POWER: Morning Renewable Forecast

EXECUTIVE SUMMARY

• The Riksbank is expected to deliver its first cut of the cycle at the May meeting. In the March press conference, Governor Thedéen noted that if all data (i.e. not just inflation) were in line with the March MPR projections, a cut in May would be the most likely scenario. The macroeconomic data since the March meeting appears to have met this threshold.
• If a rate cut is enacted, we expect it to be delivered with a hawkish tilt in order to protect the SEK from a renewed bout of weakness. If a rate cut is enacted, we expect it to be delivered with a hawkish tilt in order to protect the SEK from a renewed bout of weakness.
• There remains a material risk that the Riksbank elects to remain on hold in May, a move which would purely be driven by views on the krona. If this scenario were to play out, we would expect a very strong signal (potentially even a pledge) that rates will instead be cut in June.
• Of the 18 sell-side previews that MNI has seen, 13 expect the Riksbank to deliver its first rate cut in May, with the remaining 5 opting for June

For our full preview, including a summary of sell-side views, see the PDF here:

MNI Riksbank Preview - 2024-05.pdf

Of note:

EURUSD 1.05bn at 1.0725.

USDCAD 1.13bn at 1.3700.

EURUSD 2.54bn at 1.0760/1.0775 (thu).

AUDUSD 1.48bn at 0.6540 (thu).

USDCAD 2.04bn at 1.3680/1.3685 (fri).

EURUSD 2.66bn at 1.0750/1.0755 (mon).

• EURUSD; 1.0700 (782mln), 1.0725 (1.05bn), 1.0750 (713mln), 1.0780 (287mln), 1.0800 (348mln).
• GBPUSD: 1.2500 (442mln).
• USDCAD: 1.3700 (1.13bn).
• AUDUSD: 0.6590 (428mln).
• AUDNZD: 1.1025 (449mln).

Gilt futures have moved through the previously covered resistance area (50-day EMA at 97.65) to last trade +75 at 97.71. Highs of 97.75 seen, with bulls looking to target 98.00 on any extension higher.

• Yields are 4-6bp lower across the curve, light bull flattening.
• Benchmark yields are 16-24bp off last week’s highs, with most a little below the midpoint of their respective April ranges. The most pronounced pullback has come in the short end and belly.
• Cross-market, gilts outperform Bunds.
• Some of that is related to catch up after the long London weekend, but some of the move represents gilt outperformance, with the 2-Year gilt/Schatz spread ~1.5bp through Friday’s lows, aided by the movement in GBP STIRs.
• SONIA futures are little changed to 8.0bp firmer, at/just off session highs.
• BoE-dated OIS shows ~55bp of ‘24 cuts.
• Further forwards, pricing for this week’s BoE is essentially flat, with ~11bp of cuts showing through the June MPC and a 25bp cut fully discounted come the end of the August meeting.
• Expect our full preview of that event later today.

BoE Meeting	SONIA BoE-Dated OIS (%)	Difference Vs. Current Effective SONIA Rate (bp)
May-24	5.201	+0.1
Jun-24	5.090	-11.0
Aug-24	4.950	-25.0
Sep-24	4.860	-34.0
Nov-24	4.739	-46.1
Dec-24	4.651	-54.9