Markets: What is most important in the week ahead? – Nordea Markets

Analysts at Nordea Markets suggest that the week will kick-off with an important day for the Scandinavian markets as the results of the Swedish general election will be known late Sunday night.

Key Quotes

“In general, we think that the “risk premium” in the Swedish markets related to the election is overdone and see no reason why market participants should flee Sweden based on the results we get Sunday night.”

“Thursday is the big day to watch out for in terms of central banks as both the Bank of England and the ECB will meet. And while the short-term outlook may appear a bit boring, the ECB’s decision-making will turn extremely interesting longer out. The combination of gradually rising core inflation numbers and important nominations to the ECB Executive Board, including a new ECB President from November 2019, raises more questions about the future monetary policy than seen for a while. The September meeting is unlikely to raise a lot of headlines.”

“Currently the market is pricing in just under 1.5 rate hikes (of 25bp) over the next 24 months. As we expect European core inflation to pick up over the autumn (if not based on trends, then on base effects), a slightly firmer pricing could be on the cards leaving upside risks to Bund yields (as long as Italy behaves).”

“From the US, the CPI report on Thursday is the most important event. The positive impulses from former USD weakness and higher energy prices will start to lead headline inflation lower, while core inflation is expected to trend sideways. Core services are likely to increase gradually from around currently 3%, while core goods prices are likely to remain around 0%, leading to gradually rising core inflation. Given the slight European inflation disappointment, a pick-up in US core inflation could be a signal that the cyclical rebound in EUR/USD will be postponed a little further.”

“Also the Turkish central bank meeting on Thursday will be watched more closely than ever as the market is expecting a big hike of the one-week repo rate (the official policy rate). Will CBRT finally deliver? We remain sceptical that the CBRT will deliver a hike of the official policy rate. Instead, we believe the CBRT will hike either the O/N rate or the late liquidity window – a move that we do not believe will be enough to structurally support the TRY.”

“On Friday, the Russian central bank will meet. A meeting that could also prove interesting in the light of the latest EM turmoil. Will the bank have to hike to support the RUB?”