Norges Faces Cross-winds
EURSEK pushed higher after some slightly soft manufacturing and consumer confidence numbers (which came in at 5.4 and -9 respectively). These numbers do not change our structural view on Sweden, the manufacturing sector is still in decline and subject to stress in Europe but the consumer confidence numbers are still robust and we expect EURSEK to trade in an broad 8.00-8.50 range. We see scope for some modest NOKSEK upside however and are relatively constructive heading into today’s central bank meeting. We expect the central bank to keep the deposit rate unchanged at 1.50%, and even though NOK has appreciated in the forecast period, the import-weighted (I-44) is not yet at the levels seen in March. However, we expect some form of verbal intervention given the persistent deflationary fears but this is likely to be offset by household and consumer debt growth and fairly robust domestic economy indicators. Overall, conditions are not quite as strong as in the previous meeting however. In a published paper, ECB President Mario Draghi repeated his view that the ECB needs to fulfill its mandate, but sometimes this requires going beyond standard monetary policy tools which at times requires exceptional measures. There is nothing new in these comments however. Risk traded on a soft note overnight, the Australian dollar initially saw some slippage after weaker than expected construction data. A succession of bearish press reports also sounded warnings about risks to economic growth both in China and domestically in Australia itself. News that a major international investor has lowered its equity stake in an Australian miner did nothing to boost sentiment either, especially against the backdrop of weak iron ore prices. Meanwhile there were no further headlines out of Europe overnight yesterday’s revelations of accelerated capital flight out of Spain were worrying for sure, but investor attention remains focused on the ECB’s next press conference on Sept. 6 and specifically on whether ECB President Draghi will present a credible bond buying plan with a sporting chance of turning the crisis around. Data in the US were mixed, with the consumer confidence index dropping to 60.6 in August against a consensus estimate of 66.0. Manufacturing activity, as indicated by the Richmond Fed, contracted at a less pronounced rate in August. The S&P/Case Shiller home price index improved by 0.9% m/m in June but our US economists note that the index lags actual pricing and the more timely measures have slowed a bit since Q2. Ahead today, the Fed’s Beige Book will probably offer further insights on the economic activity in the Fed districts. Also on tap is the policy rate decision by Norges Bank.
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UBS Investment Bank