Swiss National Bank meet today - preview #2 (and one for Norges Bank also)

Author: Eamonn Sheridan | Category: News

I posted a preview up a little earlier that you can find here:

This now, via HSBC:

The nominal effective exchange rate of the franc has weakened by a bit less than 2% since the last SNB monetary policy meeting on 14 September, when the franc was described as 'highly valued' rather than 'significantly overvalued'.
  • This development should be welcomed by the Bank but it should not be enough to prompt another change in the language on the franc.
Besides, economic data released since the September meeting have been mixed and should lead the Bank to keep a cautious tone.
  • On one hand, GDP growth accelerated from 0.4% q-o-q in Q2 to 0.6% in Q3, suggesting that hard data are finally starting to catch up with the strength in the business surveys seen since the start of the year.
  • On the other hand, inflation continued to disappoint in spite of the weaker franc. Swiss CPI picked up to 0.8% y-o-y in November thanks to higher prices on imported products but inflation on domestic goods was only at 0.3% y-o-y.
All in all, we expect the SNB to keep its policy rates on hold (3-month Libor target at - 1.25%/-0.25% and sight deposit rate at -0.75%) and to continue to stress the importance of negative rates and FX interventions to curb the currency's strength.

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While I'm here, the Norges Bank also meet today .... again via HSBC:

via Nordea:

In line with the consensus view, we expect unchanged rates at the coming MPC meeting.

  • We expect the new rate path to be lifted and indicate a first rate hike in early 2019.

Norges Bank will publish its rate decision and a new rate path on 14 December.

  • All economists asked by Reuters believe in unchanged rates at 0.5%.
  • Unchanged is also priced into the market and in line with the rate path from September.

In September Norges Bank lifted the rate path and indicated a first hike in June 2019 compared to late 2019 in the June report.

  • We expect a similar upward revision now and a first hike in early 2019.
  • News since September could argue for a hike already in 2018, but we believe Norges Bank has a preference for a more gradual change in its rate forecast.
  • Most news since September argues for both higher inflation and higher capacity utilization and hence rates.

NOK is currently 4% weaker than expected.

  • Norges Bank usually starts its NOK forecast close to the current level and then it gradually changes according to its model.
  • With the recent very sharp and difficult-to-understand weakening of NOK, we believe Norges Bank will judge some of the latest weakness as temporary and start 2018 at a stronger level than the current one.
  • Still weaker NOK than in the September report will give a significant lift to the rate path.

Registered unemployment, Norges Bank's favourite indicator for the current development in the output gap, is now at levels Norges Bank forecasted to be reached in late 2019.

  • Registered unemployment is currently slightly below levels seen as consistent with a closed out put gap.
  • LFS unemployment, which is given much less weight, is also on the downside to Norges Bank's forecast. Add to this that employment is currently growing faster than expected, and there is no doubt that the labour market is tighter than expected.

We believe Norges Bank will publish a rate path consistent with a first hike in January 2019 and then another one late in 2019.

  • There is no consensus forecast for the rate path, but our impression is that most analysts look for an upward revision of the path.
  • Looking at current market pricing, our expectations should lead to a small increase in in the short end of the curve.
  • The first hike in the fra-strip is discounted in the spring of 2019.
  • It should also mean somewhat stronger NOK, but we think the market still is reluctant to take on new long positions in the NOK before year-end.