NORGES BANK: Analyst Views Post Feb Inflation: Nordea and DNB Expect March Pause
Mar-10 12:27
See below for a selection of analyst views following the stronger-than-expected February inflation report. Nordea and DNB no longer expect a March cut, while JP Morgan now expect policy rates to end 2025 at 3.50% (versus 3.00% prior).
- Danske Bank: “If the regional network shows that capacity utilisation has not increased and the wage settlement ends closer to 4% than 4.5%, we believe Norges Bank will cut rates in March despite the CPI figures”.
- DNB: “Combined with high growth in domestic costs and a pickup in actual core inflation, there is now a clear upside risk to Norges Bank’s stable inflation outlook”…“We expect Norges Bank to postpone the first rate cut to September this year.
- Handelsbanken: “We should be cautious about completely questioning Norges Bank’s planned rate cut in March. However, there is little doubt today that the interest rate path will be revised upward. Interest rate expectations among our (European) trading partners have risen significantly since December – with last week acting as a game changer – and in addition, Norges Bank has clearly underestimated price pressures”.
- HSBC: “The bar is high for the Norges Bank to backtrack on its guidance around a March rate cut, but the tone of the decision would likely be more hawkish than before and we do not rule out the possibility that the central bank could guide for an even shallower rate-cutting path”.
- JP Morgan: “For now, we stick to a cut given Norges Bank’s firm guidance, but we revise up our terminal rate forecast from 3% to 3.5%. We expect a pause after March”…“We look for a pause after the March cut before the easing cycle re-starts in December this year at a quarterly pace”.
- Nordea: “Inflation for February was way higher than Norges Bank had anticipated. Core inflation came in at 3.4% while Norges Bank had 2.7%. Together with lower unemployment than anticipated this means that the March cut is off”.
- SEB: “This was a clear setback for Norges Bank and limits the room for rate cuts, but we stick to our call for a 25bps cut on Mar 27th. That said, we expect a “hawkish cut” i.e., combined with a higher rate path and wording emphasizing the uncertainty surrounding the outlook”.
- Swedbank: “We stick to seeing them cutting the policy rate - as the trend for inflation is not materially challenged. On the other hand, we expect them to deliver a new rate path only signalling one more rate cut this year, during second half of the year - barring no large surprises in the Regional Network report out next week”.
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AUSSIE 10-YEAR TECHS: (H5) Resistance Remains Intact
Feb-07 23:15
- RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 95.665/851 - High Feb 5 / High Dec 11
- PRICE: 95.575 @ 16:37 GMT Feb 7
- SUP 1: 95.275 - Low Nov 14 (cont) and a key support
- SUP 2: 94.477 - 1.000 proj of the Dec 11 - 23 - 31 price swing
- SUP 3: 94.495 - 1.0% 10-dma envelope
The Aussie 10-yr futures contract continues to trade below the Dec 11 high of 95.851. A stronger bearish theme would expose 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish theme. For bulls, a confirmed reversal and a breach of 95.851, the Dec 11 high, would instead reinstate a bull cycle and refocus attention on resistance at 96.207, a Fibonacci retracement point.
FED: Gov Kugler: "Prudent" To Hold Rates "For Some Time"
Feb-07 21:40
Gov Kugler (permanent voter, leans dovish) said Friday that rates were likely to be held for "some time" - making her the latest FOMC participant to express little impetus for a cut in the near-term.
- "The cautious and the prudent step is to hold the federal funds rate where it is for some time, given that combination of factors, given that the economy is solid, given the fact that we haven't achieved our 2% target, and given the fact that we may have uncertainties and other factors that may be pushing up inflation or maybe reducing output and growth into the future."
- "We reduced our policy rate 100 basis points through December, but the recent progress on inflation has been slow and uneven, and inflation remains elevated. There is also considerable uncertainty about the economic effects of proposals of new policies." She noted in a Q&A that inflation has recently "firmed a little bit."
- She noted that the January jobs report is "consistent with a healthy labor market that is neither weakening nor showing signs of overheating,"
FED: Federal Reserve "Earnings" Briefly Go Positive, But Hole Is Still Large
Feb-07 21:35
The Federal Reserve posted positive net earnings in the week to Feb 5, the first time it has done so since September 2022. The $0.4B uptick compares with an average of negative $1.3B over the preceding 6 months.
- Technically, this was a less negative "deferred asset". When the Fed "earns" money on its asset holdings after netting out expenses, it remits this money to the Treasury. With the Fed posting negative earnings for the past 2+ years, it is falling in to deeper and deeper cumulative negative earnings, a "deferred asset" which means that until the figure goes back into a positive balance, no remittances are made to Treasury.
- The "deferred asset" is currently $220.8B.
- The variability of earnings is due to the relationship between rates paid on Fed liabilities versus those paid on its assets.
- The post-GFC rise in the balance sheet saw ZIRP policy and a large set of Treasury and MBS holdings, meaning Fed remittances to the Treasury rose from 0.2% of GDP and 1.3% of government receipts in 2007 to 0.6% and 3.4%, respectively, in 2015, per St Louis Fed calculations. The 2015-18 tightening cycle saw a pullback in remittances, with about $900B remitted to the Treasury over the course of the 2011-20 period.
- The pandemic balance sheet expansion and return to ZIRP saw remittances pick up strongly again, but they have since pulled back. The 52-week average of weekly remittances has shifted, from showing about $10B in monthly "losses" in late 2023/early 2024, to around $6B on a monthly basis now.
- This reflects first the inversion of the yield curve amid the Fed's tightening cycle, and the slow normalizing of the curve since then.
- Unless the Fed easing goes much further, the Fed is unlikely to transmit cash to Treasury for some time.
