Norway sees a drop in inflation. Natural gas rises amid workers’ strikes in Australia

On Sunday, US Treasury Secretary Yellen made bullish comments for equities, saying she “feels very good” about the premise of a soft landing as “all inflation indicators are going down,” and she is increasingly confident that the United States will be able to contain inflation without severely damaging the labor market.

The European Commission lowered its 2023 eurozone GDP forecast to 0.8% from the previously projected 1.1%. It also lowered the Eurozone inflation forecast for 2023 to 5.6% from the previous forecast of 5.8%. Italian industrial production for July fell by 0.7% m/m, weaker than expectations of 0.3% m/m.

Berenberg currency analysts believe that the leveling of interest rates in the US and Europe, as well as the declining attractiveness of the US dollar as a safe haven, point to the possibility of a revival of the euro in the coming periods. Excess US government debt combined with potential refinancing difficulties could put downward pressure on dollar strength and give confidence to the euro. By the end of 2023, analysts forecast a significant strengthening of the euro against the dollar to 1.1200.

Norwegian inflation slowed more than expected in August. Data showed core inflation falling from 5.4% to 4.8% y/y and core inflation from 6.4% to 6.3% y/y. The consensus forecast pointed to an acceleration. All this raises doubts that Norges Bank will go for further monetary tightening. However, it should be understood that inflation is not as important to Norges Bank as it is to other central banks because Norway’s Central Bank operates on a model-based approach that places great importance on currency fluctuations and oil prices.

On Monday, oil prices fell from their highest in nearly ten months amid concerns about global energy demand after the European Commission cut its Eurozone GDP forecast. But dollar weakness on Monday provided support for energy prices. In addition, crude oil received support last Tuesday when Saudi Arabia and Russia announced an extension of oil production cuts until the end of the year. Oil was also supported by news of increased credit demand in China, the world’s second-largest oil consumer, which could lead to stronger economic growth and energy demand.

On Monday, natural gas prices received support from a rise in European gas prices to a one-week high. LNG production workers at key Chevron facilities in Australia began a partial strike last week after talks with management failed to reach an agreement. The workers said that if no agreement is reached, they will completely stop work for two weeks starting this Thursday.

Asian markets traded flat on Monday. Japan’s Nikkei 225 (JP225) decreased by 0.43% yesterday, China’s FTSE China A50 (CHA50) added 0.67%, Hong Kong’s Hang Seng (HK50) lost 0.58% on the day, and Australia’s S&P/ASX 200 (AU200) was positive by 0.50% on Monday.

In China, authorities returned to strong measures to defend the yuan. This came after the USD/CNY pair rose above the 7.30 level. Along with a much stronger CNY fixing, the PBoC issued a statement saying that market participants should “voluntarily maintain a stable market” and avoid speculative trades. However, sentiment towards China is still wary as other economic indicators for August continued to point to continued unfavorable factors for Asia’s largest economy.

Alibaba shares fell by 1.8% on Tuesday, extending losses after the head of its cloud division unexpectedly resigned this week.