SCANDIS: Improved Global Risk Sentiment Lends Support To NOK and SEK
Scandi FX outperform the G10 basket this morning, with temporary US tariff reprieve for electronic imports lending support to broader risk sentiment. EURSEK and EURNOK are each ~0.8% lower at typing.
- Following the recent US tariff inspired market volatility, SEB highlight that "NOK trades at higher implied vols than peers across the smile, with downside protection
more priced". They go on to note that "risk reversals confirm this, showing a stronger call bias in EURNOK and USDNOK vs SEK pairs". - In EURSEK, last week’s low at 10.8812 provides initial support, while a close above 11.2000 will be required to signal an extension of the corrective bull cycle that began on April 4.
- Swedish money market participant 5-year ahead CPIF inflation expectations (released this morning) were steady at 2.3% in April, with PES unemployment data due on Wednesday. Main focus will be on tomorrow’s Spring budget bill (0700BST/0800CET), for which SEK11.5bln of expansionary measures have already been announced.
- EURNOK hovers just above the 12.0000 handle, which provides initial support before the prior breakout level of 11.8371 (March 5 high). Last Friday’s high of 12.2223 provides initial resistance.
- Light Norwegian calendar this week, with domestic markets closed from Wednesday afternoon for Easter.
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FED: March Economic Projections: Higher Inflation, Weaker Growth, Same Rates
The MNI Markets Team’s expectations for the updated Economic Projections in the March SEP are below.
- The unemployment rate is likely to rise slightly for 2025 alongside a downgrade in GDP growth, while the 2025 core and headline PCE inflation projections are set to rise again. Changes to later years will likely be limited, however.
- More detail on the shift in Fed funds rate medians is in our meeting preview - we will add more color next week.
FED: Market Pricing Nearly 3 2025 Cuts As Conditions Tighten
Amid rising government policy uncertainty, sentiment among businesses and consumers has fallen sharply since the start of the year, while equities and the dollar have reversed their post-election rise. Overall, financial conditions have tightened, even if stress is not yet mounting, e.g. no major widening of credit spreads (the accompanying chart shows the Fed’s financial conditions impulse index but only through January).
- Combined with growth fears, this has affected expectations for the Fed’s rate path, with around 18bp more cuts expected in 2025 compared with what was seen after the January FOMC. 65bp of cuts are priced for the year as a whole. 2025 cut pricing reached 71bp before the February inflation data and 76bp before the February payrolls report.
- A rate cut is seen with near zero probability for March’s meeting, but the first full cut is just about priced for June, with a second nearly priced by September.
- Chair Powell has no reason to endorse or refute these expectations – he’s likely to be happy with a press conference that ends with little discernable change in pricing.
CANADA'S CARNEY ANNOUNCES ELIMINATION OF THE CONSUMER CARBON TAX
- CANADA'S CARNEY ANNOUNCES ELIMINATION OF THE CONSUMER CARBON TAX
