Our Swedish GDP estimate is -0.4% q/q and 2.0% y/y, substantially lower than Q4 although we forecast that the details will show 'a better quality'. The inventory contribution should be much smaller (we estimate 0.5 percentage points but it could prove to be lower). Consumer spending looks robust (2.5%) and residential construction seems to be booming (up almost 20% y/y). Foreign trade will probably - again - show a negative contribution. All in all, it looks like the GDP outcome could add to the pressure on the Riksbank to cut rates. Remember, the Riksbank is expecting growth to reach 2.5% y/y.
We target EUR/SEK at 9.10 in 1M but as we are approaching summer, when liquidity is usually low, a significant increase in EUR/SEK in the coming months on SEK-negative news cannot be ruled out. The GDP release is adding further upside risk to EUR/SEK. We still favour to position for SEK-weakness through a long NOK/SEK position.
A busy fortnight is in store in Norway. The most important release for the markets will be the results of Norges Bank's latest regional network survey.
After the revised budget we now forecast that Norges Bank will need to buy NOK5-10bn over the course of this year to cover the before-oil budget deficit. If the purchases start in June, this translates into a NOK25-75m daily purchase. Remember, this is a complete turn-around, as Norges Bank normally acts the other way round (purchasing foreign currency). That said, the amount is relatively modest but the psychological effect of this change should not be underestimated.
Norges Bank is tapping in the NGB 4.5% May'19. The tap is for only NOK3bn, slightly lower than the NOK4bn at recent auctions. The most recent auction in NGB 4.5% 2019 was back in February and was met by decent demand given a bid-to-cover of 2.65. We recommend buying NGB 4% May versus swaps at-45bp or OBL 0.5% April-19 at 150bp (mid-market prices).We like the currency exposure.
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