July 4, 2017 / 7:33 AM / 2 years ago

Daily Briefing: Stimulus rewind - Sweden an outlier

LONDON (Reuters) - Sweden's central bank will probably signal benchmark rates have bottomed out at -0.50 percent but otherwise leave ultra-loose policy broadly unchanged today, analysts polled by Reuters predict.

The Swedish flag is seen at Gamla Stan, the Old City of Stockholm, Sweden, May 7, 2017. REUTERS/Ints Kalnins

That makes it something of an outlier as the Fed, ECB and Bank of England all signal tightening. The Riksbank's negative rates and chunky bond-buying programme are looking increasingly out of sync with an economy that has enjoyed above-trend growth the last three years and where house prices and household debt are rising at alarming rates.

If the central bank remains dovish, it may cite concerns about the international outlook - not least what Brexit means for Sweden’s trade with Britain.

We should get more clues today as to how the stand-off between Qatar and other Gulf Arab states is playing out for those big European economies who trade with the region.

Last night, the French presidency signalled that Qatar's emir, Sheikh Tamim bin Hamad al-Thani, would travel to France at the end of the summer. That trip will be interesting given the close economic ties fostered between the two countries in recent years.

Separately, German Foreign Minister Sigmar Gabriel travels today to United Arab Emirates, a country on the other side of the stand-off. Will trading partners such as Germany come under pressure to choose between doing business with the UAE or Qatar?

After his calls yesterday to shake up the French body politic by slashing the number of lawmakers and introducing elements of proportional representation into the voting system, Macron today sends his prime minister out to set out some of the nitty-gritty of his government programme in a 1300 GMT speech to parliament. Special attention will be placed on the budget numbers and likely public spending cuts after France's official audit body unearthed a giant hole in the accounts last week.


If one of the big debates of the first half of 2017 was whether stocks or bonds were giving the better signal on the underlying economy, then the equity camp must be feeling quite smug.

Despite a swoon in inflation rates that dragged nominal bond yields lower and flattened the yield curve and weeks of sub-forecast data, business activity indicators have held up smartly through the end of the second quarter, annualised global growth is estimated to be running in excess of 3.5 percent and the Q2 earnings season starting next week is expected to deliver year-on-year growth in excess of 7 percent. 

Manufacturing surveys around the world on Monday surprised on the upside, with the punchy U.S. reading driving the 10-year U.S. Treasury yields to their highest since mid-May at 2.3530 percent ahead of the July 4th holiday today stateside and lifting the dollar too.

The dollar’s DXY index recorded its third biggest daily gain of 2017. The S&P500 advanced 0.23 percent also, with the parallel surge in oil prices helping the Dow Jones Industrials hit another intraday record even as the tech-laden Nasdaq lagged.

But it wasn’t just in the United States - euro zone PMIs for June were also ahead of both forecasts and earlier flash readings, helping the STOXX50 index of euro zone stocks record its biggest one-day gain in more than two months. And after plummeting into negative territory since April, Citi’s economic surprise indices for the U.S. and the G10 economies at large are rebounding at last.

As for the central banks, shots across the bow of markets from major policymakers last week show it may well be the beginning of the end for super-easy monetary settings.

Yet, as JPMorgan points out, aggregate balance sheet expansion is still not likely to peak for another year or so even in the light of last week’s signals and the U.S. bank does not expect the total to return to the current $14 trillion level until 2020. As to whether there’s any coordinated message from the world’s central bankers, the Reserve Bank of Australia gave little away earlier but eyes now shift to Sweden’s Riksbank later today.

Top European Central Bank officials Praet and Nowotny also speak, while the minutes of the Bank of England’s Financial Policy Committee may illustrate why the BoE is concerned about consumer and auto credit.

So far today, the Independence Day holiday is keeping things quiet - with most of the early moves so far just slight pullbacks of the big moves on Monday.

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