In Sweden , December inflation figures are due out on Thursday. We expect the CPIF to print 0.9 % y/y, which is 0.2 percentage points below the Riksbank's forecast. This is not in itself enough to trigger Riksbank action but we expect this margin to widen again in coming months.
Tuesday's budget figures will also be important. It is important to watch whether the strong underlying trend in tax revenues continues or not. In the background, the most recent figures from the Migration Agency show that the number of asylum seekers dropped sharply to about 1,500 persons last week after government restrictions introduced on 1 January. If it prevails, this level is much below the assumption in the Debt Office's most recent forecast and could add support to SGBs.
The significant news last week in Sweden was that the Riksbank is now officially prepared to perform FX interventions as a means to bolster the rise in inflation. We do not envisage the Riksbank making 'standalone' FX interventions. Rather, such interventions will have a much better chance of being successful if they are supported by a repo rate cut, a lower/flatter repo rate forecast and an extended QE programme. Hence, we stick to the view that the Riksbank will have to cut the repo rate again in April.
In Norway , inflation is on the way up due to higher import prices in the wake of the weaker krone. The drop in the krone gained momentum in the autumn of 2015, which suggests that the upward trend in inflation will continue through to the end of the year. We therefore expect core inflation of 3.1% y/y in December.
In Denmark, the statistical office is due to release inflation figures for December on Monday. Inflation has been extraordinarily low over the past year, due mainly to the slide in oil prices pulling down manufacturers' production costs. We expect inflation of -0.3% m/m or 0.2% y/y in December but there is a fair amount of uncertainty.
The Danish central Bank hiked rates by 10bp and lowered the current account rate last week. We still argue that the Danish market is pricing in rate hikes too aggressively in Denmark.
To read the entire report Please click on the pdf File Below