Norges Bank Meets Today
EUR gained across the board, with EURUSD rallying 0.5% during New York hours. EU President Van Rompuy “fully” endorsed the ECB’s proposal for bond-buying and expressed confidence that the plan, if an when used, will be “very effective”. There was no indication, however, either from the President or his host, Spanish Prime Minister Rajoy, that a request from Spain for more EU aid is imminent. Rajoy confirmed that there are “no ongoing talks” on Spanish bailout and added that Spanish banks will need less than the EUR100 bn aid already sanctioned by the EU. Spanish 10y yields rose 10bp though 2y yields dropped 7bp. The final estimate of Spain’s Q2 GDP released earlier showed that the economy contracted by 1.3% y/y against an earlier estimate of -1.0%, pointing to the continued structural weaknesses in the peripheral countries. 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 reported 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 economists note that the index lags actual pricing and the more timely measures have slowed a bit since Q2. USD remained weak overnight, mostly due to ongoing QE risks, heading into the Jackson Hole symposium on Friday. Dallas Fed President Fisher (a FOMC non-voter) reminded investors that “nothing has been decided” on further easing and cautioned markets of the “negative side effects”, given its “addiction” to QE. 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. We expect the central bank to keep the deposit rate unchanged at 1.50%, despite a strong NOK. A robust domestic economy supported by growing household consumption, should keep the central bank on the sidelines, further supporting NOK.
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