Norwegian hike approaching

All is set for an eventful week, with interest rate meetings in the UK and the ECB, US payrolls on F

(02.05.2011) All is set for an eventful week, with interest rate meetings in the UK and the ECB, US payrolls on Friday and several important Norwegian macro releases. Today's news about Bin Laden's death may impact markets today.

By Kjersti Haugland, Analyst at DNB Markets

The news about Osama Bin Laden's death has pulled US stock futures up and the oil price down in the morning hours today. In the FX markets there have been quite small changes since Friday morning, but the US dollar has recovered somewhat after the trade-weighted index reached its weakest level in three years.

US private consumption in March published on Friday displays a weakening tendency. Deducted of price growth, which is high due to energy prices, spending grew by 0.2% m/m in March, down from 0.5% in February. The effect of Obamas prolonged tax relief in 2011 seems to be muted by high petrol prices at the moment, hitting the purchasing power of US consumers. The core price deflator (excl. prices of food and energy goods) remains on a near record-low level (0.9% y/y).

The most important macro release today is manufacturing ISM, which is expected to decline somewhat, in line with the performance of previously released regional indices.
The highlight of the week is US payrolls on Friday.

At last week's post-FOMC press conference, Ben Bernanke clearly stated that it will be a while before the Fed starts the hiking process. On the other side of the Atlantic the tone has been quite different this spring. On Thursday both ECB and Bank of England will announce the outcome of their respective monetary policy meetings.

ECB became the first-mover among the large industrial countries in April, and will probably indicate another hike in June,
by using their key phrase "strong vigilance" in their press release. Friday's news that headline inflation (flash estimate) increased from 2.7% y/y in March to 2.8% in April will do nothing to calm the ECB's nerves.

For the UK it was for a while widely expected that the Brits would start hiking this Thursday. Inflation has been far above target for a long time, and the pro-hike team Sentence and Weale was joined by one of Bank of England's internal board members in February: Spencer Dale. Minutes and the latest inflation report shows that the central bank has become more worried that high headline inflation might lead to high inflation expectations, and hence lift the future outlook for inflation. However, lately there have been some disappointing macro releases from the UK economy. Consequently neither we nor the market expect the hike to come already on Thursday.

Ten days ahead of the May meeting most indicators points to Norges Bank starting to hike again this month, after one year's break. Friday's releases were no exception. Consumer confidence rose further in April. The demand for labour, as measured in vacancies, is rising. Gross unemployment registered at the labour offices keeps falling. Norwegian manufacturing leaders believe that production will increase going forward. Employment and orders are picking up and market prices are increasing. PMI has for a while overshot actual manufacturing production, and the slight decrease in April (from 57.4 to 55.6) is hence not alarming.

We expect today's house price release for April to show that growth remains high (1.0% m/m). Other important releases this week are retail sales and LFS unemployment on Wednesday, and qualitative results from a phone survey conducted by Norges Bank among the enterprises which comprises its Regional Network on Thursday.

Swedish retail sales have been disappointingly weak since November 2010, and the 0.8% m/m decline March was no exception. The households seem to be feeling the effects of the Riksbank hikes. Today's PMI release shows that Swedish manufacturers are still-going-strong. The increase from 58.6 in March to 59.8 in April was stronger than expected.