Swedish Inflation And Government Bond Auction Week‏

Swedish November inflation data are published on Thursday. We expect a slight tightening of the deviation from the Riksbank's latest CPIF forecast from 0.4pp to 0.3pp. Nonetheless, risks are to the downside, implying a possibility of an even larger negative deviation from the Riksbank's forecast. There is no way overstating the importance of this number for the monetary policy decision December 17. We still believe that low inflation will trigger a rat cut despite strong survey data out of Sweden.

We see short-term headwind for the SEK, but still see value in the SEK for the medium term investor in 2014 as hard date picks up and the Swedish surprise index improves.

Norges Bank did not change interest rates at its meeting last week nor did it see a need to signal that it was considering a rate cut, even though growth in the Norwegian economy is slowing and house prices have begun to fall. Norges Bank is now effectively on hold, as it does not anticipate a crisis in the Norwegian economy over the next three years or a housing crash. We also see value in the NOK after the recent sharp sell-off. Especially, the option market offers some interesting investment opportunities.

The three debt offices in Scandinavia will be coming to the market next week. Denmark will be tapping in the 2Y and 10Y segment and Sweden and Norway will be tapping in the 10Y segment. For more on the auctions see Government bond Weekly.

The negative carry on DKK in FX forward market has increased recently and that EUR/DKK has been pushed towards (but still below) the central parity at 7.46038. If the negative carry is sustained for a longer period it might be necessary for the central bank to intervene in the FX market to support the krone.

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