The main event in Sweden is the Riksbank monetary policy decision (Thursday at 09:30 CET). We expect a repo rate cut of at least 10bp (0.1 percentage points) to 0.45% or lower. With regard to the Riksbank's forecasts, we believe the main change will be in the inflation outlook, which could be revised downward by up to 0.5pp. We also believe that the Riksbank will flatten its repo rate path indicating that the first hike will not come before 2018.
The decline in the Norwegian krone has now been so strong and so protracted that there is a need to reprice many imported consumer goods in order to maintain profitability. Therefore, we expect core inflation of 3.2% y/y in January, which is higher than Norges Bank's projection of 2.97% y/y.
The refinancing auctions of Danish non-callable covered bonds for the April term started on Friday and continue this week. The total amount of DKK-denominated bonds up for sale is about DKK123bn, which is about DKK43bn less than last year's auction. It is especially the supply of 1Y bonds that is declining from DKK93bn to 71bn. Investor demand is likely to be solid as the supply of 3Y and 5Y non-callables is likely to be modest until auctions in the autumn. Hence, the auctions are an opportunity to buy the non-callables.
This week the Danish statistical office releases figures for inflation, which we expect to climb to 0.7% y/y, from 0.5% y/y in December. The outcome is always highly uncertain in January, as it includes many prices updated only once a year. In addition, Statistics Denmark is switching to a new method for collecting food prices, which will affect seasonal adjustments and preliminary findings suggest this will pull upwards in January.
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