NOK: Outperforming G10 Basket On Commodity Strength; Sep CPI This Week
- NOK outperforms the G10 basket this morning, trading off strength in Brent crude and natural gas futures. EURNOK is down 0.78% at 11.6171, just off session lows of 11.6059.
- The cross has narrowed the gap to 11.6000, which has historically been an important pivot level going back to 2023. Better support meanwhile is seen at 11.5387, the September 15 low.
- Crude’s ~1.6% rise appears to be a relief rally following OPEC’s decision to increase November’s output by 137kb/d (in line with October’s rise), against risks of a larger move. Meanwhile, cooler October weather forecasts have supported TTF futures, according to our commodities team.
- This week’s Norwegian calendar is headlined by the September inflation report on Friday. Early consensus expects CPI-ATE steady at 3.1% Y/Y, a touch below Norges Bank’s 3.2% projection in the September MPR.
- Following Norges Bank’s hawkish September cut, the risk in the coming months is likely tilted towards more – not less – easing. However, this will require a faster pullback in underlying inflation and a larger degree of economic slack than is currently being observed.
- Danske Bank believe that “short-term monetary policy setting is not the key determinant for the attractiveness of being invested in NOK and SEK” at the current juncture. Instead, they think Scandi longs “look like a play on the direction of USD real rates and the Goldilocks-narrative [i.e. “Fed rate cuts on weaker but not recessionary labour market data”]”. They continue to favour a long EURNOK bias for now, but caution that "if risk continues to rally in the coming week we will contemplate closing down the position and wait for better entry levels".
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LOOK AHEAD: US Macro: PPI (Wed) and CPI (Thu) Inflation
US PPI inflation is released on Wednesday before CPI inflation on Thursday, an unusual ordering that should see core PCE implications dialled in after the CPI release rather than the usual wide range waiting for specific PPI details. PPI will be watched more closely than usual this month after a far stronger than expected jump in last month’s July report fired a warning short over tariff-based cost pressures starting to feed through. That included a 0.6% M/M increase in our preferred core series of PPI ex food, energy & trade services, which strips out items such as the then booming portfolio management & investment advice category following the strength in equity markets. It's too early to gauge an accurate sense of analyst expectations for August.
CPI inflation on Thursday will then be the last major release ahead of the Sep 17 FOMC decision. Consensus looks for core CPI at 0.3% M/M after the 0.32% M/M in July, another monthly increase comfortably above a pace consistent with 2% inflation. August should in theory start to see the largest tariff impacts along with September and possibly October. Returning to July’s report, core goods inflation was softer than expected, at a still solid (by core goods standards) 0.2% M/M for a second month running but about half that of 0.4% expected by analysts. Instead, non-housing core services surprised higher. The latter was a “dangerous” development in the words of a usually dovish Chicago Fed’s Goolsbee (’25 voter), who speaking after Friday’s payrolls report is still undecided on a September cut whilst looking for August inflation data “to get more information”.
LOOK AHEAD: US Macro: Payrolls Preliminary Benchmark Revisions (Tue)
- The BLS on Tuesday will publish preliminary estimates of benchmark revisions, based off QCEW data for Q1.
- These will give an indication of the actual benchmark revisions on the Mar 2025 level of payrolls due with the Jan 2026 payrolls report released in early February.
- Bear in mind that the final benchmark estimate tends to nearly always be more negative than the preliminary figure – see historical values to the right.
- That doesn’t mean they can’t be large again after last year’s historically negative revision that lowered the level of payrolls by ~600k. Initial estimates we’ve seen look for another large downward revision, with the smallest being worth -550k but with wide ranges higher.
FED: Barclays Adds A Cut To 2025 Fed View
Barclays analysts now expect three Fed cuts in the remainder of the year, adding October to their pre-existing call for 25bp reductions in September and December. "Given the disappointing August employment report, we expect the FOMC to see more elevated downside risks to the employment side of the mandate."
- As for a 50bp September cut, "we think that the FOMC will view [that] as sending too strong a signal that labor market conditions are deteriorating. Indeed, we think that participants such as Powell understand that the slower pace of payroll employment reflects at least, in part, slower labor supply, which does not translate into increased labor market slack."
- For 2026 they continue to expect 25bp cuts in March and June to 3.00-3.25%, but "we do not think the FOMC will be able to cut rates more than twice next year, as we think that activity will show some slight acceleration, with the economy adapting to the new tariff environment and fiscal policy providing some support, and the unemployment rate will revert down amid limited increase in labor supply."
