MIDEAST: Trump-Expect An Expansion Of Abraham Accords, Hopes To Include Saudi

As MNI noted earlier (see 'INDIA: EU "Strategic Agenda" Pushes for Closer Defense, Trade Ties With India, 12:05BST), the Commission has published its "new strategic agenda to raise bilateral relations with India to a higher level." Link to the joint communication can be found here, and a presser involving Trade and Economic Security Commissioner Maros Sefcovic and HR for Foreign Affairs and Security Policy Kaja Kallas here. 

• The joint communications states that "While the EU and India may not align on every issue, this partnership is underpinned by converging interests, complementary strengths, and shared political will, and can deliver real impact for people in both regions and beyond."
• Following his visit to India last week for the latest round of FTA talks, Sefcovic signalled his disappointment, saying that he had "hoped more progress would be made".
• Asked by reporters whether this is the right time to seek closer ties with India as it participates in Russian-led military exercises, Kallas says that the EU will take the opportunity to fill any vacuum to try to ensure close relations with New Delhi. Says the EU has 'no illusions' regarding the historic close relations between Russia and India.
• Kallas says the EU is "not taking it lightly" that India participated in the Zapad exercises. Zapad exercises run every four years and are seen to directly prepare Russian forces for outright attacks on EU/NATO countries, and as such, India's participation has raised significant concerns in European capitals. 

• In the FI space, Bund futures continue to trade below their latest highs. Recent gains have resulted in a break of resistance at 128.87, the Aug 28 high and a short-term bull trigger. The climb undermines a recent bearish theme and highlights a stronger reversal. Scope is seen for an extension towards 129.50, the Aug 5 high. Key support and the bear trigger has been defined at 127.61, the Sep 3 low. The latest pullback is - for now - considered corrective.
• A bull cycle in Gilt futures remains intact. A recent rally highlights a stronger corrective cycle and the contract is holding on to its gains. Note that the move higher is allowing an oversold trend condition to unwind. Price has breached initial firm resistance at 90.84, the Aug 28 and 29 high. A continuation higher would open 92.06, the Aug 14 high. On the downside, initial support lies at 90.65, the Sep 5 low.

At the start of the month, analyst and market expectations were fairly comfortably in favour of a 25bp Norges Bank cut tomorrow. However, domestic data released over the past two weeks have made the decision a much closer call. We currently lean against consensus in favour of a hold at 4.25%, but there remain good arguments for a cut. 

• MNI’s full Norges Bank preview is here
• The close call nature of the decision opens the door to a material knee-jerk market reaction under any rate scenario. The persistence of such a reaction will depend on the September MPR rate path.
• The rate path is expected to be revised higher, implying a more hawkish terminal rate landing zone, but estimates of the revision magnitude vary.
• EURNOK ATM implies vols are nonetheless at the highest level since June, meaning an ATM straddle expiring at tomorrow’s NY cut requires a ~55 pip swing in either direction to breakeven (Bloomberg Finance L.P data).
• EURNOK is currently up 0.3% today at ~11.6280, with equities and brent crude futures softening. A hawkish Norges Bank decision, which features a rate hold and material upward rate path revision would expose the Sep 15 low at 11.5387 on the downside. This support aligns closely with the 76.4% retracement of the June – August rally at 11.5416.
• On the other hand, a rate cut would place resistance at the 20-day EMA of 11.7003 into view.
• Recent sell side views on NOK (and EURNOK specifically) are mixed: A few weeks ago, Danske Bank initiated a EURNOK long trade with a soft target of 12.10, while Nordea this morning believe that “the bottom is close and that EURNOK will eventually turn upwards and will reach 11.75 by the end of the year”. On the other hand, JP Morgan’s “conviction in the bullish NOK view is increasing for reasons relating to monetary and fiscal policy themes, as well as growth and valuation dynamics”. They target EURNOK at 11.20 in Q4 and 10.70 in a year’s time.