ECB: Small Downward Revision To 2026 Inflation Projections

Overall, the Riksbank minutes suggest the Board does not seem too worried about possible upside inflation risks, placing further weight on the activity data to determine the likelihood of another cut this year. The minutes have a dovish bias, but that’s consistent with the tone of the June decision and rate path. As such there hasn’t been much reaction in SEK FX or rates. 

Some further comments from Board members on the inflation/growth outlook:

• Bunge: “The weaker demand also reduces the scope for companies to raise prices. I think that the economic outlook in itself entails a risk for inflation being below target further ahead. In addition, the strengthening of the krona during the spring will have a dampening effect on import prices”.
• Breman: “Inflation outcomes and projections have strengthened out view of inflation being in line with the target going forward”….” At the same time, there are always risks of inflation going higher or lower than in the forecast”…” energy and food prices are particularly important for households' inflation expectations”
  • “An overall assessment is that households and companies are in a wait-and-see mode, and this is weighing on the Swedish economy in a situation where we have had weak growth for several years”.
• Jansson: “A closer look at the details of the latest outcome rather paints a picture of more underlying inflationary pressures that risk becoming too low going forward"
  • “The current situation for the Swedish real economy is not one in which there is any need to be concerned about a very rapid economic improvement that could ultimately create problems with excessively high demand-driven inflation”.
• Seim: “Even though there are factors that could create inflationary impulses in the economy, such as rising oil prices, supply chain shocks, increased transport costs, a weaker krona or fiscal policy stimulation measures, no such tendencies can be seen in the data. Rather, there is a risk that the weaker demand caused by the uncertainty will create low inflation”
• Thedeen: “Growth appears to be weakening somewhat, although I do not believe that the downturn will be particularly deep. However, as I perceive that the risks of inflation persistently overshooting the target have decreased somewhat”.

ERQ5 98.1875/98.3125/98.4375 call fly 8K sold down to 1.

Gilts initially follow peers higher at the open, but the rally lacks momentum.

• Futures pierce yesterday’s high before paring back from best levels, flat at 93.47 last (93.34-56 range).
• The technical outlook in the contract remains bullish, next upside target is the June 13 high (93.68).
• Meanwhile, support sits at the 20-day EMA (92.51).
• Yields ~2bp lower.
• 10s register fresh June lows at 4.447%, May lows at 4.408% present the next major area of downside interest.
• 2s10s holds below 60bp after yesterday’s close below, while 5s30s hasn’t closed below 120bp since June 13 (121.6bp last).
• Fundamentals point to more steepening (further BoE cuts, with dovish risks, alongside limited fiscal headroom), although already crowded positioning, as well as a more activist approach from policymakers when it comes to containing spikes higher in long end yields, present risks to this idea.
• BoE’s Lombardelli will speak this morning (09:45 London). She will give the opening remarks at the Bank’s conference on transforming monetary policy.
• BoE chief economist Pill (10:00 London) will then speak on “the interest rate conditioning assumption and monetary policy communication”.
• On the supply front, the DMO will come to market with GBP3.25bln of the 4.375% Jan-40 gilt this morning.