SEK: Lofty CPI inflation expectations could be disappointed – Nomura

In view of the analysts at Nomura, when it comes to economic data in Sweden, they think inflation prints are the most important for SEK as it is not secret that the Swedish economy has been growing strongly in recent years, but the big question remains on how quickly this will generate inflation.

Key Quotes

“We continue to see upside risks over the medium term to inflation numbers, which should see EUR/SEK gradually drift lower from here. However, we argue that consensus expectations for today’s inflation print seem too high.”

“Denmark’s CPI inflation print may be a good indicator of CPI inflation numbers in Sweden. This should not be surprising given their tight trade linkages. Historically the April release in Denmark has also been a decent predictor of the Swedish April CPI inflation print. Since 2005 the correlation has been 0.7, and the beta of Sweden to Denmark CPI inflation is 1.04. Therefore, because Denmark’s CPI rose +0.2% m-o-m in April, history alone suggests that Sweden will also print at +0.2% m-o-m tomorrow. Although the correlation is weaker, the Norwegian CPI also slowed to +0.2% m-o-m in April. In the euro area, CPI rose 0.4%, suggesting limited scope for a print above 0.4% in Sweden.”

“Consensus expects Sweden’s CPI to rise 0.4% m-o-m, which would be a 1-Stdev surprise based on the Danish-based model forecast. Therefore, the risk-reward heavily favours positioning for an outcome below consensus, i.e. short SEK around today’s number.” 

“Among consensus, there is also a significant skew towards the +0.4% estimate. Of the nine survey respondents on Bloomberg, seven are forecasting +0.4% m-o-m, just one respondent forecasts +0.3% and another 0.2%. Therefore, once again, the balance of risks is tilted towards positioning for a negative surprise today.” 

“Because Riksbank expectations are for a more moderate outcome of +0.27% m-o-m than consensus, a negative surprise around 0.2% may not have a huge impact on the mid-term SEK trend as the Riksbank outlook is unlikely to shift materially. The Easter distortions may also mean this number is taken with a pinch of salt. Nonetheless, we highlight tomorrow’s CPI number as near-term SEK downside risk. Tactically, we think long EUR/SEK makes sense around this event.”