rate projections

NOK: 25bp by Norges Bank today We expect Norges Bank to hike by 25bp today, in line with previous guidance. The previous hike was a larger one (50bp), but the trade-weighted strengthening in the krone and some improvements on the inflation side will allow policymakers to hike by a smaller amount today. Markets are pricing in a peak in Norwegian rates after today’s 25bp hike, but we feel they are underestimating the chances of another hike in September. Much will depend on the krone’s performance: we are positive on NOK in the medium term but cannot exclude some risk-off corrections to generate some “scares” for the central bank and trigger another rate hike. Anyway, today is an interim meeting with no new rate projections. We cannot exclude Norges Bank will hint at openness to more tightening, and we see upside risks for NOK anyway, given the rather flat market pricing.

The latest weekly gold survey shows Wall Street analysts are bearish for the current week, while sentiment among retail investors is roughly balanced. Analysts believe that the rise in U.S. bond yields, which reached a new 15-year high on Thursday, remains a significant restraining factor for gold.   The slowdown in China's economy also deters investors. According to Edward Moya, Senior Market analyst at OANDA, the yield on Treasury bonds is at a level that supports the Federal Reserve's monetary policy, and this is a difficult environment for gold. However, his opinion on gold prices for the current week is neutral, as he believes that bond yields are likely close to their peak, and gold sales dynamics are probably slowing down. For selling pressure on gold to persist, bond yields would need to continue rising. But most analysts believe a decline in gold prices is more likely.   Presumably, Federal Reserve Chairman Jerome Powell, speaking at the annual central bank meeting in Jackson Hole on Friday, will maintain his hawkish stance. And rates will remain high going forward. Last week, 16 Wall Street analysts participated in a gold survey. Among the participants, ten analysts, or 63%, were bearish for the current week. Two analysts, or 13%, were optimistic, while four analysts, or 25%, took a neutral stance. In online polls, 941 votes were cast. Of those, 415 respondents, or 44%, expect price increases. Another 386, or 41%, favor price decreases, while 140 voters, or 15%, voted for a neutral position.       Despite this, Adrian Day, president of Adrian Day Asset Management, is bullish on prices for the next few months. He believes that investors should not ignore short-term price dynamics, as it is rare to see such a drop without any continuation, adding that this week may see a decrease in prices, but this will not affect long-term growth. James Stanley, market strategist at Stone X, said even if Powell takes a neutral stance in Jackson Hole, gold will find it hard to change its bearish technical outlook. Likely, the technical support level will remain at $1875.  

