Iran and Saudi Arabia are set to continue talks in Vienna

Market movers today

• Overall, we believe that PMI figures for the euro area for September due for release today will show a moderate improvement, reflecting an ongoing recovery. The order-inventory balance for the manufacturing PMI showed a promising increase in August, signalling an increase in manufacturing PMI in September despite a moderate decline in figures for August. However, we believe services PMIs have a more sluggish outlook for September.

• In the US, Markit and ISM PMIs declined in August but are sending mixed signals on the manufacturing sector. Most notably, the ISM index declined 3.2 index points and is now back below the 50 threshold again, suggesting a contraction in the manufacturing sector. We estimate the Markit PMI manufacturing index declined to 50.5 in September.

• Iran and Saudi Arabia are set to continue talks in Vienna. The two are trying to work out their differences in order for OPEC and Russia along with possibly also other major oil producing countries to agree on a strategy to stabilise the oil market next week in Algiers.

• We are due to publish updated quarterly forecasts for the Nordic economies in our Nordic Outlook at 9:00 CET. The Outlook will not contain any new financial forecasts.

Selected market news

As expected, Norges Bank (NB) yesterday left the sight deposit rate unchanged at 0.50%. The revised rate path suggests a 40% probability of a later rate cut, which was very close to our expectations. Meanwhile, NB signalled that the bottom in the revised rate path is first reached in Q2 17, which was less aggressive than we had pencilled in. Also, the rhetoric in the Monetary Policy Report (MPR) was more hawkish than expected, highlighting the Board’s move towards a ‘neutral’ bias. Specifically, NB stated that ‘the outlook suggests that the key policy rate will most likely remain at today’s level in the period ahead” and that “…the forecast implies a slightly higher probability of a decrease than an increase in the key policy rate in the year ahead’. Prior to the decision, markets had priced in around a 5-10% probability of a rate cut today. Post the decision, short-term rates have risen with markets pricing out the likelihood of a 2017 cut. As expected, EUR/NOK initially dropped on the announcement but the more hawkishthan- expected rhetoric also meant that we did not get the expected rebound in the cross. Given our economic forecasts and NB’s gradual move towards a ‘neutral’ bias today, we expect NB to leave the sight deposit rate unchanged throughout 2017.

Yesterday, Saudi Arabia and Iran met in Vienna to discuss possible ways to stabilise the oil market ahead of the producers meeting in Algiers next week. In April, talks over a deal to freeze production failed because Iran refused to corporate. However, since then, Iran has been able to push its crude production back up the level it was at before sanctions were imposed on Iran in 2012 – sanctions that were removed in January this year. Hence, Iran may be more inclined to agree to freeze production. Nevertheless, an agreement to freeze production would not achieve more than to preserve status quo in the oil market.

Download The Full Daily FX Market Commentary