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The Key Event Later Today Will Be The ECB Meeting

Market movers today

This morning, European markets are set to digest the result of the meeting between EU Commission President Jean-Claude Juncker and US President Donald Trump, see below.

The key event later today will be the ECB meeting. We expect little news but some focus on the uncertainty from trade tensions with the US. We do not expect any big market reaction on the back of the meeting.

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In the US, we have releases for durable goods orders, initial jobless claims and trade balance .

In Sweden, NIER consumer and business confidence for June is due to be released. While manufacturing confidence has held up pretty nicely, consumer confidence has weakened significantly in recent months. To be honest we don’t really fully understand why consumers have become less upbeat. Some claim that it could have something to with tighter amortisation requirements, but we doubt it since only a relatively small proportion of consumers are affected by that. Other than that, we’ve seen a pretty big jump in retailers’ price plans over the latest couple of months, something that coincides with actual goods prices moving higher too as a result of a weaker SEK. Also, June unemployment data will be released today. We estimate s.a unemployment at 6.0% (prev. 6.1%). June has a big positive seasonal factor so n.s.a unemployment will probably rise to 6.9% (prev. 6.5%).

Norwegian LFS labour market data is also due out. We alongside Norges Bank have for some time preferred the NAV release, as the LFS report has exhibited a large degree of volatility. With above-trend growth, we expect both unemployment rate measures to continue falling.

Selected market news

US President Donald Trump and European Commission President Jean-Claude Juncker have announced that the eurozone and the US will launch a new round of trade negotiations. In a joint statement, the two stated that the negotiations are aimed at (1) eliminating all tariffs, trade barriers and subsidies related to non-auto industrial goods, (2) reforming the WTO and (3) reducing trade barriers in general across the Atlantic. Importantly, all new tariffs (incl. automobile tariffs) will be suspended during the negotiation period thereby dampening near-term trade war fears. The eurozone also pledged to raise its imports of US soybeans and US liquefied natural gas. The announcement was somewhat surprising giving recent rhetoric from both Trump and Juncker. It is, however, still much too early to call this announcement more than a semi-truce even if US equities jumped and USD FX/FI sold off on the announcement.

EUR/GBP has stabilised just below the 0.89 figure after GBP gained on Tuesday on the news that the UK Prime Minister relegated the Brexit Department. We expect EUR/GBP to trade slightly lower going into the Bank of England meeting next week where we expect the BoE to hike the Bank Rate by 25bp. However, given that a rate hike is almost fully discounted in the market, we would expect any rally in GBP to prove short-lived. Hence, we look for EUR/GBP to remain range bound near term with Brexit uncertainty expected to remain a key source of volatility. Longer term, we still expect EUR/GBP to eventually trade lower driven by Brexit clarifications and fundamental valuations. We target EUR/GBP at 0.8650 in 3M, 0.84 in 6M and 0.83 in 12M

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