We expect one more cut from the Riksbank this year

In focus today

Today we get inflation data from Spain, France, Italy, Portugal, and Slovenia. The country data will provide us with a good indication of where the euro area HICP inflation released Tuesday next week lands.

In Sweden we get data releases on the trade balance, household lending growth and retail sales all for the month of May. Especially retail sales will be in focus, as the possibility of a consumption driven economic recovery has gained traction recently given improved consumer sentiment.

On Sunday we will be looking out for the first round of voting in the French general election. French politics have been dominating markets over the past two weeks with any news of a government led by Le Pen resulting in kneejerk risk-off reactions. Recent polls have pointed to the most likely scenario being a hung parliament with no one-party-majority. In this scenario, the worst fears in markets of vast fiscal spending increases should diminish, as any coming government would need to compromise to pass any bill.

Today's Danske Morning Mail is the last one before it breaks for the summer. We therefore highlight some of the events that we will be focusing on in July:

In the euro area, we get HICP inflation on 2 July. We expect headline at 2.5% y/y, and core at 2.8% y/y. The French election finalises with the second round of voting on 6 July. The Governing Council of the ECB convenes on 18 July. We expect them to keep policy rates unchanged. On 24 July we get euro area PMIs, and finally on 31 July we get July HICP inflation.

In the UK, we will be looking out for the general election 4 July. Polls have long indicated a Labour victory with constituency specific MRP polls indicating a possible historically large majority. However, we do not expect this to move markets, given the modest size fiscal headroom facing the next government, as well as lessons learned from the autumn 2022. Read more in UK General Election - The need-to-knows ahead of 4 July, 23 May.

In the US, we get a job markets report on 5 July where we expect non-farm payrolls to show +180k growth in employment. On 11 July we get the June CPI report. We expect core CPI to have grown by 0.2% m/m seasonally adjusted in June.

In Japan, we get the Q2 Tankan survey of business conditions Monday, which will be important ahead of the Bank of Japan (BoJ) meeting 31 July. We expect the BoJ to keep their policy rate unchanged despite a weak yen, as price pressures have muted. At the meeting the BoJ will also release a detailed tapering plan.

In China, focus over the summer turns to the so-called Third Plenum, which is a quinquennial gathering of the Central Committee of the Chinese Communist Party. At the plenum any major reform blueprints for the coming five years are laid out. As for data releases, we look out for PMIs, home-, and retail sales. June PMIs are released next week, and we look for a setback in the Caixin manufacturing PMI, and a broadly flat NBS manufacturing PMI, as the latter fell back in May.

We wish you a nice weekend and a good summer! Danske Morning Mail will return on 12 August.

Economic and market news

What happened overnight

In Japan, Tokyo CPI inflation beat consensus expectations as the core inflation (CPI excluding fresh foods) came in at 2.1% y/y (prior: 1.9% y/y) with expectations of 2.0% y/y. The Tokyo core CPI measure is a good indicator for its national counterpart, hence the more upbeat print points towards possible reflationary tendencies, driven by the weaker yen. This for instance showed up in prices for industrial products, which jumped in line with rising import costs.

After the Tokyo CPI print the yen hit a fresh 38-year low as it traded at around 161.2 against the US dollar (USD/JPY). As of this morning the cross was trading around 161. Focus in FX markets remains on the Japanese authorities and whether they may soon intervene.

In the euro area, Ursula Von der Leyen was officially nominated for a second term as President of the European Commission. Antonio Costa (former Portuguese Prime Minister) was nominated as European Council President, and Kaja Kallas (Prime Minister of Estonia) was nominated as the EU High Representative for Foreign Affairs. All three nominations were widely expected.

What happened yesterday

In Sweden, the Riksbank left its policy rate unchanged at 3.75% as widely expected by markets. The Riksbank also updated their rate path projection. They now open the door for two or three cuts during the second half of 2024 compared to previously two cuts. As such, we now expect three 25bp cuts in August, November, and December, respectively, bringing the policy rate to 3.00% by the end of this year. Read more in Riksbank review, 27 June.

In Norway, Registered unemployment jumped by more than 2,000 persons in May and the unemployment rate increased to 2.0% seasonally adjusted. We believe that part of this increase is due to supressed levels in April, so we expect a more moderate rise in unemployment in May. The seasonally adjusted unemployment rate is expected to be unchanged at 2.0%. The combination of good weather and many long weekends seems to have lifted consumption in May. We therefore expect retail trade increased by 1% m/m in May.

In Turkey, the Turkish central bank left its policy rate unchanged at 50.00%.

In the Czech Republic, the Czech central bank cut its repo rate by 50bp to 4.75% from 5.25%. Consensus expected a 25bp to 5.00%.