Chief Economist, Heteronomics

Phil Rush

Chief Economist

Heteronomics

Heteronomics represents a different kind of economics. We believe analysis should delve into the details of what is really going on, rather than using overly simplistic assumptions to quick-sell stories. Independence from myopic institutional pressures allows us to focus on the realities underlying your asset allocation decisions, without the conflicts of the old market structures. Heteronomics targets the themes driving UK asset prices, offering the benefits of depth, independence and ultimately price.

UK-centric macro research

Macroeconomics

The Norges Bank is even more hawkish than in March and now signals a September rate hike. Its main assumptions on the pandemic are unchanged, but the pick-up in wages has fed a high capacity utilisation view, driving the hawkish policy surprise.Our relatively gloomy global view for next winter falls after this guided date, so we do not expect the policy rate take-off to be delayed. The realisation of downside risks is likely to weigh on the subsequent hiking trajectory, though.

The Norges Bank is even more hawkish than in March and now signals a September rate hike. Its main assumptions on the pandemic are unchanged, but the pick-up in wages has fed a high capacity utilisation view, driving the hawkish policy surprise.Our relatively gloomy global view for next winter falls after this guided date, so we do not expect the policy rate take-off to be delayed. The realisation of downside risks is likely to weigh on the subsequent hiking trajectory, though.

<ul><li>Norway's CPI inflation was 3.0% y-o-y in April, down from 3.1% in February and in line with both us and the consensus. Inflation will fall further, but the Norges Bank is set to be one of the first central banks to tighten.</li></ul>

Norway's CPI inflation was 3.0% y-o-y in April, down from 3.1% in February and in line with both us and the consensus. Inflation will fall further, but the Norges Bank is set to be one of the first central banks to tighten.

<ul>
<li>The Norges Bank kept the policy rate unchanged at zero percent and reiterated their view that its policy rate would probably rise in the latter half of 2021. </li>
<li>We think it is too early to call an end to the pandemic and are less sanguine on the global outlook. The risks skew to a later hike, albeit with the Norges Bank a first mover.</li>
</ul>


The Norges Bank kept the policy rate unchanged at zero percent and reiterated their view that its policy rate would probably rise in the latter half of 2021. 
We think it is too early to call an end to the pandemic and are less sanguine on the global outlook. The risks skew to a later hike, albeit with the Norges Bank a first mover.


Founder

Olivier Desbarres

Exacting. Excellent. Exceeding. Exemplary.

4X Global Research

4X Global Research was founded in 2017 to provide institutional and corporate clients with the substantive research, high-quality analysis and thoughtful insight on Emerging and G20 economies and financial markets they need to make informed and timely decisions and gain an edge in their investments.

FX & Rates

The Fed updated “dot-chart” of all FOMC members’ expectations of the appropriate policy rate points to only an incrementally less dovish stance. Based on a weighted average FOMC members still only expect one 25bp hike by end-2023, according to our estimates.Fed seems eager to cool market concerns that it will have no choice but to start hiking rates and to ultimately cap Treasury yields or at least slow recent increase in long-end yields. Price action in 2 and 5-year Treasuries suggests it partly succeeded, even if briefly.However, this still very dovish Fed policy rate outlook jars with its updated forecasts for US inflation and particularly GDP growth. The Fed’s twin arguments are that rapid growth this year will not be very inflationary due to slack in labour market and that following a period of inflation-undershoot it’s willing to accept a modest overshoot in PCE-inflation above 2%. The latter will have come as little surprise. The more contentious issue in our view is the Fed’s prognosis that core PCE-inflation will rise only modestly from 1.5% yoy in January to 2.2% yoy by end-year despite US GDP growth hitting a 37-year high of 6.5% this year.The Treasury yield curves have steepened further in the past 72 hours. This suggests that bond markets are not convinced about the Fed’s macro/policy matrix or that the Fed’s pick-up in Treasury purchases in the past couple of months will prove sufficient.Moreover, the 6.9% collapse in crude oil price yesterday and correction in US equities (particularly the more risk-sensitive Nasdaq) are clear pointers that markets remain concerned about the impact of higher US yields on global demand and equity valuations.FX markets have been more sanguine. Global FX volatility has risen in past 72 hours but remains in line with 10-year average and most currencies, particularly in Asia, have moved little. The safe-haven Dollar has proven relatively resilient, in line with our February view. While the Russian Rouble has (perhaps unsurprisingly) weakened most, most other high-yielding emerging market currencies have outperformed, thanks in large part to greater-than-expected central bank rate hikes in Brazil and Turkey of respectively 75bp and 200bp.  The risk now is that markets redouble their attention on central banks perceived as being “behind the curve”. These include the Norges Bank and CE3 central banks in our view.

