HALISTER1: Probability of Norges Cut Underpriced; Receive NOK Rates: Danske

Probability of Norges Cut Underpriced; Receive NOK Rates: Danske

(Bloomberg) -- Main scenario for Norges Bank tomorrow is unchanged policy, although it will be a close call and investors are currently underpricing the probability of a rate cut; from a risk-reward perspective, this suggests being positioned for lower Nibor rates going forward, Danske Bank strategist Jostein Tvedt says in client note.
  • NOK 3-mo. Dec. 2016 FRA at 0.99% seems too high; Danske advises receiving this contract outright, or position for a steeper curve vs the NOK 3-mo. Dec. 2017 FRA
  • Majority of market observers, including Danske Bank, say that stronger data since last Norges Bank meeting in June makes further easing tomorrow less likely, meaning a rate cut would be a surprise
  • Elevated 3-mo. Nibor fixing means transmission mechanism from the target rate to the borrowing costs of households and industry has been weakened this year
    • This strongly suggests that further interest-rate cuts and/or liquidity measures may be warranted
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
1037Z NO (Norges Bank)

People
Jostein Tvedt (Danske Bank A/S)

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