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EUR/SEK Sensitive To Relative Rates

ByDanske Markets
Published 11/11/2013, 04:30 AM
Updated 05/14/2017, 06:45 AM
EUR/SEK
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In Sweden our forecasts for CPI and CPIF inflation are weaker than what the Riksbank expects. If right, it will put additional pressure on the Riksbank to cut the policy rate. We we can almost certainly also conclude that the Riksbank's Q3 GDP expectation of a calendar-adjusted outcome of 0.4% y/y is far too optimistic.

The EUR/SEK is still sensitive to relative rates so while the ECB cut ought to be SEK positive, a money market more aggressively pricing in a Riksbank rate cut might weigh further on the krona over the next month. Note though that liquidity should not to the same degree be an issue for the SEK as it is for the NOK at the moment.

We assume that the surprise drop in Norwegian core inflation in September was a correction following the strong figures for the preceding months, especially for food and airfares. We expect a more normal level in October, with the y/y rate holding at 1.7%.

The trouble might not necessarily be over for the NOK. We often see that liquidity is weak in the Norwegian market in December and given that a "liquidity premium" was one of the reasons why the NOK suffered over the summer, we are becoming increasingly concerned for the NOK. The market has the "summer experience" in fresh memory.

In the government bond market Sweden is tapping the SGB1050 (July 2016) on Wednesday. Norges Bank will be tapping NOK2bn in its 10-year bond (May-23) on Tuesday. We find value in this bond. Finally, we recommend buying the Danish 10Y linker at the auction on Tuesday.

Danmarks Nationalbank (DN) announced on Thursday that it kept all rates unchanged following the ECB 25bp refinancing rate cut. Focus on Danish inflation in light of the linker auction.

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