SEK and NOK: PMI data in focus

Swedish data last week were solid. Following a generally balanced ETS survey on Wednesday, which also portrayed a meaningful uptick in one-year inflation expectations, the Swedish economy grew by 1.0% q/q, leading to a 3.0% y/y wda growth rate. Despite the modest upside surprise, however, the effect on the SEK was rather subdued because of the poor liquidity of Scandinavian currencies over the summer period. The above-consensus print confirms the view of solid economic fundamentals, unlikely to justify further easing by the Riksbank. 

"We continue to expect a correction in the SEK higher from levels of extreme undervaluation (close to three standard deviations according to our BEER model)," notes Barclays.

For the week ahead, the Swedbank Manufacturing PMI (Monday) is expected to increase modestly, to 53.5 from 52.8, likely further supporting the SEK.

In Norway, Manufacturing PMI (Tuesday), IP, and credit growth indicator (Wednesday) will be the key focus points in the coming week. The recent drop in oil prices has added further downward pressures to the NOK, with EURNOK overshooting the near-term forecasts somewhat. At the same time, however, the general uncertainty on the oil outlook has led to a modest increase in EURNOK vols. 

"We remain bearish on NOK fundamentals but need to see significant deterioration in economic activity to expect further Norges Bank easing," added Barclays.

The market expects manufacturing PMI to stay unchanged at 44.0, still below the expansion threshold of 50. Yet expectations for a faster increase in the credit indicator (6.0% y/y from 5.9% y/y in June) should keep the Norges concerned with financial stability considerations.