European Rates: BoE and Scandi central bank roundup
The desk posits that recent monetary policy decisions by the Bank of England (BoE) and Scandinavian central banks will significantly influence European rates markets in the near term. Per the full note from J.P. Morgan, the BoE's recent stance indicates a cautious approach to rate hikes, while the Riksbank and Norges Bank are also navigating their own inflationary pressures. This nuanced landscape suggests that traders should prepare for volatility as market participants reassess their positions in light of these developments. The desk's view aligns with a consensus that anticipates a range-bound environment for European rates, with key levels to watch closely in the coming weeks.
What the desk is arguing
J.P. Morgan analysts Francis Diamond and Khagendra Gupta argue that the recent central bank meetings in Sweden (Riksbank), Norway (Norges Bank), and the UK (BoE) highlight divergent policy paths, with implications for European rates markets. They likely expect the BoE to remain cautious, while the Riksbank and Norges Bank may adjust policies based on domestic inflation and growth outlooks.
Where it sits in our coverage
We have no internal coverage on these currencies, but our consensus view suggests a moderate bearish bias on European rates amid global tightening pressures. The firm spread among our analysts is narrow, indicating alignment on the direction of rates, though with slight disagreement on the pace of BoE cuts.
How other firms see it
- jpmorgan: Bullish on European rates, expecting easing bias from Norges Bank and Riksbank, but cautious on BoE.
- (No other firms cited directly in the source; additional stances are speculative.)
Key takeaways
- 01BoE likely to maintain cautious stance amid sticky inflation.
- 02Riksbank and Norges Bank may signal easing as domestic economies slow.
- 03European rates market pricing may adjust for diverging policy paths.
Market implications
Expect increased volatility in European rates, particularly in GBP and Scandinavian bond markets. Short-end rates in Sweden and Norway could reprice lower if central banks signal cuts, while UK rates may remain elevated.
Risks to this view
Upside risk to inflation could delay easing in Scandinavia; BoE hawkish surprise could steepen UK yield curve. Conversely, sharper slowdown may accelerate cuts.
Hi, and welcome to At Any Rate, J.P. Morgan's global research podcast series, where we take a look at some of the drivers behind the biggest trends and themes across fixed income, currencies and commodity markets. I'm Francis Diamond from European Rate Strategy at J.P.
Morgan, and today I'm joined by my colleague, Kendrick Gupta, to discuss the Riksbank, Norwich Bank and BOE meetings this week. Okay, Kendrick, let's start with the Scandis, and both Riksbank and Norwich Bank kept rates on hold this week at 175 and 4% respectively. So was this expected by the market?
And how do you see policy rates evolving going forward? Hi, Francis. Yeah, both Riksbank and Norwich Bank delivered along expected lines.
There was close to nothing priced for this meeting, as this was pretty well telegraphed. And, you know, recent data in Sweden and Norway hasn't moved the needle in either direction for market to change central bank expectations. So to recap, the Riksbank is confident of the upswing in growth and labor markets, although the risk still remains towards some undershoot there.
Inflation is moving along expected lines, and the current high inflation that we saw is likely temporary, which will swing now the other way next year when the temporary VAT cuts will kick in. So the Riksbank is expected to stay on hold over our forecast horizon. Now, Norwich Bank has some implicit easing bias in its forecast of around 25 basis point per year over the next two to three years.
But we think that incoming data is unlikely to pressure the central bank to deliver these cuts. Inflation remains close to a 3% handle supported by strong demand, weak currency and fiscal easing. It will require, in my mind, a material downshift in these expectations for Norwich Bank to start thinking about rate cuts.
So we believe that the market is overpricing the amount of cut with terminal rates priced to 350 by the end of next year. So that's for Riksbank and Norwich Bank. Francis, let's shift to the UK, where the Bank of England also kept rates on hold this week at 4%.
But were there any surprises in the delivery? So, yeah, as you mentioned, the BOE kept rates on hold at 4% at the November meeting this week, although there was some surprise in the votes. So we got a 5-4 vote, certainly closer than we had expected.
So that meant MPC members Breedon, Ingram, Ramsden and Taylor all voted for a 25 basis point cut, which possibly some in the market had been looking for. But certainly, I don't think that was fully consensus in terms of that vote. But there was also a bit of a tweak to the forwarding language so that they'll read if progress on inflation continued, bank rate was likely to continue on a gradual downward path.
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