The week in Sweden kicks off early Monday morning with a speech from the Riksbank's Jansson and shortly after that, May PMI is set to be released. We estimate the PMI has slowed somewhat.
We believe the ECB will surprise the markets by boosting liquidity through a new 3Y LTRO while at the same time cutting the refi and deposit rates, bringing the latter into negative territory. We believe that Swedish rates up to 5Y will follow European ones and decline.
After the week Swedish GDP numbers and our view that the market can price in more easing in Sweden, we lift our 1M target for EUR/SEK from 9.10 to 9.20. Especially as we are approaching summer when liquidity is normally low, the risk of a significant increase in the EUR/SEK should not be neglected. We still favour positioning for SEK weakness through a long NOK/SEK position.
The most important Norwegian release for the markets this week will be the results of Norges Bank's latest regional network survey. The network has pointed to weaker growth than has actually been the case over the past three calendar quarters and we expect this trend to continue into 2014, with the aggregated output index climbing to just below 1.0. This would be its highest level since Q2 13 and confirms that growth in the Norwegian economy is picking up despite everything.
Last week, Norges Bank confirmed that it is now just a matter of time before the selling of foreign currency will start. We keep our positive NOK view as we doubt the market will start to price in rate cuts in Norway despite the soft ECB we are calling for.
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