We are approaching the Riksbank's second monetary policy decision of the year (the decision will be announced on April 27). The March inflation figure was a clear disappointment and, when evaluating developments since the February meeting, there are a number of other factors on the negative side. On the other hand, the economy is going at full speed. Overall, our view of the Riksbank remains unchanged: the repo rate path remains static and there are no increased bond purchases after the end of June. However, the risk scenario is on the dovish side.
- EUR: Option volatilities indicate great fear of "Frexit"
- EURSEK: Increased volatility next few weeks
- EURUSD: Still USD-bull despite inflation miss
Optimism is growing
Global optimism, coupled with strong economic data, has spilt over into an expectation of a self-fulfilling global recovery. We see three driving forces behind the pick-up in global economic activity since last au-tumn. The first two relate to stimuli from central banks' monetary policy and the expansive policy in China. The third is the recovery on the commodity markets - particularly for the price of oil. The optimism since the US election in November last year has generally been regarded as a "Trump trade". We believe, however, that the stronger economic sta-tistics are largely an effect of the three factors men-tioned above, rather than of President Trump. Togeth-er, these three driving forces have been strong enough to lift the economy and growth expectations, but the effect will subside later in 2017, and it will probably be difficult for President Trump to compen-sate for this.
OPEC to extend the agreement?
The half-yearly OPEC meeting in Vienna was a show of strength from the slumbering cartel. No sooner have the fuel pumps been cut off than the focus is on the group extending the agreement at the next meeting on May 25. The market expects an extension, but we argue that a surprise departure from the agreement is actually not that unlikely. We believe that the oil price will approach USD 40, regardless of the outcome of the OPEC meeting.
Base metals to follow China's mini-cycle
It looks as if China's 2016 recovery will be further maintained. The latest data harvest points to at least another six months of strong activity.