The Fed updated “dot-chart” of all FOMC members’ expectations of the appropriate policy rate points to only an incrementally less dovish stance. Based on a weighted average FOMC members still only expect one 25bp hike by end-2023, according to our estimates.Fed seems eager to cool market concerns that it will have no choice but to start hiking rates and to ultimately cap Treasury yields or at least slow recent increase in long-end yields. Price action in 2 and 5-year Treasuries suggests it partly succeeded, even if briefly.However, this still very dovish Fed policy rate outlook jars with its updated forecasts for US inflation and particularly GDP growth. The Fed’s twin arguments are that rapid growth this year will not be very inflationary due to slack in labour market and that following a period of inflation-undershoot it’s willing to accept a modest overshoot in PCE-inflation above 2%. The latter will have come as little surprise. The more contentious issue in our view is the Fed’s prognosis that core PCE-inflation will rise only modestly from 1.5% yoy in January to 2.2% yoy by end-year despite US GDP growth hitting a 37-year high of 6.5% this year.The Treasury yield curves have steepened further in the past 72 hours. This suggests that bond markets are not convinced about the Fed’s macro/policy matrix or that the Fed’s pick-up in Treasury purchases in the past couple of months will prove sufficient.Moreover, the 6.9% collapse in crude oil price yesterday and correction in US equities (particularly the more risk-sensitive Nasdaq) are clear pointers that markets remain concerned about the impact of higher US yields on global demand and equity valuations.FX markets have been more sanguine. Global FX volatility has risen in past 72 hours but remains in line with 10-year average and most currencies, particularly in Asia, have moved little. The safe-haven Dollar has proven relatively resilient, in line with our February view. While the Russian Rouble has (perhaps unsurprisingly) weakened most, most other high-yielding emerging market currencies have outperformed, thanks in large part to greater-than-expected central bank rate hikes in Brazil and Turkey of respectively 75bp and 200bp.  The risk now is that markets redouble their attention on central banks perceived as being “behind the curve”. These include the Norges Bank and CE3 central banks in our view.

EM Currencies: Central Bank Friends and Foes

In the past nine weeks major currencies and global equity markets have traded broadly in line with our expectations. The US Dollar has traded in a very narrow range, confounding consistently bearish market expectations. Similarly, most emerging Asian currencies have barely moved, pointing to the ability and willingness of Asian central bank to intervene in FX markets in a bid to manage both the volatility and directionality of their currencies. Conversely, emerging currencies, particularly in Latin America, have been prone to sharp pull-backs.Stretched currency valuations and still very weak global economic growth in January – which tallies with our forecast – has likely been a driver of currencies’ performance. In the past five weeks the inverse correlation between the Dollar and S&amp;P 500 and between the Dollar and the steepness of the US Treasury yield curve has broken down.Our take is that the broad-based diversification out of Dollars, driven by buoyant global risk appetite and market concerns about the Dollar’s real carry, has stalled and slightly reversed. We suspect that central banks and sovereign wealth funds may have re-focussed on domestic factors, which has in turn led to a rotation between other reserve currencies. This includes a rotation out of Euros and move into Sterling and a rotation out of the safe haven Swiss Franc and in particular Japanese Yen into commodity reserve currencies – namely the Canadian and Australian Dollars and Norwegian Krone – and New Zealand Dollar. These four currencies’ NEERs are now near the top end of their three-month ranges. In each case specific drivers have been in play, “in our view. Our analysis suggests that the Norwegian Krone may still be “cheap” relative to the current price of Brent crude oil.Figure 8 suggests that a rotation in and out of other (EM) currencies which were 1-2 months ago trading at the extremes of their ranges may have also taken place.The Dollar NEER has weakened about 0.9% since 4th February and its inverse correlation with the S&amp;P 500 (+1.2%) has re-established itself. We think this is a short-term correction, with another prolonged Dollar downtrend still a couple of months away.

