Ifølge Nordea har centralbankerne forøget deres meddelelser til markedet, der er begyndt at lytte. De kraftige rentestigninger den seneste måneder er ikke et overstået fænomen. Rentestigninger vil fortsætte. Det centrale er, at centralbankerne sender en klar melding, at de er parate til at ofre den økonomiske vækst for at få bugt med prisstigningerne. Nordea venter, at ECB vil hæve renten med 75 basispunkter i denne uge.
Macro & Markets: Getting the message across
Central banks have intensified their message and markets are starting to listen, sending rates sharply higher the last month. We believe the reprising is not done yet.
In order to rein in inflation, central banks are telling us (once again) that they are willing to sacrifice positive GDP growth and low levels of unemployment. It has taken some time for markets to listen, but now it looks as if they have started to get the message. After a very clear address at Jackson Hole by the FED and the ECB, market rates have moved some 20bp higher and the short-end pricing is at cycle highs. We believe there is more work to be done and expect a continued stream of hawkish messages from central banks as it will probably take some time before we see the labour markets weak enough to warrant a slowdown in wages and hence inflation. We now see the ECB delivering a 75bp hike this week and the bank is most likely to hike at a similar speed in October. In the US, risks are also clearly tilted towards the FED delivering its third 75bp hike in a row later this month.
While the bulk of the attention at last week’s central bank symposium in Jackson Hole was clearly focused on Fed Chairman Jerome Powell’s speech, the biggest surprise came from the ECB’s Isabel Schnabel. With her speech labelled Monetary Policy and the Great Volatility, she pointed out that we could be at the end of a long period of macroeconomic stability and low inflation. The future could be very different with much higher volatility both in political and economic terms. This new instability could very likely lead to much higher risk of supply shortages, both for goods and labour, resulting in higher inflation. With the ECB’s mandate being what is it, the central bank needs to counter this threat with a higher level of interest rates.
Powell’s speech, while not containing any surprises, did not disappoint either. The chairman delivered a very condensed and to-the-point message highlighting three important learnings for central banks from the 70s and 80s. First, central banks should take the responsibility to control inflation. This the FED has clearly done, by starting almost every address by apologising to the American people for the high inflation and underlining that it will do everything it can to force it back down again. Second, it is important to get public expectations about future inflation under control. Ideally, inflation is not something households or businesses should need to worry about when making financial decision. This has clearly not been the case lately, and indeed we see high inflation today impacting people’s choices and wage demands. The third lesson is that the FED needs to keep at it until the job is done. A thinly veiled message to markets to stop dreaming about easier monetary policy already at the beginning of next year.
US markets are still pricing in an easing of monetary policy in 2023, but instead of three 25bp rate cuts, they are now leaning more towards just one. European short-end rates are close to moving past the 2011 highs, with markets now pricing in more than 230bp of hikes until May. One month ago, expectations stood at 100bp. While we are starting to agree with market pricing in the short end, we still see upside risks out on the curve. As short-end rates actually move higher, real money investors will be hard pressed to invest out on the curve at lower yields. For investors that need to fund their trades, it does not make sense to invest in an inverted curve unless you expect rate cuts very soon. Central banks are telling us that will not happen, and we tend to agree.
In terms of data, we got another indication that the cooling of the US labour market is still some time away with the number of vacant jobs climbing in August and the employment components of the ISM survey climbing. With more than two jobs per unemployed, it is hard to see wage growth slowing. We also got another batch of weaker housing data, not surprisingly so. We expect higher rates to lead to a further cooling of this sector. Consumer confidence, on the other hand, improved. Also not surprising to us with the decline in gas pump prices we have seen since mid-July. Next week is light on US data, but we will certainly look for signs of trouble outside of housing in the Beige Book, which is out on Wednesday.
In Europe, we got yet another higher-than-expected CPI print last week with headline inflation now at 9.1% y/y. Attention next week will clearly be on the ECB meeting. Read more about our expectations here.
Outside of the main economies, we got a surprising increase of the daily NOK sales from Norges Bank to 3.5bn/day starting already this week. Higher-than-expected oil taxes this autumn mean a larger budget surplus and larger transfers to the oil fund. With Norges Bank having more than doubled its selling, the net flows with oil and gas companies buying are clearly less positive for the NOK, for example spot. There is certainly a risk of a weaker currency towards year-end, normally not the best period for the NOK. Read more about it here.
We would also like to remind you that we will publish our Economic Outlook next Wednesday. Follow this link to listen in to the webinar.
