Sweden: Pressure points, negative rates and the fading risk rally

Market movers ahead

• In the US, we estimate the CPI core index rose 0.2% m/m in March, implying an inflation rate of 2.3% y/y, the highest level since mid-2012.

• Next week also brings important figures for consumption in the US. Our base case is that private consumption growth will accelerate in Q2 and Q3, following the slowdown in Q1. We expect next week’s figures to show a rebound in the retail sales control group in March and a small increase in the University of Michigan consumer sentiment index.

• In the UK, we expect the Bank of England to maintain the Bank Rate and stock of purchased assets unchanged at 0.50% and GBP375bn, respectively. We expect both voting decisions to be unanimous, i.e. 9-0.

• In China, consumer prices (CPI) is expected to inch slightly higher to 2.4% y/y in March from 2.3% y/y in February and thus inflation is still running well below the People’s Bank of China’s inflation target at 3%. Producer prices (PPI) have been in deflation mode for a while but, in our view, this is likely to end in 2016 as commodity prices edge higher. PPI is expected to increase to -0.465% y/y in March, from -4.9% y/y in February.

• In the Scandies, the week ahead is all about inflation: we estimate CPI inflation remained unchanged at 0.3% y/y in Denmark in March, while we estimate CPI underlying inflation in Norway declined to 3.2% y/y, from 3.4% y/y in February. In Sweden, we expect CPI and CPIF inflation to come in at the Riksbank’s forecast, while the core measures (e.g. CPIF excluding energy) will come in lower.

Global macro and market themes

• Pressure points are building in global markets, as the risk rally appears tired and exhausted.

• The downward pressure on EUR/DKK and DKK rates is likely to continue in coming months.

• Negative interest rates have shown their limitations in Japan, while the Riksbank signals that the transmission mechanism is broken.

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