Lagarde's exit and the Riksbank test

2026-10-30 · What the week changed · The Fed's bias, Lagarde leaves, Gromen's consumer credit case, The Riksbank and the krona, Nordic power splits in two

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Lagarde quits the ECB, the Fed keeps its tightening bias, Gromen's credit case meets the jobs data, and the Riksbank decides the krona's next step.

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The Fed's bias, Lagarde leaves

The Fed's tightening bias is intact. Kevin Warsh warned that tighter conditions are cooling the economy, and Governor Lisa Cook voted for a hike, her first formal dissent. US inflation was 3.7 per cent. Finance Bureau reported an 85 per cent market-implied chance of a December hike, and Axel Merk told Thoughtful Money the Fed keeps a tightening bias. We agree on the bias. Where we part with Merk is on what decides it — jobs, not data in general. Read: the 4 per cent upper bound is the level; unemployment off 4.2 per cent with the Sahm indicator clearly off zero would change it.

The broad credit tape does not show the strain yet: US high yield was 3.14 percentage points on Wednesday, down from 3.27. Alex Altman of Barclays argued on Odd Lots that AI financing constraints show first in the neo-cloud firms. We agree on where it starts; a narrowing spread says it has not reached the index this quarter. At these prices the broad US index carries the good news. Read: four points on high yield, together with a top-four hyperscaler capex cut, is the trigger.

Lagarde is leaving the ECB early, saying neutrality on world events is no longer possible. The deposit rate stands at 2.5 per cent with the next decision on 17 December; inflation was 3.8 per cent in September, up from 3.2. Our view that the ECB keeps hiking through mid-2027 is unchanged — the print sets the reaction function, not one person. Read: a successor who talks about inflation first confirms it; the Council staying at 2.5 in December with inflation still near 3.8 would change it.

Gromen's consumer credit case

Luke Gromen told Macro Voices that AI-driven job losses could start a consumer credit default cycle. GDP grew 3.4 per cent annualised in the third quarter, and Finance Bureau argued AI investment is carrying it while household spending, income and savings weaken. The cushion is thin, but defaults need job losses: unemployment is 4.2 per cent and the Sahm indicator is at zero. Households are cutting spending, not missing payments. A US credit cycle is how the rate gaps that pin the euro would close. Read: payrolls on 6 November first; until unemployment and Sahm move, it is a tail.

The Riksbank and the krona

If the Riksbank weighs this year's prints above its own path, our view is a hold at 1.75 per cent on 12 November. It is formally cutting, but has not moved for twelve months and its own path points up, to 1.85 this quarter — no cut. Headline inflation was 0.3 per cent and core 1.2 per cent in August, with unemployment at 8.9 per cent from 8.6 — no hike. Read straight, the path is consistent with a hike, so this is close. Read: a hold leaves the krona without fresh rate support, which is our standing view; a hike breaks both the hold and the krona view.

Nordic power splits in two

Finland averaged €10.34/MWh, down from €28.14. SE4 averaged €164.76, up 35 per cent, peaking near €300 on Thursday. Net flows from SE4 into dearer DK2 (€179.17) rose to 330 MW from 65. The north has more power than the lines south can carry; transmission south is the scarce asset. For the Riksbank it is a mixed signal — SE3 fell 13 per cent to €61.98 while SE4 rose. Read: Finland under €30 against SE4 above €100 is the level; flows into Denmark holding above 300 MW harden it; SE4 converging with Finland for a full week would change it.

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Inflation was 3.2 per cent and core 3.5 per cent in August; a move lower would threaten the krone view. Then US payrolls on 6 November and the Riksbank on 12 November.

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