EURNOK: Sell-side Analysts Expect A Reversal To The Upside In Coming Months
May-26 09:31
EURNOK has fallen over 6% from the April 11 multi-year highs at 12.2223, and a lower close today (currently -0.15%) would be the seventh consecutive losing session. However, some sell-side names think recent krone strength has run its course, and look for EURNOK to reverse higher in the coming months:
- Danske Bank: “We recommend buying EUR/NOK spot @ 11.4820 as a tactical trade with a strategic potential. We set a soft target of 11.8500 and a hard stop-loss of 11.2500”.
- “The gap to our short-term financial model has now been closed, which in isolation suggests that there is no longer a short-term gravitational force pulling the NOK in a stronger direction when evaluated against moves in commodity prices, interest rates and equity sectors/regions”
- “We think a lot of positivism has been priced into markets, which leaves NOK FX vulnerable to setbacks – even more so with technical indicators reaching borderline stretched oversold territory”
- “As we see the balance of risk skewed towards tighter NOK rates spreads, we also expect diminishing support to the NOK from relative rates”.
- Nordea: “We now believe that the downside to EURNOK is somewhat more limited, and we see EURNOK at 11.75 by summer”
- “We expect higher interest rates and lower values of US government bonds. Norwegian life and pension companies have currency-hedged most of their government bond holdings, which involves selling the NOK when bond values fall to maintain their hedging ratios”.
- “Distrust towards the US will lead to more investors moving their savings from the US to other countries…Along with a broad focus on defence across Europe, it could attract much international capital and support the EUR in the coming years…Ramped-up defence spending may also trigger larger capital flows to Sweden, which has a broader defence industry, than to Norway”.
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US TSYS: Extraordinary Measures And Cash Look Sufficient To Head Off X-Date
Apr-25 20:32
Treasury has about $164B in "extraordinary measures" available as of April 23 to avoid hitting the debt limit, per its regular report out Friday. That's out of a maximum total of $375B (they have used $211B).
- With Treasury cash looking healthy (around $600B), that's a fair amount of dry powder to get through the summer months to wait out the debt limit impasse. Tax receipts have looked strong with tariff revenues also starting to boost cash flows, further reducing the near-term urgency to adjust bond issuance.
- This has also helped push back analyst “x-date” expectations to later in the summer/September. We expect to hear from Treasury about its own x-date assumptions next week.
US TSYS: Treasury Market Trading Stayed Orderly In April: Fed Report
Apr-25 20:25
Liquidity across financial markets including the Treasury market deteriorated after President Trump's April 2 reciprocal tariffs announcement but market functioning was generally orderly, according to the Federal Reserve's semiannual report on financial stability, released Friday. (PDF link is here)
- Treasury market liquidity has been poor for years and yields were particularly volatile in early April, contributing to a deterioration in market liquidity, the Fed said.
- Nevertheless "trading remained orderly, and markets continued to function without serious disruption," according to the report, which looked at information available as of April 11.
FED: Ex-Gov Warsh: Fed Has Failed To Satisfy Price Stability Remit
Apr-25 20:22
From our Washington Policy Team - Some fairly sharp words today from ex-Fed Governor Warsh on the central bank (who for what it's worth is seen by betting markets as by far the frontrunner for the next Fed Chair):
- The best way for the Federal Reserve to safeguard its independence is for policymakers to avoid expanding the institution's role over time, including wading into policy areas that are outside its core mission, former Fed Governor Kevin Warsh, a leading contender to replace Jerome Powell as chair next year, said Friday.
- "I strongly believe in the operational independence of monetary policy as a wise political economy decision. And I believe that Fed independence is chiefly up to the Fed," Warsh said in a speech at a Group of Thirty event on the sidelines of the IMF meetings. "Institutional drift has coincided with the Fed’s failure to satisfy an essential part of its statutory remit, price stability. It has also contributed to an explosion of federal spending." His speech made no mention of Trump's tariffs or the appropriate monetary policy to deal with them.
- He said the ideas of data dependence and forward guidance widely adopted by Fed officials are not especially useful and might even be counterproductive.
"We should care little about two numbers to the right of the decimal point in the latest government release. Breathlessly awaiting trailing data from stale national accounts -- subject to significant, subsequent revision -- is evidence of false precision and analytic complacency," he said.
"Near-term forecasting is another distracting Fed preoccupation. Economists are not immune to the frailties of human nature. Once policymakers reveal their economic forecast, they can become prisoners of their own words. Fed leaders would be well-served to skip opportunities to share their latest musings."
