Hawkish Stance Expected from Norges Bank and Riksbank

Norges Bank and the Riksbank are expected to take a hawkish stance during their policy meetings. The Riksbank is likely to leave its policy rate unchanged at 1.75% but signal that a rate hike may be necessary towards the end of the year, with the rate path levelling out around the midpoint (2.25%) of the Riksbank's stated interval for neutral (1.5%-3.0%). In Norway, Norges Bank is expected to keep its policy rate unchanged at 4.25%, but signal that further hikes may be needed, although this is a close call with market pricing marginally favouring a hike and consensus split 50/50.

The recent rise in energy prices poses an upside risk to inflation, which could lead Norges Bank to raise the rate while maintaining a weaker tightening bias. In contrast, the Swiss National Bank (SNB) is expected to keep its policy rate unchanged at 0%, as it does not expect the recent rise in energy prices to trigger broad-based inflationary pressures.

The Ifo business climate indicator for September in Germany is due, and expectations are that the assessment of the current situation will rise markedly following yesterday's strong PMIs. The composite PMI in the euro area rose to 53.1 in September, its highest level in more than three years, driven by a surge in services.

The US Federal Reserve (Fed) is also expected to take a hawkish stance, with Fed officials stating that further hikes are likely needed to ensure a timely return to 2% inflation. The flash PMIs in the US came in well above expectations, with the composite increasing to 58.4 in September from 56.0 in August.

Global risk sentiment was sour yesterday, with equities declining by 0.5%. The strong US PMI data triggered a sharp tightening in financial conditions during the European evening, and the USD strengthened across all other G10 currencies.