11.40 mark while EUR/GBP erased Wednesday's gains.