October 1, 2022

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All eyes are on the European interest rate decision – E24

Chief Strategist Eric Bruce and Chief Strategist Joachim Bernhardsen at Nordea have at least one interest rate decision.

Nordea chief strategist Eric Bruce thinks Thursday’s ECB interest rate meeting and Fed Chair Jerome Powell’s speech are worth catching up.
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Thursday is the most important day of the next week, according to Nordea strategists.

The European Central Bank (ESB) interest rate meeting is the most important event of the week. It’s priced in that it will increase by three-quarters of a percentage point, chief strategist Eric Bruce at Nordea tells E24 on Sunday afternoon.

In July, the European Central Bank surprised by raising interest rates by 0.5 percentage point, the first increase in 11 years. An increase of 0.75 percentage points is now expected.

– He’s very aggressive, says Bruce.

He notes that the European Central Bank has just begun to raise interest rates, with rising eurozone inflation as a backdrop. In the latest measurement, the price increase was 9.1 percent in August.

– What will be more interesting is how they assert that there is a high risk of deflation with high gas prices, versus the fact that there is high inflation. The signals we have received are that the fight against inflation is the number one priority. That was evident from the European Central Bank at last week’s Jackson Hole conference.

However, the market will be listening for signals about what might happen in the future, he explains.

Powell speaks

The second most important, according to Bruce, is also a central bank, this one in the United States. Federal Reserve Chairman Jerome Powell will be speaking on Thursday.

– They have now received the labor market report on Friday, so the big question is whether it gives a closer assessment of what that means for the economy in the United States. Whether it will be half a percent or three quarters at the next interest rate meeting.

Bruce explains that interest rates and central banks are the focus in all markets right now. The signals from here govern the stock market, the interest rate market and the currency market.

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On Friday, the monthly “Nonfarm Payroll” labor market report came from the US authorities.

It emerged here that 315,000 new jobs were created in the past month — slightly above market expectations of 298,000, according to Bloomberg.

– I think this report actually argued that you could be more careful with setting interest rates, because unemployment has also gone up quite a bit. There are more people in the market and the wage numbers are a bit weak. The suspense is whether Powell will say anything else on Thursday.

Chief Strategist Joachim Bernhardsen at Nordea.

The question is whether Powell will hint at a 0.75 percentage point rate hike, or whether they will stabilize by 0.5 percentage point, chief strategist Joachim Bernhardsen, also at Nordea, explains.

The latter may be a sign that we will continue to raise interest rates, but the situation is not so precarious.

What is interesting about Powell’s speech on Thursday is whether he gives hints in this direction.

Monday oil meeting

On Monday, the member countries of the OPEC+ oil cartel will meet via video conference to talk about production for the month of October.

OPEC countries are likely to choose to keep production levels unchanged when they meet on Monday, she wrote Reuterswhich has information from three different OPEC+ sources.

The price of crude oil fell to about $95 a barrel from $120 in June.

The signs were clear last week. Once the price dropped to around $90, Saudi Arabia raised it again. It is clear that the Organization of Petroleum Exporting Countries (OPEC), led by Saudi Arabia, will continue to make great efforts to keep prices high, says Bernhardsen.

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At the same time, the oil market is pursuing negotiations to put the nuclear deal with Iran back on its feet, which could open the way for more oil to enter the market in the long run.

Iran says it sent a response based on the US proposal to revive the agreement as of 2015, while the US State Department believes the response was “unfortunately not constructive”.