Higher Expectations to Rate Hike

Transcription

1 Higher Expectations to Rate Hike Weekly Update Higher market expectations to Norges Bank rate hike but difficult to pinpoint a reason to the past week s motion Watch out for market-moving figures this week This week: Norwegian housing prices rose.4 per cent m/m in February. The correction in home prices seems to be approaching an end, see Jeanette s Short Comment. Tomorrow Norges Bank will release its Regional Network survey. The survey is an important gauge for Norwegian economic activity and has potential to move interest rates. Friday morning the February inflation data are due. Abroad the Fed s Beige Book on Wednesday, ECB s monetary policy meeting Thursday and U.S. non-farm payrolls on Friday have potential to move markets. Previews for Regional Network, Norwegian inflation, ECB and payrolls were included in today s Daily Macro Brief. Past week: New monetary policy regulation with lower inflation target attracted most interests the past week. Wage statistics, retail sales and Norges Bank Watch were also due last week, but did not move markets much. Abroad U.S. President Trump s proposal to tax import of steel and aluminum lowered stock markets. rates were generally little changed the last week, but 2y1y curves flattened. NOK swap however rose more significantly, with 5y up 1 bps. NOK 1y swap was up 4 bps, while the 2y swap added 8 bps. The 2y1y curves flattened 3 bps for USD, SEK and NOK, and 1 bps for the SEK curve. 3m LIBOR rose 7 bps the past week, and is up 14 bps over the past two weeks. 2 bps of last week s increase is increased were due to changes in the 3m OIS for USD, reflecting that a rate hike in March is coming closer. 5 bps were due to higher premiums, or spread to the policy rate expectations. In February the FRA-OIS spread for the first IMM widened. The LIBOR-OIS spread has been lagging the FRA-OIS spread, but caught up the past week. The widening spread between the LIBOR /FRA and the OIS has affected the 3m NIBOR and hence the NOK FRA curve the past month. The past week, 3m NIBOR has been high, but stable. The 3m NOK FRAs have increased 9-1 bps for contracts starting next year, while other FRA curves were down 1-3 bps. Roughly 3 bps of this rise may be attached to the change in the monetary policy regulation. Most of the rise took place on Wednesday. The weekly rise seems to be in line with a shift in expectations to Norges Bank s policy rate. The catalyst behind Wednesday s move is difficult to pinpoint; retail sales that morning was softer than expected, and it is hard to believe the Norwegian FSA s recommendation moved the markets. It seems it has been more of a case of consistent paying flows for swaps over the previous days, and then the market reached a tipping point. Market expectations for NOK over-night rate have to be derived from other instruments. Based on USDNOK forwards and USD OIS, the market price in a full rate hike in December, and more than 5 per cent for September. Estimates based on NOK 3m FRAs and assumptions of the money market premiums, lag estimates based on forwards with 1 meeting. Kyrre Aamdal, DNB Markets Expectations to Norges Bank Policy Rate Mar-18 NOK Policy Rate Expected change per meeting. Accumulated change, basis points, NOK Policy Rate From USDNOK forw ards. Accumulated change, basis points Forwards FRA Norges Bank DNB Source: Bloomberg/Norges Bank/DNB Markets 5/3/218 26/2/218 Source: Bloomberg/Norges Bank/DNB Markets

2 Rate hike in March and June/September 3% for 15 bps rate hike in March Fed Rate Hike Expectations By FOMC meetings, basis points, 5-Mar ECB Rate Hike Expectations By MP-meetings, basis points, 5-Mar Change Accumulated (rha) DNB, acc., rha. Source: Bloomberg/DNB Markets Markets above Norges Bank Change Accumulated (rha) DNB, acc., rha. Source: Bloomberg/DNB Markets We expect markets to reprice 2. 3m, Fwd and Forecast, NOK m, Fwd and Forecast, USD Mar-18 Sep-18 Mar-19 Sep-19 Mar-2 Sep-2 MPR 4/17 2-Mar Feb-18 DNB Source: Norges Bank/DNB Markets 1.75 Mar-18 Jun-18 Sep-18 Dec-18 2-Mar Feb-18 DNB Markets think Riksbanken will give in m, Fwd and Forecast, SEK -.75 Mar-18 Jun-18 Sep-18 Dec-18 2-Mar Feb-18 DNB Maybe higher rates next year m, Fwd and Forecast, EUR -.35 Mar-18 Jun-18 Sep-18 Dec-18 2-Mar Feb-18 DNB

3 Rate hike in March and June/September 3m Forward Interest Rates The rises have stagnated 3% for 15 bps rate hike in March curves Maturity (years) Source: Thomson Datastream/DNB Markets Curves are flattening 3. 1 Year 2. Spread 2-1 Year Percentage points Feb-17 May-17 Aug-17 Nov-17 Feb-18 Source: Thomson Datastream/DNB Markets.5. Feb-17 May-17 Aug-17 Nov-17 Feb-18 Source: Thomson Datastream/DNB Markets NOK curve stands out Change in Steepness from 23-Feb-18 Basis points Source: Thomson Datastream/DNB Markets Long-term rate expectations have turned Y with 5 years forward start Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18

