Energy equities benefit as oil climbs

  • Bank of England unlikely to move on rates when it meets today.

  • NOK and SEK preferred to gain exposure to the European recovery.

After a buoyant start to the week that took some stock indices to new record highs, equities wobbled on Wednesday. In Europe, the major indices closed little changed, while all the three main US benchmarks closed at records. Benchmark government bond yields appeared trended cautiously higher. Oil prices continued to rise, benefiting from a recent report by OPEC, which expects higher demand for its crude oil, but reported lower production numbers for August.

Separately, the International Energy Agency said it expects global oil demand exceed expectations in 2017 and rise by the most since 2015. The uptick in oil prices also benefited energy equities, which were the best performer on the Stoxx 600. The USD climbed, while the GBP was barely changed ahead of today’s meeting by the Bank of England (BoE). We expect the BoE to keep rates on hold even though Tuesday’s inflation numbers for August surprised to the upside. Policymakers are likely to see the data as a validation of the somewhat more hawkish tilt of recent months.

Optimism regarding Eurozone economy

European Commission president Jean-Claude Juncker sounded sanguine about Europe in his State of the Union address yesterday, saying that both the economy and confidence were gathering momentum. This positive momentum has increasingly also spilled over to Norway, where the economic recovery appears to be gaining strength and the Norges Bank has begun to sound less dovish. Since we remain optimistic on oil prices, we also remain positive on the NOK, which is one of our preferred currencies in addition to the SEK and the JPY. In our opinion, the NOK and SEK provide attractive ways to gain exposure to the European economic recovery. Some recent weakness in consumer price does not alter our positive view on both currencies over the medium term.

US wholesale prices slightly miss expectations

In the USA, producer prices showed a weaker-than-expected increase in August, one day ahead of the release of US consumer prices. The latter is a key data release that the US Federal Reserve will be paying close attention to as it meets on 19 and 20 September to discuss the further path of monetary policy. We still expect the Fed to hike rates again in December, but acknowledge that continuously sluggish inflation and potentially contentious debt ceiling and budget debates that coincide with that Fed meeting represent risks to this outlook.


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