In the past nine weeks major currencies and global equity markets have traded broadly in line with our expectations. The US Dollar has traded in a very narrow range, confounding consistently bearish market expectations. Similarly, most emerging Asian currencies have barely moved, pointing to the ability and willingness of Asian central bank to intervene in FX markets in a bid to manage both the volatility and directionality of their currencies. Conversely, emerging currencies, particularly in Latin America, have been prone to sharp pull-backs.Stretched currency valuations and still very weak global economic growth in January – which tallies with our forecast – has likely been a driver of currencies’ performance. In the past five weeks the inverse correlation between the Dollar and S&amp;P 500 and between the Dollar and the steepness of the US Treasury yield curve has broken down.Our take is that the broad-based diversification out of Dollars, driven by buoyant global risk appetite and market concerns about the Dollar’s real carry, has stalled and slightly reversed. We suspect that central banks and sovereign wealth funds may have re-focussed on domestic factors, which has in turn led to a rotation between other reserve currencies. This includes a rotation out of Euros and move into Sterling and a rotation out of the safe haven Swiss Franc and in particular Japanese Yen into commodity reserve currencies – namely the Canadian and Australian Dollars and Norwegian Krone – and New Zealand Dollar. These four currencies’ NEERs are now near the top end of their three-month ranges. In each case specific drivers have been in play, “in our view. Our analysis suggests that the Norwegian Krone may still be “cheap” relative to the current price of Brent crude oil.Figure 8 suggests that a rotation in and out of other (EM) currencies which were 1-2 months ago trading at the extremes of their ranges may have also taken place.The Dollar NEER has weakened about 0.9% since 4th February and its inverse correlation with the S&amp;P 500 (+1.2%) has re-established itself. We think this is a short-term correction, with another prolonged Dollar downtrend still a couple of months away.

Dollar’s Recent Weakness – Blip, Not New Trend

Norway

The Norwegian krone is the official currency of the Kingdom of Norway.  The US dollar is the official currency of the United States of America.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

NOK (USDNOK CURNCY)

Norway: Runway for September Lift-Off

The Norges Bank signals a Sep-21 rate hike on its high capacity utilisation view. Our relatively gloomy global view focuses later, so we do not...

Phil Rush

Norway: CPI Turns South

CPI inflation was 3.0% y-o-y in April, down from 3.1% in February and in line with both us and the consensus. The Norges Bank will be one of the...

Phil Rush

Norway: NB Reaffirms H2 Hike Intention

The Norges Bank kept the policy rate unchanged at 0% and reiterated its view of an H2 rate hike. We see the risks skewed to a later hike, albeit...

Phil Rush

EM Currencies: Central Bank Friends and Foes

Fed's updated "dot chart" + forecasts and asset purchases have not convinced bond, equity or crude oil markets. FX reaction more sanguine but...

Olivier Desbarres

Dollar’s Recent Weakness – Blip, Not New Trend

In past 2 months range-bound USD and Asian currencies, pull-back prone EM currencies and buoyant equities have performed in line with our forecast....

Olivier Desbarres

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)