Danske Daily – 21 August 2018

Market movers today

There are no key market movers today on the global or Scandie front.

Market focus continues to be on Turkey and developments in emerging markets .

The next key thing to watch on the macro front will be the FOMC minutes tomorrow and Euro PMI on Thursday.

Hungary’s central bank (MNB) meets today. While we expect the MNB to keep rates unchanged, pressure to tighten monetary policy is rising. At the last meeting it kept rates unchanged. However, headline inflation has hit the 3.0% target faster than expected. While we previously expected the first key rate increase in mid-2019, changing inflation dynamics, strong economic growth and global monetary tightening could push the MNB to deliver a 25bp hike in H2 18. We do not exclude implicit tightening through liquidity tools.

Selected market news

Asian stocks are mixed this morning as investors await more clarity on the trade negotiations between the US and China.

Yesterday, reports came out that US President Trump had reportedly accused Fed Chair Jerome Powell of not proving the ‘cheap money’ head he expected when nominating him . While it is not the first time Trump has expressed dissatisfaction with rate hikes, it breaks the long-standing tradition of no political interference with monetary policy. USD and US yields came under pressure on the back of alleged criticism, where the 2Y-10Y curve flattened to new lows (see more discussion in the FX and FI sections on page 2).

Yesterday, Moody’s postponed a possible downgrade of Italy as it extended the period that it has Italy on negative watch . Italy was placed on negative watch back in May on the back of the new Italian government budget proposals. The main reason for waiting is to get more clarity on the budget for 2019 before making rating changes. This highlights the critical nature of the budget, which is due to be presented in Italy next month.

President Trump said yesterday that he won’t make any concessions to Turkey to secure the freedom of a detained Christian evangelical pastor at the centre of the diplomatic dispute that has spelled trouble for the Turkish economy. This effectively end hopes over the weekend that the Turkish authorities would release the pastor if the US gave something in return. Hence, an immediate solution to the stand-off seems more distant on the back of Trump’s comments.

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