Market Movers
The main release today is the US employment cost index, which is set to increase 0.6% q/q. The quarterly index so far indicates that wage inflation is picking up in line with the diminishing slack in the labour market. The release today is important for our call for a first Fed rate hike at the next FOMC meeting in September, but the FOMC will get additional information about the labour market development as the July and August job market reports will be released ahead of the September meeting.
Euro inflation is expected to remain unchanged at 0.2% y/y in July despite the latest decline in the oil price. This should follow as the pass through to gasoline prices has so far been limited. We continue to expect core inflation to increase to 0.9% y/y in July from 0.8% y/y in June as goods price inflation is set to continue higher.
We expect the euro area unemployment rate to have continued to decline to 11.0% in June. The unemployment rate has been on a downtrend since mid-2013 although GDP growth has been modest in the same period. We look for a continued downtrend implying the unemployment rate will approach its long-term rate of around 10%.
In Norway the unemployment rate is due for release (see more below).
Selected Market News
US GDP growth was slightly weaker than expected in Q2 at 2.3% q/q AR but was revised higher in Q1. Importantly, core PCE was higher than expected in Q2 and was also revised up in Q1. This is essential for our call for a September rate hike from the Fed as we need indications that core inflation is bottoming and/or wage inflation is picking up together with continued progress in the labour market.
In Greece, the ruling party Syriza decided yesterday to postpone an emergency congress to September. An immediate congress could have derailed bailout negotiations as a formal division within Syriza would force snap elections in Greece, see WSJ. Additionally, the IMF will apparently not lend money to Greece in a new programme, see FT. Despite these headlines about Greece, the potential spill-over effect to the peripheral government bond markets is expected to be limited.
Scandi Markets
We expect that the Norwegian unemployment rate rose to 3.0 % in July, mostly due to seasonal factors. This should confirm the mild deterioration of the labour market and is in line with expectations. More interestingly will be the change in the seasonally adjusted number of unemployed. Since Easter this number has increased by roughly 5-700 persons m/m, which on an annual basis is in line with the latest forecast from Norges Bank. Hence, at those levels, the figures will be neutral ahead of the September meeting.
