RIKSBANK: February Business Survey Supports Earlier Rate Cuts
The Riksbank's February '24 Business Survey supports the idea of earlier cuts to the policy rate. Analysts are currently split between May/June for the start of the easing cycle.
- SEK has looked through the release, but the details will be encouraging to the Riksbank re: the fight against inflation.
- The survey notes that consumer facing businesses, particularly in the retail sector, are lowering selling prices due to "fierce competition for household spending power".
- On the other hand, those that sell goods/services to other businesses "are instead planning to continue passing on their increased costs to customers by raising their selling prices, provided that demand does not weaken further".
- We would place more weight on the former, which supports the view of further moderations in CPI readings in the coming months.
- Additionally, respondents "believe they will not need to adjust prices as often" as the previous 2 years.
- The risk of a shift in price setting behaviour during high inflation periods has become a familiar Riksbank concern in recent months. This will placate some of that worry.
- On the labour market, further staff reductions were seen but these were expected to be "minor adjustments", with labour hoarding still prevalent.
- While there are hopes that the economic situation will improve, domestic demand remains weak and "large parts of the manufacturing industry are now starting to notice lower international demand".
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
RIKSBANK: Thedéen Assigns Greater Weight To Activity Data In Determining Rate Cut Timing
EURSEK has not seen any notable reaction to the release of the Riksbank's Jan meeting minutes. Looking first at Governor Thedéen's comments, the dovish pivot made at last week's decision is evident.
- Thedéen notes that the policy rate has very likely peaked, and that it should eventually "be possible to gradually ease monetary policy".
- He points to softening inflation momentum as the primary reason for opening the door to rate cuts, but still notes risks to the outlook arising from a weaker krona and geopolitical tensions in the Middle East and Russia/Ukraine. In this light, he is still prepared to hold the policy rate at "contractionary level for a longer period of time".
- Thedéen does not assign a timeframe to when rate cuts will begin, but interestingly says that he will "give slightly greater weight to how activity in the Swedish economy is developing" in addition to assessing inflation dynamics. This may assign further importance to activity data for markets in the coming months.
- With respect to QT, little colour is given on the decision to increase bond sales to SEK6.5bln/month (rather than a higher or lower amount).
BOE: Breeden Drops Tightening Bias, Focuses on How Long Rates Should be Held
Full Breeden speech found here: https://www.bankofengland.co.uk/-/media/boe/files/...
Breeden's speech concludes with "what does this mean for policy?" - and effectively shifts from seeing need of higher rates in Dec, to now focusing on how long rates need to be held at current levels.
She says:
- In December, I judged that domestic risks were skewed to the upside. At that juncture, the question I was focused on was whether there was evidence of more persistent inflationary pressures which might mean we needed to tighten further.
- I have become less concerned that rates might need to be tightened further. Instead my focus, and indeed the focus of many on the MPC, has shifted to thinking about how long rates need to remain at their current level.
- I will look at how pay growth and demand are influencing firms’ pricing decisions, to assess how persistence is evolving in relation to what is embodied within our forecast.
CHINA RATES: Yields Move Towards Cycle Lows After Tuesday's Jump Higher
10-Year CGB yields are ~4bp lower on the day, with desks noting that the general Chinese policy bias, rate cut expectations, expectations surrounding funding/liquidity conditions and well-documented economic headwinds quickly biased yields lower once again after Tuesday’s move higher.
- The benchmark is on target to lodge the largest one-day move lower (in bp terms) since December.
- Tuesday’s move higher represented the largest daily uptick in the CGB 10-Year yield (+5.6bp) since the zero COVID abolition-related move higher in November ’22, with policymaker/regulator support for the equity space dominating wider price action in Chinese assets on Tuesday.
Fig. 1: Chinese 10-Year Government Bond Yield (%)