4 Table 1 Curves 1.1 ing swaps (Annual 3/36) NOK 1Y Y Y Y Y Y Y Y Y Y 2.27 Rate above 2% 1.2 ing swaps (Annual 3/36) SEK 1Y Y Y Y Y Y Y Y Y Y 1.33 Rate above 2% 1.3 ing swaps (Annual 3/36) EUR 1Y Y Y Y Y Y Y Y Y Y 1.9 Rate above 2% 1.4 ing swaps (Annual ACT/36) USD 1Y Y Y Y Y Y Y Y Y Y 2.86 Rate above 3% 1.5 Spread between NOK and EUR (basis points) 1Y Y Y Y Y Y Y Y Y Y Spread between SEK and EUR (basis points) 1Y Y Y Y Y Y Y Y Y Y 24

5 Table 2 Market Update 5-Mar Feb-18 Diff. 16-Feb-18 2-Feb Dec-16 NOK MAR 3 FRA JUN 3 FRA SEP 3 FRA DEC 3 FRA NIBOR year swap year swap year gov SEK 3 month money mkt year swap year swap year gov USD 3 month money mkt year swap year swap year gov EUR 3 month money mkt year swap year swap year gov (Germany) Spreads i basis points NOK-EUR 2 year swap NOK-EUR 1 year swap NOK-Germany 1 year gov SEK-EUR 2 year swap SEK-EUR 1 year swap SEK-Germany 1 year gov USD-EUR 2 year swap USD-EUR 1 year swap USD-Germany 1 year gov Source: Thomson Datastream/Reuters/DNB Markets

6 Table 3 Interest rates forecasts Policy rates 22-Feb-18 5-Mar-18 Jun-18 Sep-18 Mar-19 Mar-2 Mar-21 Mar-22 USA: Fed Funds Japan: Day-to-day Euro: Repo UK: Base rate Sweden: Repo Norway: Folio Switzerland: 3M Libor CHF month money market rates Country 5-Mar-18 Jun-18 Sep-18 Mar-19 Mar-2 Mar-21 Mar-22 USA Japan Euro U.K Sweden Norway Switzerland year swap rates Country 5-Mar-18 Jun-18 Sep-18 Mar-19 Mar-2 Mar-21 Mar-22 USA Japan Euro area U.K Sweden Norway Switzerland

7 Table 4 Calendar Importance GMT+1 Country Event Period Unit Last Cons. DNB Actual Monday 5 March China China's National People's Congress Begins 8:3 Sweden Swedbank Service PMI Feb Index : Sweden Riksbanken's Governor Ingves speaks at conference 9:55 Germany Markit Services PMI Feb Index : EMU Markit Services PMI Feb Index : EMU Markit Composite PMI Feb Index :3 EMU Sentix Investor Confidence Mar Index :3 UK Markit/CIPS Services PMI Feb Index : EMU Retail Sales Jan m/m % -1.r : Norway House Prices Feb m/m % :45 USA Markit Composite PMI Feb Index : USA ISM Non-Manufacturing Feb Index :15 USA Fed's Quarles speaks on Foreign Bank Regulation Tuesday 6 March 9: Sweden Riksbanken's Ingves and Ohlsson in Parliament Hearing 9:15 Switzerland Inflation (CPI) Feb y/y %.7 1: Norway Regional Network Survey Past 3M Feb Index : Norway Regional Network Survey Next 6M Feb Index USA Fed's Kaplan, Brainard and Dudley speak Wednesday 7 March 11: EMU GDP Final Q4 q/q % :15 USA ADP Employment Change Feb :3 USA Trade Balance Jan bn USD :3 USA Nonfarm Productivity Final Q4 q/q % :3 USA Unit Labor Costs Final Q4 q/q % : USA Fed's Beige Book USA Fed's Dudley speaks Thursday 8 March :5 Japan GDP Final Q4 q/q %.1.2 1:1 UK RICS House Price Balance Feb % 7.6 8: Norway Industrial Production Jan m/m % :45 Norway Statistics Norway Economic Outlook 13:45 EMU ECB Interest rate meeting (refi) Feb %... 13:45 EMU ECB QE announcement Feb 14:3 EMU ECB press conference Feb 14:3 USA Initial Jobless Claims SA w/e Friday 9 March Japan Bank of Japan Balance Rate Feb % Japan Bank of Japan 1-Yr Yield Target Feb %... Japan Bank of Japan press conference Feb 2:3 China Inflation (CPI) Feb y/y % : Germany Industrial Production Jan m/m % : Norway Inflation (CPI) Feb y/y % : Norway Inflation (CPI-ATE) Feb y/y % :3 Sweden Average House Prices Feb m SEK :3 UK Industrial Production Jan m/m % :3 USA Nonfarm Payrolls Feb :3 USA Unemployment Feb % :3 USA Average Hourly Earnings Feb m/m % :3 USA Labor Force Participation Feb % 62.7 USA Fed's Rosengren and Evans speaks

8 DNB Markets Macro Analysis Kjersti Haugland Chief Economist, Norway, euro zone / kjersti.haugland@dnb.no Jeanette Strøm Fjære Economist, Norway and Sweden / jeanette.strom.fjare@dnb.no Ole A. Kjennerud Economist, China and Japan / ole.kjennerud@dnb.no Knut A. Magnussen Senior Economist, USA and UK / knut.magnussen@dnb.no Magne Østnor FX Strategist / magne.ostnor@dnb.no Marit Øwre-Johnsen FX Analyst / marit.owre-johnsen@dnb.no Kyrre Aamdal Senior Economist, Norway, Sweden, Fixed Income / kyrre.aamdal@dnb.no

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