Fed chairman Bernanke may effectively already be a lame duck as he is likely to step down in early 2014 and his dovish views appear to be increasingly isolated within the organisation. This could be a huge issue going forward.
The change in the deficit seems to be about ¼% point above Norges Bank’s forecast from the March MPC report, i.e. somewhat more expansionary, but probably not enough to have a strong impact on Norges Bank’s view.
Norges Bank therefore concludes that it has not changed view on interest rates significantly
Norges Bank will most likely conclude that inflation is broadly in line with its forecast.
April inflation will not influence the rate deci-sion. But a reading differing strongly from Norges Bank’s forecast could have an im-pact on the wording at the press conference.
Unchanged interest rates are fully discounted and the signals from Norges Bank will de-termine whether we will see any reactions from the market.
The need for additional crisis measures from the ECB has diminished, but interest rate cuts have become more likely!
The big central banks have turned out to be much less inclined to QE than expected. We no longer expect QE from the Bank of England in May.
The significance of today’s successful Spanish T-bill sale should not be overplayed. The auction size was rather modest, though Spain did pay less for its 1-year funding compared to Italy last week. Thursday’s bond auctions will be more interesting.
We see rates continuing lower in the coming months and the EUR/USD unchanged around the current levels.
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