Norges Bank (NB) is set to deliver a 25bp rate cut on Thursday. However, we expect NB to turn to a neutral bias by presenting a new rate path at which the policy rate will be kept on hold until next year.
A neutral bias would be much more hawkish than what markets expect.
The primary risk to our projection is NB still signalling an easing bias due o a less 'straightforward' view on the oil investment survey or, more tactically, to avoid a stronger NOK.
In our view there is a tiny risk that NB could leave the rate unchanged, as the stabilisation in oil investments has reduced the tail risk.
Fixed Income Strategy. Buy NOK FRA DEC15 3M outright or relative to the euro equivalent.
FX Strategy. We recommend leveraged funds to sell EUR/NOK or alternatively buy long-dated NOK/SEK risk reversal. Real money funds should decrease NOK hedge ratios. Corporates should hedge NOK income via options and expenses via forwards.
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