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Fixed Income & FX Weekly Wrap

Friday, August 16
Published this week

US rates: Reality bites despite delayed new tariffs
The past months’ escalation of the US-China trade war and increasing risks related to the unrest in Hong Kong mean that markets are rapidly moving towards our “major escalation” scenario for the US rates presented in May. Read more here.

Norges Bank favouring flexibility
Norges Bank kept the key rate stable at 1.25%. The bank concluded that the rate path from June remains valid, but uncertainty to the policy outlook has increased. Read more here.

Quick View: A surprising rise in consumer confidence
Conclusions: The Norwegian quarterly consumer confidence indicator made a surprising jump higher in Q3 and the improvement was broadly based. Read more here.

Sweden: Updated CPI forecast after July
CPIF in July was marginally higher than expected (0.05pp) due to a slightly larger increase in electricity prices. Read more here.

Pre-event analysis: Norges Bank and EUR/NOK
Interim meeting but market impact could become larger than usual. The meeting on Aug 15 is an interim decision without a monetary policy report and only a short statement will be published. Read more here.

3-5y CB spreads at highs to level of SGB yields: Buy Sp193 vs. SGB1057 and/or SCBC143 vs. SGB1054
Slightly tighter CB spreads vs. swaps and government over summer. Since mid-July, 2y SEK CB spreads are largely unchanged to slightly tighter both vs. swaps and government. Read more here.

Sweden: July inflation remains above the Riksbank forecast
Conclusions:  July CPIF inflation rate declined compared with June but somewhat less than general expectations. The CPIF was 1.5 % y/y, in line with our forecast but higher than the consensus (1.4%) forecast. Read more here.

Trade war relief rally triggered corrections
EUR/SEK still fairly valued. EUR/SEK also fell during the relief rally but its short-term fair value fell almost equally much (-6.4 vs -6.7 figs) leaving EUR/SEK still fairly valued. Read more here.

Bleak Germany perhaps not as weak as it looks like
Conclusions: As expected, German GDP declined in Q2 with -0.1 per cent on the quarter and +0,4% y/y  (+0,1 % expected) so it appears some revisions have been made. Read more here.

SGB Spotlight: Strong demand but CPI potential to shift the near term tone
Auction preview: SEK 1.5bn in SGB1061. Tomorrow the NDO will issue SEK 1.5bn in 1061 (2029). The 10y benchmark is trading at new all-time lows at -0.28%, implying maturity-matched swap spread of -62bps and vs. Germany of 19bps. Read more here.

Swedish CPIF y/y and market reactions
We expect CPIF y/y 0.1%-points above consensus, which based on historical relationships should  be followed by a daily fall of 3.4 figures in EUR/SEK and a 1.4bsp rise in the 2 year yield. Read more here.

Rates on hold through 2020 and SEK thus weaker for longer
Last week we changed our Riksbank call; now expecting it to keep rates unchanged at least until the end of 2020. Read more here.

Norges Bank preview: Guiding towards a September hike?
Norges Bank is expected to keep policy unchanged on Aug 15. Domestic developments have been broadly as expected, while global prospects have deteriorated further. Read more here.

Fewer households uncertain about housing prices
The Housing Price Indicator declined somewhat to 38 from 40, above the historical average of 34. In August fewer households were uncertain about the direction of future house prices and instead there was a slight increase among the number of households that believes prices will go down next 12 months. Read more here.

Financial Forecasts
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Trade Recommendations
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