HYBRIDS: AroundTown: Perp NC5.6 (ARNDTN; Hyb NR/BB+/NR)

Scandi currencies outperform the G10 basket this morning, with EURSEK down 0.5% and EURNOK down 0.3%. For EURSEK, today’s price action reinforces the idea that the Sep 16 – Sep 19 rally was corrective in nature. The medium-term technical outlook remains bearish, supported by the set-up of the 20- and 50-day EMAs. Initial support is the Sep 15 low at 10.9036. 

• The 25bp Riksbank cut is being signalled as the last of the cycle, with rates likely to remain steady at 1.75% into 2027. 2-year SEK swap rates have fully unwound the ~4bp fall seen immediately after the rate decision, now up 2bps at 2.04%.
• We don’t think the decision should be interpreted as a “hawkish cut” though (certainly not when compared with Norges Bank last week). Markets were already coming into the decision pricing a 1.75% terminal policy rate, with today’s cut just bringing that move forward. It’s not surprising that the Riksbank views the outlook for GDP as somewhat better following the large fiscal stimulus recently announced by the Government.
• Instead, the passing of today’s (dovish) risk event may provide a cleaner backdrop for participants to re-engage bullish Scandi FX positions that are less reliant on near-term monetary policy considerations.
• These include favouring economies with increased fiscal space, as well as capitalising on the broader dollar downtrend that has been observed this year.
• From today’s September MPR: “The Riksbank still assesses that the krona is somewhat undervalued and it strengthens further in the forecast”. 

• In the FI space, Bund futures remain below their latest highs and are trading closer to their recent lows. Key support and the bear trigger lies at 127.61, the Sep 3 low. A break if this level would cancel a recent bullish theme and confirm a continuation of the medium-term bear cycle. For bulls, a reversal higher would refocus attention on key resistance at 129.44, the Sep 10 high. First resistance is at 128.60, the 20-day EMA.
• A bull cycle in Gilt futures gapped lower last Friday extending the pullback from its recent highs. Despite the sell-off, a bull cycle remains intact and a recent rally highlights a stronger corrective cycle. Note that the move higher has allowed an oversold trend condition to unwind. Price has breached initial firm resistance at 90.84, the Aug 28 and 29 high. A resumption of gains would open 92.06, the Aug 14 high. Initial support lies at 90.65 (pierced), Sep 5 low.

SX7E (17th Oct) 225/210ps, bought for 2.7 in 6k vs 1.38k at 227.70.