We expect Norges Bank on hold

In focus today

Today's main event will be Norges Bank announcing their policy rate decision. We expect Norges Bank to keep the policy rate unchanged at 4.50%. Developments since June have gone slightly in both directions, so we do not expect Norges Bank to send any new policy signals, but the risk is tilted towards a more dovish statement. However, the recent sharp repricing of the monetary policy outlook leaves the bar for a disappointment low. The rate decision is announced at 10.00 CET.

In Sweden, we get the Prospera inflation expectations at 8.00 CET. As it is the monthly survey release it covers only money market participants' views, and it comes as a final piece of the puzzle ahead of the Riksbank policy meeting next week. The survey will most likely show inflation expectations close to target on all horizons, and as such not alter the market's pricing of gradual rate cuts ahead. 

In the UK, we get GDP figures for both Q2 and June at 8.00 CET. Analysts expect growth of 0.6% q/q in Q2 (prior 0.7%), and 0.0% growth m/m in June (prior 0.4%).

At 14.30 CET we get the retail sales numbers out of the US. According to Reuters polls analysts expect headline retail sales to come in at 0.3% m/m (prior 0.0%), whereas core retail sales are expected to come in at 0.1% m/m (prior 0.4%).

Fed's Musalem (voting member) and Harker (not voting member) both speak at 15.10 CET and 19.10 CET, respectively.

Economic and market news

What happened yesterday

In the US, both headline and core CPI came in at 0.2% m/m seasonally adjusted in line with expectations. It marked the third consecutive month of core inflation standing at 0.2% m/m seasonally adjusted, hence the inflationary trend is on the right track in the US, despite still too high headline inflation.

In Sweden both the headline CPIF and CPIF excl. energy surprised to the upside compared with analysts' expectations. Headline CPIF rose to 1.7% y/y (prior 1.3% y/y) with especially hotels and restaurants contributing towards this. CPIF excl. energy fell to 2.2% y/y (prior 2.3% y/y). The Riksbank had forecast CPIF at 1.8% and CPIF excl. energy at 2.2%, hence this should justify a cut of 25bp at next week's policy meeting, something which both we and markets expect as it is also fully priced in.

In the UK CPI came in slightly lower than expected as headline CPI printed 3.4% y/y and core CPI printed 2.2% y/y both 0.1p.p. lower than consensus amongst analysts.

What happened overnight

China released their monthly batch of data overnight, which came in close to expectations but still paint a weak picture of the economy. Retail sales increased from 2.0% y/y to 2.7% y/y (consensus 2.6% y/y), which is still very weak spending by Chinese households. There are also few signs of improvement in the housing crisis. New home prices declined 0.65% m/m again in July after 0.67% m/m in June while home sales stayed around a level of 90m m2, still much below the pre-pandemic level of 160m m2. Industrial production dropped from 5.3% y/y to 5.1% y/y (consensus 5.2% y/y) and down from a level close to 7% during spring. In sum, the data confirms that China is still mired in a housing crisis, weak consumer spending and a loss of momentum in industrial activity in recent months. It calls for a new round of stimulus to reach the government's 5% target and we expect to see new stimulus announcements soon.

In Japan, GDP growth for Q2 this year came in at 0.8% q/q beating consensus amongst analysts of 0.5%. This follows three weak quarters. Most importantly, private consumption increased by 1%. Despite the renewed focus on the weak yen, a return to growth and private spending moving in the right direction were probably prerequisites for the Bank of Japan to move along with normalising policies. Equity markets have reacted positively to the data release with the Nikkei 225 up around 1.1% this morning.