Most important events in the week ahead – Nordea

Analysts at Nordea Markets say that, while most “vanilla headlines” will center around the expected Fed cut next week (Wednesday), they will be particularly keen to look for clues from the Fed on USD liquidity.

• “We expect a 25bp cut and a signal of another cut to come before year-end in the updated dot plot. This is likely not enough to prompt a dovish market reaction, as this is fully priced in already. The dovish ECB takeaway has not limited the pressure on the Fed (despite a new surge in US core inflation). Trump wants to be paid to borrow, and he is not there yet.
• On the island of Norway, we expect a rate hike next week. We remain very firm in that conviction. Norges Bank’s rate path model is domestically driven in the front, and more globally driven in the back. Domestically, things are still more than decent, and the weak NOK pulls up the path (1% weaker NOK = +10 bps). So, the path will likely be revised a tad up for the rest of 2019, while the long end will be taken lower due to the negative global rates pressure.
• In Sweden, the governments autumn budget is due out on Wednesday 18 Sept. There is lot of talk around the world that fiscal policy will have to step in and do more of the job. Although the government sees room for reforms of SEK 25bn, and we expect a budget deficit of -0.5% of GDP for 2020, Sweden it’s not there yet. Fiscal prudence remains the focal point. The economy will most likely to have to deteriorate more markedly for fiscal policy to play a more important role.
• In general, the open-ended ECB QE program opens the door for more cuts globally, with Turkey being the absolute frontrunner after another big Erdoganish cut this week. The race towards the bottom is not over yet.
• That is why the Bank of Japan should be watched closely on Thursday morning as well. Kuroda has recently hinted that the Bank of Japan could be interested in going deeper into negative, if it helped re-steepen the JPY curve. The Bank of England will likely remain 100% paralyzed by the lack of Brexit clarity on Thursday as well.”