GILTS: Futures Close Gap Lower, BoE Eyed

• Even though today’s Swedish June flash inflation report saw a 0.4pp rounded upside surprise, analysts had expected volatile components to drive the Y/Y acceleration in CPIF ex-energy. If these components (e.g. package holidays) were the sole drivers of the June increase, it would significantly dampen the hawkish impact of the release.
• Meanwhile, the Riksbank’s June minutes portrayed an Executive Board that is more concerned about weak demand pulling inflation below target in the medium-term than known upside risks. In this light, Thursday’s May monthly activity data will be important to monitor (despite its volatile/revision-prone nature). Early consensus looks for monthly GDP to fall 0.2% M/M (three estimates ranging between -0.4% M/M and -0.2%; vs 0.4% prior).
• Markets now assign just a ~20% implied probability of a 25bp Riksbank cut on August 20 according to sell-side estimates. That’s down from a ~50% chance before the inflation data. 2-year SEK swap rates are also up 8.5bps to the highest since June 26.
• SEK has mostly consolidated this morning’s post-data strength and remains the G10 outperformer. EURSEK is down 0.85%, but initial support at the 20-day EMA of 11.1042 has not been tested. NOKSEK is down 0.9% at 0.9410, off lows of 0.9377.
• We haven't seen any sellside forecast changes following the inflation data, but there remains a split of opinions on the terminal rate:
  • Handelsbanken continue to expect a cut in August.
  • JP Morgan still see one more cut in September.
  • Danske Bank forecast no more cuts, but note that “we still see some downside risk to our call”. DNB and Nordea also expect no more easing this cycle.

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