Market movers today
Today’s data calendar is quite thin, although the Norwegian GDP number will attract some attention. The number is widely expected to fall short of Norges Bank’s March estimate for Q1, but given the temporary nature of the disappointment (even emphasised by NB itself last week), and given the latest strong NAV labour market report, the market impact should be limited.
Naturally, European and US markets will digest the latest on the US-China trade war (more below).
Later this week, we are set to get some information on the solid Q1 euro area GDP growth, with both the March industrial production and May ZEW index. In China, we look out for the April industrial production, retail sales and fixed asset investments. In Sweden, inflation will take centre stage. Our forecast for CPIF excluding energy is in line with the Riksbank’s at 1.6% y/y.
Selected market news
Global risk sentiment had a tough week last week with the renewed US-China trade war tensions. By the end of the week, the US-China trade talks in Washington ended in what looked like a deadlock – positions that seem to have been further entrenched. Both sides sent signals of cautious optimism but the underlying development suggests a bigger crisis in the negotiations. The trade teams have agreed to meet again in Beijing, but not when. At the same time, President Trump’s economic advisor said there was a ‘strong possibility’ for Trump and Xi to meet at next month’s G20 in Japan. The US has given China a month to make concessions or otherwise face tariffs on all imports. In this case the tariffs could come into force in early August. We see an increasing risk that the trade talks drag out into H2 and that it will get worse before it gets better, see more in US-China trade – Talks in Washington end with signs of deadlock.
Overnight, the Asian markets are trading in classical a risk-off reaction mode, as major equity indices are down, the yen stronger and treasury futures up.
Yesterday, Bloomberg via the Italian news outlet Corriere della Sera, reported that Italian Prime Minister Conte suspected deputy Salvini of bringing down the coalition government in an end to a bad week for the Italian bond market (also after the EC’s revision earlier last week). Recall that the Italian government coalition partners (M5S and Lega) are not natural coalition partners, which may raise the risk of renewed pressure on the Italian economic outlook should the political instability rise again.
During the weekend, the final count of Wednesday’s election in South Africa gave the ANC 57.5% of the votes (up from of 54.5% in the local elections three years ago). This raises the prospect of a more forceful implementation of the reform agenda in South Africa by Ramaphosa, which is dearly needed to increase the country’s lacklustre growth prospects. However, EM currencies may face a challenging period ahead following the US-China trade war.
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