Soft inflation supports hold from Norge's Bank

In focus today, Norway’s Norges Bank is expected to maintain its policy rate at 4.25% during today’s meeting, despite June and July inflation data showing easing pressures. The Monetary Policy Committee is anticipated to retain a tightening bias, signaling potential further rate hikes. Key attention will be on forward guidance and expectations for August inflation, particularly regarding kindergarten price impacts. Ahead of the rate decision, Statistics Norway will release the Q3 oil investment survey and Q2 wage figures. While oil investment outlook is expected to remain stable, Q2 wage growth may fall below Norges Bank’s 4.5% forecast for 2026, reinforcing signals from recent inflation data that wage and price pressures are easing. From Sweden, final July inflation figures will provide further clarity on the preliminary upside surprise, driven mainly by goods prices. Higher commodity prices and spring supply disruptions are suspected to have played a role. In the UK, today’s June GDP estimate and Q2 GDP estimate are released, with PMIs indicating near-zero growth. However, Q1 carryover effects may push Q2 higher, suggesting some economic momentum in July. From the US, July Producer Price Index (PPI) data will be released, focusing on whether producer prices echo yesterday’s in-line Consumer Price Index (CPI) release. Fed officials Hammack and Barkin will also address market expectations during the afternoon. In the euro area, June industrial production figures will be published. After a 0.2% month-over-month decline in May, expectations are for unchanged production in June. **Economic and Market Updates:** In Japan, July PPI increased 7.2% year-over-year (y/y), slightly below expectations (7.3%), driven by lower oil costs offset by rising metals prices, AI demand, and yen weakness. The Bank of Japan highlighted this rise as a key inflation risk signal, reinforcing expectations of a potential September rate hike. In the US, July CPI was broadly in line with expectations, with headline inflation at 3.4% y/y and core inflation at 2.5% y/y. Monthly details showed headline inflation rising 0.1% month-over-month and core inflation rising 0.2% month-over-month. The report did not meet expectations for an upside surprise, reducing market pricing of a September hike to around 40%, down from approximately 50/50. Combined with recent jobs data, this has lowered the likelihood of a hike at the upcoming meeting. In commodities, Brent crude traded around USD 88-89 per barrel yesterday, as the International Energy Agency (IEA) reported a global oil supply decline of 4.3 million barrels per day (bpd) this year, creating a 1.8 million bpd deficit in Q3 due to renewed Middle East hostilities and disrupted trade flows. The IEA also expects demand to contract by 1.6 million bpd due to tighter refined-product supply and higher prices. Equities: Global equities rose 0.3% yesterday, with the S&P 500 up 0.3% and Nasdaq up 0.5%. The July CPI print aligning with expectations removed immediate inflation risk, though it did not signal a full risk-on rally. Defensives outperformed cyclicals for two days, but tech and industrials led yesterday’s performance, with semiconductors (semis) leading tech gains. Asian equities are also rising, while European futures point to a flat start today. Forex and Fixed Income: Scandinavian currencies diverged yesterday. The EUR/SEK rose above 11.00, while EUR/NOK fell slightly due to persistent high oil prices and easing rate hike expectations. The 2-year US Treasury yield declined as US inflation data met expectations. German government yields remained largely unchanged. EUR/USD was broadly stable yesterday.