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JPMorgan Enter long NOKSEK Ahead of Central Bank Meetings

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  • JPMorgan have gone long NOKSEK ahead of the next fortnight’s Norges Bank and Riksbank meetings, and in light of the commodities rally propping fair value higher. JPM believes Norges Bank is likely to maintain its hawkish line, while the Riksbank is likely to cut at the May meeting. Spot reference for the trade entry was 0.9918 with a stop loss at 0.9670.
  • Given the Riksbank cut is mostly priced (~20bp), this continued sell-off in SEK would likely come from US yields which would also drive NOK similarly lower. The real rate spread should also be supportive of NOKSEK based on JPM economists’ policy and inflation forecasts.
  • Separately, JPM commodities strategists’ base case is $90 Brent in May and $85 in 2H24. The risk bias around their call, however, is bullish with ~25% probability of $100 by September if Russia’s exports of crude oil drop to match the decline in production. Commodities have recently been led higher by metals, but to the extent that this is demand-driven this can also trickle through to energy prices and support NOK.
  • Valuations are still compelling as NOKSEK continues to screen cheap to fair value. JPM have noted balance of payments outflows which have likely been keeping investors wary of engaging with NOK and not allowing it to respond to traditional drivers, but see scope for some participation given the extent of central bank policy divergence, and the demand-driven nature of the commodities rally.
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  • JPMorgan have gone long NOKSEK ahead of the next fortnight’s Norges Bank and Riksbank meetings, and in light of the commodities rally propping fair value higher. JPM believes Norges Bank is likely to maintain its hawkish line, while the Riksbank is likely to cut at the May meeting. Spot reference for the trade entry was 0.9918 with a stop loss at 0.9670.
  • Given the Riksbank cut is mostly priced (~20bp), this continued sell-off in SEK would likely come from US yields which would also drive NOK similarly lower. The real rate spread should also be supportive of NOKSEK based on JPM economists’ policy and inflation forecasts.
  • Separately, JPM commodities strategists’ base case is $90 Brent in May and $85 in 2H24. The risk bias around their call, however, is bullish with ~25% probability of $100 by September if Russia’s exports of crude oil drop to match the decline in production. Commodities have recently been led higher by metals, but to the extent that this is demand-driven this can also trickle through to energy prices and support NOK.
  • Valuations are still compelling as NOKSEK continues to screen cheap to fair value. JPM have noted balance of payments outflows which have likely been keeping investors wary of engaging with NOK and not allowing it to respond to traditional drivers, but see scope for some participation given the extent of central bank policy divergence, and the demand-driven nature of the commodities rally.