2 Jul 2015
Moderate chance of easing from the Riksbank today – DB
FXStreet (Barcelona) - The repo futures are pricing in a 50% change of a small rate cut today by the Riksbank, according to Oliver Harvey, Macro Strategist at Deutsche Bank.
Key Quotes
“The market expects a moderate chance of further easing from the Riksbank today. Around 6bp are priced in repo futures, consistent with a more than 50% chance of a ‘small’ (10bp) cut while the cross currency basis implies additional injections of around 20bp worth of liquidity from a ramping up of QE before the end of the year. A dovish bias would appear justified.”
“Data has been a little weaker than expected since the April meeting, with CPI outturns in April (-0.2% yoy) and May (0.1%) on aggregate lower than the Riksbank forecasts (0.2% and 0% respectively), while unemployment has also climbed higher and Q1 GDP disappointed (2.5% yoy vs. Riksbank forecast of 2.7%).”
“The exchange rate has also strengthened. EUR/SEK is close to levels before the surprise easing measures announced in March and looks a little cheap relative to rate spreads.”
“The Board is acutely sensitive to the perception that most easing ammunition has been spent. They will have noted the market reaction in April, when SEK rallied after the announcement of a ‘mere’ ramping up of QE.”
“If the Riksbank does stay on hold, it is likely to lower the repo rate forecast to imply action in September in order to avoid just such expectations. Positioning-wise, shorts have extended modestly according to our DB Select indicator, but are not at all stretched.”
Key Quotes
“The market expects a moderate chance of further easing from the Riksbank today. Around 6bp are priced in repo futures, consistent with a more than 50% chance of a ‘small’ (10bp) cut while the cross currency basis implies additional injections of around 20bp worth of liquidity from a ramping up of QE before the end of the year. A dovish bias would appear justified.”
“Data has been a little weaker than expected since the April meeting, with CPI outturns in April (-0.2% yoy) and May (0.1%) on aggregate lower than the Riksbank forecasts (0.2% and 0% respectively), while unemployment has also climbed higher and Q1 GDP disappointed (2.5% yoy vs. Riksbank forecast of 2.7%).”
“The exchange rate has also strengthened. EUR/SEK is close to levels before the surprise easing measures announced in March and looks a little cheap relative to rate spreads.”
“The Board is acutely sensitive to the perception that most easing ammunition has been spent. They will have noted the market reaction in April, when SEK rallied after the announcement of a ‘mere’ ramping up of QE.”
“If the Riksbank does stay on hold, it is likely to lower the repo rate forecast to imply action in September in order to avoid just such expectations. Positioning-wise, shorts have extended modestly according to our DB Select indicator, but are not at all stretched.”