New Bank Signal: Central Bank of Norway

  • Friday, August 7, 2015

Norges Bank Poster Draft 3

Prattle is proud to introduce the latest in its family of central bank sentiment signals: Central Bank of Norway (Norges Bank).

While not the largest market, Norway is vital to both FOREX and commodity trading: the krone is an important, heavily traded currency, and the country is a prodigious oil producer.

At present, Norway is scoring just barely on the hawkish side of neutral, in line with the recent ECB sentiment, but well below recent BOE sentiment. This indicates that Norway may see its fortunes more tied to the ECB—and thus the European mainland—than to fellow North Sea oil producing countries, like Britain.

That said, Britain is the anomaly here. With oil prices crashing in the past year, their economy has still outpaced the rest of Europe. With its ear to oil prices, the BOE has signalled it is time for a rate hike despite tepid inflation rates.

nob_obx_snp

What can our Norges Bank sentiment (NOB Index) relate reveal about the market? The tightest correlation between the NOB Index and asset prices appear to be between the signal and Norwegian stock (OBX) (pictured above)—not Norwegian bonds or oil prices (pictured below). The second highest correlation is between Norges Bank sentiment and general euro stocks (S&P 350) (above), verifying that Norway is in fact more tied to mainland Europe than to Britain (or even to its chief export, oil). Since the bulk of Norway’s exports do stay in the EU, this dynamic makes perfect sense.

nob_brent_10yr

Bottom line: recent fluctuations in sentiment make the Norges Bank look a lot like the ECB; this may indicate that the Norwegian economy is a good proxy for investing in broader Europe with greater insulation from the Greek debt crisis.

The Prattle Team,
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