BUNDS: Further selling interest are going through

Some highlights from the Monetary Policy Update, with screen as balanced albeit with some dovish remarks around inflation and the krona. 

• On the recent EU-US tariff agreement: “The new tariff agreements are in line with the assumptions made by the Riksbank in June. There is now somewhat more clarity regarding the US import tariffs faced by the EU”…“ Measures of economic uncertainty have declined but are still elevated. Overall, developments abroad have been in line with the forecast in June”.
• Still good conditions for an economic recovery next year (which should guard against the dovish risk of a policy rate below 1.75%): “However, there are good conditions for a rebound in the Swedish economy later this year. Interest expenditure for households and companies has fallen and real wages are continuing to rise”…“ The low growth in the economy is contributing to it taking longer until labour market conditions improves”
• Playing down the recent rise in inflation: “Much of this can be explained by prices that usually vary significantly, such as for foreign travel and rental cars, while prices for other services and goods overall increased in line with the forecast in June. This indicates that the unexpectedly high inflation is temporary” … “The indicators are not pointing to any lastingly elevated inflationary pressures”
• Krona is considered to be having a dovish impact (as we noted in our preview): “Despite some weakening during the summer, the development of the krona is expected to have a dampening effect on inflation.”

Lagarde holding remarks at the International Business Council of the World Economic Forum in Geneva. Remarks here. Key highlights below:

• "Recent trade deals have alleviated, but certainly not eliminated, global uncertainty, which persists on account of the unpredictable policy environment."
• "The euro area economy proved resilient earlier this year in the face of a challenging global environment."
• "The trade deal establishes an effective average tariff estimated to lie between 12% and 16% for US imports of euro area goods. This effective average tariff is somewhat higher than – but still close to – the assumptions used in our baseline projections last June. It is worth noting that the outcome of the trade deal is well below the severe scenario for US tariffs of over 20% for euro area goods envisaged in the June projections. At the same time, uncertainty persists as sector-specific tariffs on pharmaceuticals and semiconductors remain unclear."

Riksbank holds rates at 2.00% as expected.

Appears in line with our expectations, with the June outlook reaffirmed and the recent inflaiton uptick deemed as temporary:

• "Inflation has risen more than expected over the summer, and is somewhat above the target. However, the upturn is assessed to be due to temporary factors. "
• "At the same time, economic activity remains weak. Although developments have deviated somewhat from the Riksbank’s forecast in June, the Executive Board assesses that the outlook remains largely the same. "
• "The Executive Board has therefore decided to leave the policy rate unchanged at 2 per cent, and still sees some probability of a further interest rate cut this year."