Norway: Reduced structural non-oil budget deficit in revised 2012-budget

The Government will on Tuesday 15 May present its revised 2012-budget. During the years with the present majority government, the revised budgets presented in the spring have contained few, if any, new initiatives on the expenditure or income side. The main purpose of the revised budget has been to revise forecasts on the tax income and rule-based expenditure items. In addition, the Government proposes adjustments/corrections in appropriations that during the first months of the year have proved to be too low (or high) compared to the intended activity level.

We expect the revised budget for 2012 to be of the same character, no new initiatives, only changes in forecasts and corrections in appropriations. The Government will be careful with turning the budget more expansionary given the fiscal tightening going on in most other countries, the extremely low interest rate level internationally and the already strong NOK. The budget proposal for 2012 had a neutral fiscal stand. We expect the revised budget to maintain that, or to be turned slightly expansionary, which often has been the case in recent years.

During both 2010 and 2011, the structural non-oil tax income grew more strongly than forecasted in the original budget, which, together with other factors, lowered the non-oil structural budget deficits significantly. In 2010 the structural deficit became NOK 36.1 bn lower than originally estimated, and in 2011 NOK 34 bn lower. As late as in October last year the estimate on the non-oil structural budget deficit proved to be NOK 15 bn higher than the final accounts now shows.

We expect that the revisions made in the non-oil structural budget deficit for 2011 since October last year to have consequences also for 2012. In the budget proposal for 2012 presented in October last year, the Government estimated a structural non-oil deficit for this year of NOK 122.2 bn, being 3.9% of the petroleum fund, or Pension Fund International (PFI). According to the fiscal rule, the structural non-oil budget deficit should over time be 4% of PFI. The deficit was somewhat above the 4% rule in 2009 and 2010. We expect the estimated structural non-oil budget deficit in 2012 to be lowered by some NOK 15 bn from the level presented in the original budget, i.e. to about NOK 107 bn. As the PFI also turned out to become larger by the end of 2011 than forecasted in the original budget presented in October, this will reduce the estimated non-oil structural deficit in 2012 to 3.2% of the PFI. In 2011 the non-oil structural budget was at 3.0% of PFI.

The outcome must deviate significantly from the indications above before we expect to see market reactions. In recent years, the market has seldom reacted to the budget and the revised budget.

Latest research

Denmark: Surprise surprise - the hike is here

A short while ago Nationalbanken announced that with effect from tomorrow, the deposit rate reads +0.05% rather than -0.1%. In the press release, Nationalbanken highlighted that capital outflow in the FX market was part of this decision. It is unclear to what extent Nationalbanken has intervened in the FX market in the current month.

Germany: improving confidence old news – next week’s inflation numbers more important

A rise in the German Ifo index, together with yesterday’s PMI numbers and an estimate that Spanish GDP growth picked up clearly in Q1 are further signs that the Euro-zone economy is picking up momentum. However, it will be next week’s inflation numbers that are more crucial in determining ECB easing expectations and thus the near-term course for markets.

Swedish Morning Briefing - Thursday, April 24

• IMF expected to endorse 17 billion dollar loan to Ukraine • Riksbank minutes from April meeting due out at 9:30 today

FI Eye-Opener: Dovish Draghi to deliver more soft words

Bonds record some gains – yields to fall further today. Euro-zone PMIs continue to show resilience – US new home sales plunge. Spain to revise its borrowing needs down. European Commission confirms Greek primary surplus – further debt relief ahead? German Ifo and Draghi’s speech ahead. Plenty of bond auctions in store.

Euro Rates Update

The latest Euro Rates Update is now available

TRY: Regime change?

Despite a clear recovery in the Turkish lira, the situation in Turkey continues to be riddled with uncertainties and the potential for market-unfriendly surprises – especially in the political arena, where Prime Minister Erdogan may be fiddling with an overhaul of the political system.

Volatility Watch

Was that a pre-warning of QE or just loose talk? The latest ECB meeting managed to both disappoint (by delivering nothing) and excite (by laying the groundwork for something big) action seekers in the market. The truth is likely in the middle, and we expect no immediate easing from the ECB. We have seen a rebound, albeit modest, in gamma vols. Early vega options (1y-2y expiries) are moving down quite quickly Overall we still see the gamma segment as cheap, whereas we’re rich/neutral on vega.

SEK Rates: SGBi auction preview

The Swedish National Debt Office will sell 1 bn SGBi 3108 (1 Jun 2022) on the 24th April

Euro area PMIs: a good start into Q2

Higher PMIs in April, both in manufacturing and the service sector. Germany strong, France weaker.

SEK FI & FX Strategy - Market Views

A re-cap of market views...

Swedish Morning Briefing - Wednesday 23 April

• Kerry warns Russia to tone down its rhetoric • Chinese PMI looks set to rise

China: Not yet spring for the PMI

China’s flash PMI rose unsurprisingly to 48.3 in April. On the backdrop of favourable policies to small companies, the improvement is likely to continue in the coming months, but PMI is likely to stay below 50 because of excess capacity and debt overload.

FI Eye-Opener: China not rebounding like it used to

Bond markets with a rather calm day after Easter. Bonds with more potential in the near term. Intra-Euro-zone spread narrowing not run its course. Chinese PMI still depressed. Downside risks to today’s PMIs. Portuguese and US auctions ahead.

Preliminary Prepayments

Preliminary Prepayments

RUB: mixture of capital outflow, Central Bank’s policy and geopolitics

RUB has been under pressure recently as tsunami of capital outflow, caused by the threat of sanctions against Russia, washed away optimists and buyers of RUB-denominated assets. The pace of capital outflow increased in Q1 2014, reaching unimaginable $51 bn. (compared with $62.7 bn. in 2013). The volatility stays high on the Russian markets and the rouble remains focused on geopolitics.

Sweden: March Labour Force Survey better than it seems

Unemployment remained unchanged at 8.1% in March (seasonally adjusted). This was above forecasts at 8.0%. However, employment rose more than forecast and was up 0.3% m/m after an uptick of the same magnitude in February. Thus, the higher than expected unemployment reading in March is (once again) explained by unexpected strong growth in the labour supply, +0.3% m/m.

Swedish Morning Briefing - Tuesday 22 April

• Deal clinched during Geneva meeting • Ingves says deflation not likely

FI Eye-Opener: Portuguese bond auctions back

US Treasuries with a beating ahead of the Easter. Some gains ahead for bonds today. US existing home sales out today – Euro-zone flash PMIs later. A flood of auctions on the agenda already today. Portugal to resume its bond auctions. Fresh cash injection to boost French bonds this week.

Euro Rates Update

The latest Euro Rates Update is now available

Swedish Morning Briefing - Thursday 17 April

• Separatists in Donetsk plan for a local referendum • A summit in Geneva to discuss the crisis in Ukraine