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– What is interesting is that interest rate expectations have remained high for a long time. The interest rate market has priced in a key interest rate of 4.5 per cent, but you can see that it is being pushed further forward in time, says senior economist Sara Midtgaard at Handelsbanken to DN.
She adds that the message both here at home and internationally is “high interest rates over a long period”.
The interest rate market is predominately pricing in that the policy rate will be 4.5 per cent, either in December or in March. This will give Norwegians two more interest rate hikes. Although key figures showed that growth slowed in July.
– It is something Norges Bank is keeping a close eye on, especially given the krone’s movements over the past six months, says Midtgaard.
When Norges Bank raised interest rates for the 12th time in just under two years earlier this month, the message was for now that it still envisages another interest rate hike in September. In the latest monetary policy report from June, the peak is estimated at 4.25 per cent at the turn of the year 2023–24.
Midtgaard says that the central bank will appear “duet” – i.e. restrained and with a preference for a looser monetary policy – if there are signals in September that it will not raise the key interest rate to the level the interest rate market is currently pricing in.
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– The question is whether Ida Wolden Bache and the central bank dare – to risk a weakened krone, adds Midtgaard.
At the same time, the interest rate market is pricing in that the key interest rate will remain at 4.5 per cent until September 2024 – only then is an interest rate cut expected.
Important macro week
Next week, the fresh key figures for the Norwegian economy will be served:
Unemployment figures from Nav on Friday, and retail figures from Statistics Norway already on Monday morning. Important figures and events for the coming week: Monday: Retail sales July NorwayWednesday: Provisional GDP 2nd quarter USAThursday: Norges Bank’s plans for currency transactions in September; unemployment July and consumer price index August eurozone; Inflation July and first-time applicants unemployment benefits (weekly figures) USA. Friday: Registered unemployment August Norway; Employment August USA (“non-farm payrolls”)
– The monthly growth in the labor market so far gives an indication that it remains tight and is resistant, which speaks for a new increase in September. We think the retail trade will show a fall, but that will not prevent Norges Bank from raising interest rates, says Midtgaard.
After twelve interest rate hikes by Norges Bank in the past year and a half, Norwegian consumption has remained stronger than both the central bank and economists around the country expected. However, it takes time from when the policy rate is raised until it is felt in people’s wallets.
– It will get worse before it gets better for Norwegian households. The interest rate increase from August has only just begun to be felt, and with another increase in September, and possibly one more, it will be particularly tight for Norwegians with a lot of loans, says Midtgaard.
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Necessary
At the weekend, central bankers from around the world gathered for the annual Jackson Hole Economic Summit in Wyoming. The market was looking for signals from central bank governors who were to discuss monetary policy with economists and government officials. The summit’s highlight was Friday when US central bank chief Jerome Powell gave a speech.
– We are prepared to raise interest rates further if necessary, and want to keep monetary policy at a restrictive level until we are sure that inflation is moving down towards our target, Powell said.
Equity strategist Joachim Bernhardsen at Nordea says there was little new in the message from the US central bank governor.
Analyst Joachim Bernhardsen in Nordea Markets. (Photo: Per Ståle Bugjerde) More…
– It had the potential to send shock waves, but I don’t think the message was so new this time. It is nevertheless worth noting that the Fed may find itself in a bit of a quandary, the economy remains strong even with a tightening monetary policy. Powell emphasizes that if it remains strong, inflation may pick up again, says Bernhardsen.
In the US market, investors and economists are waiting for the “non-farm payrolls figures” and the ISM index which will arrive this week.
– In the wake of Jackson Hole, key figures become very important. Now the share market has been sour through August, I would say it is still nervous after the strong rise we had this summer, says Bernhardsen.
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According to him, it is the macro picture that will take most of the attention in the coming week, because the results season is over for this time. And it is not always easy to know how the market will react.
– If you look back at last week where we got strong figures, it contributed to the stock market going badly. When we get good key figures, the market thinks that the Fed must tighten even more, and there is a danger of tightening too much.
– There is a balancing act on the key figures, and therefore we see the perverse reaction where shares fall on good key figures, because it increases the fear that the Fed will tighten too much, he adds. (Terms) Copyright Dagens Næringsliv AS and/or our suppliers . We would like you to share our cases using links, which lead directly to our pages. Copying or other forms of use of all or part of the content can only take place with written permission or as permitted by law. For further terms see here.
2023-08-27 18:23:49
#market #pricing #higher #interest #rates #Norges #Bank #worse
