EGBS: OAT Futures Narrowing Gap To Resistance; French Risks Still Present

ERX5 98.00/98.0625/98.125/98.1875 call condor, paper pays 1 for 18k

• ERZ5 is currently 97.985.
• X5 options expire on November 14th, so this structure looks for dovish developments into the ECB's October 30 decision. 

SEK outperforms the G10 basket, supported by solid European equity performance and broad-based dollar weakness. There may also be some spillover from Governor Thedeen’s recent interview with Dagens Industri, which cements next week’s Riksbank decision as a very close call between a cut and a hold. 

• USDSEK is down 0.5% at 9.2760. Technical conditions are bearish, with the pair narrowing the gap to the next key support at 9.2307 (March 2022 low). Clearance of this level would expose the psychological 9.0000 handle. EURSEK meanwhile has pierced the September 10 low of 10.9126.
• JP Morgan remain bullish on SEK as they “expect fiscal to continue to be an FX differentiator going forward and yield compression to continue to benefit high beta low-and and mid-yielders“.
• Over the weekend, Riksbank Governor Thedeen gave a rare interview to domestic press. Speaking to Dagens Industri, he said that the current rate decision is very close to call. While he noted that the August inflation outcome confirms the Riksbank’s view that the summer uptick was likely temporary, he still called for vigilance. Additionally, he confirmed that the SEK80bln of measures proposed in the 2026 budget was above the SEK50-60bln included in the June MPR forecasts.
• The Government has just announced a SEK26.6bln rise in defence spending as part of its 2026 budget announcements. We assume this forms part of the SEK80bln earmarked for next year.
• Speaking on the krona directly, Thedeen noted that “I don't have an exact forecast for the krona going forward, but I would guess that it is still somewhat weak”

ECB Schnabel's slides presented at the EIB's Chief Economist's meeting are here

Key messages are well in line with Schnabel's previous comments:

• "Interest rates are in a good place as inflation stabilises around our 2% target and the economy remains resilient at full employment"
• "Healthy balance sheets, lower uncertainty and fiscal expansion underpin domestic demand, counteracting a decline in net exports"
• "So far little evidence of China dumping exports, while the pass-through of a stronger exchange rate is likely to be limited"
• "Upside risks to inflation dominate, with tariffs, services inflation, food inflation and fiscal policy as potential drivers"
• "Monetary policy should keep a steady hand, tolerating moderate deviations from target"