Remember that 'back to school' feeling at the end of summer? A tedious car journey home after holiday fun, knowing you'll be picking up where you left off? I'm afraid we've got a very similar feeling about the global economy right now. 'Are we nearly there yet?'. No. Very few reasons to be cheerful Lana del Rey's Summertime Sadness classic comes to mind as we gear up for autumn. And I'm not just talking about chaotic weather or even, in my case, disappointing macro data. Most of us have had the chance to recharge and rethink over the past couple of months. and I'm afraid all that R&R has done little to brighten our mood as to where the world's economy is right now. Sure, the US economy has been holding up better than we thought. And yes, the eurozone economy grew again in the second quarter. Gradually retreating headline inflation should at least lower the burden on disposable incomes. And let's be thankful for the build-up of national gas reserves in Europe, which should allow us to avoid an energy supply crisis this winter unless things turn truly arctic. But that's about as upbeat as I can get. We still predict very subdued growth to recessions in many economies for the second half of the year and the start of 2024. The stuttering of the Chinese economy seems to be more than only a temporary blip; it seems to be transitioning towards a weaker growth path as the real estate sector, high debt and the ‘de-risking’ strategy of the EU and the US all continue to weigh on the country's growth outlook. In the US, the big question is whether the economy is resilient enough to absorb yet another potential risk factor. After spring's banking turmoil, the debt ceiling excitement, and more generally, the impact of higher Fed rates, the next big thing is the resumption of student loan repayments, starting in September. Together with the delayed impact of all the other drag factors, these repayments should finally push the US economy into recession at the start of next year. And then there's Europe. Despite the weather turmoil, the summer holiday season seems to have been the last hurrah for services and domestic demand in the eurozone. Judging from the latest disappointing confidence indicators, the bloc's economy looks set to fall back into anaemic growth once again   Little late summer warmth This downbeat growth story does have an upbeat consequence; inflationary pressure should ease further. It's probably not going to be enough to bring inflation rates back to central banks’ targets, but they should be low enough to see the peak in policy rate hikes. Central bankers would be crazy to call an end to those hikes officially; they don't want to add to speculation about when the first cuts might come, thereby pushing the yield further into inversion. And there's also the credibility issue - you never know, prices might start to accelerate again. So, expect major central bankers to remain hawkish at least until the end of the year. In our base case, we have no further rate hikes from the US Federal Reserve and one final rate rise by the European Central Bank.   However, in both cases, these are very close calls, and the next central bank meetings are truly data-dependent. Sometimes, a Golden Fall or Indian Summer can make up for any summertime sadness. But it doesn’t look as if the global economy will be basking in any sort of warmth in the coming weeks. The bells are indeed ringing loud and clear. Vacation's over; school is here. And while I'm certainly too old for such lessons, I'm taken back to that gloomy, somewhat anxious feeling I had as a kid as summer wanes and the hard work must begin once again.   Our key calls this month: • United States: The US confounded 2023 recession expectations, but with loan delinquencies on the rise, savings being exhausted, credit access curtailed and student loan repayments restarting, financial stress will increase. We continue to forecast the Federal Reserve will not carry through with the final threatened interest rate rise. • Eurozone: The third quarter may still be saved by tourism in the eurozone, but the latest data points to a more pronounced slowdown in the coming months. Inflation is falling, but a last interest rate hike in September is not yet off the table. The European Central Bank will be hesitant to loosen significantly in 2024. • China: The latest activity data has worsened across nearly every component. Markets have given up looking for fiscal stimulus, and have started making comparisons with 1990s Japan. We don’t agree with the Japanification hypothesis, but clearly a substantial adjustment is underway, and we have trimmed our growth forecasts accordingly. • United Kingdom: Uncomfortably high inflation and wage growth should seal the deal on a September rate hike from the Bank of England. But emerging economic weakness suggests the top of the tightening cycle is near, and our base case is a pause in November. • Central and Eastern Europe (CEE): Economic activity in the first half of the year has been disappointing, leading us to expect a gloomier full-year outlook. Despite this, we see a divergence in economic policy responses, driven by countryspecific challenges. • Commodities: Oil prices have strengthened over the summer as fundamentals tighten, whilst natural gas prices have been volatile, with potential strike action in Australia leading to LNG supply uncertainty. Chinese concerns are weighing on metals, but grain markets appear more relaxed despite the collapse of the Black Sea deal. • Market rates: The path of least resistance is for longer tenor rates to remain under upward pressure in the US and the eurozone and for curves to remain under disinversion (steepening) pressure. We remain bearish on bonds and anticipate further upward pressure on market rates from a tactical view. • FX: Stubborn resilience in US activity data and risk-off waves from China have translated into a strengthening of the dollar over the summer. We still think this won’t last much longer and see Fed cuts from early 2024 paving the way for EUR:USD real rate convergence. Admittedly, downside risks to our EUR/USD bullish view have grown.     Inflation has only been falling for a matter of months across major economies, but the debate surrounding a possible “second wave” is well underway. Social media is littered with charts like the ones below, overlaying the recent inflation wave against the experience of the 1970s. These charts are largely nonsense; the past is not a perfect gauge for the future, especially given the second 1970s wave can be traced back to another huge oil crisis. But central bankers have made no secret that nightmares of that period are shaping today's policy decisions. Policymakers are telling us they plan to keep rates at these elevated levels for quite some time.