Research

All eyes remain on anecdotal news on how depositors in Greece and outside the country are reacting to the recent events. In terms of economic data releases, the main focus will be on flash PMIs for May.

The central bank (PBoC) cut reserve requirements by 50 bp last weekend, thus continuing to ease monetary policy. However, the pace remains slow, and we do not think the PBoC is done yet.

The upcoming auction has potential to disappoint.
Positioning in the market is less supportive than it has been for a long time as dealers are no longer short and unlikely to continue buying much more supply at current levels.

New elections have been called in Greece and so we look at the timeline of what might happen in the coming months and the consequences if a solution to Greece’s problems is not found.

Fed chairman Bernanke may effectively already be a lame duck as he is likely to step down in early 2014 and his dovish views appear to be increasingly isolated within the organisation. This could be a huge issue going forward.

Central bank hinting rate cuts, the proximity of the European drama and the record low yields in the EM universe makes the CZK among the least attractive in the class for now…

With market strains increasing rapidly, the ECB remains the one with the capacity to react fast. After the ECB has acted first to try to bring some calmness to markets, something could happen on the government front as well.

CPI figures for April surprised the market on the upside.

Today’s key figure relases showed a somewhat better growth performance for the Euro area as a whole than expected.

An updated calculation based on the revised national budget for 2012 shows that Norges Bank definitely will continue to purchase foreign exchange throughout this year.

The Brazilian real got hit hardest among the commodity and EM FX so far this year, with USDBRL reaching the 2.00. I expect CB support above and see BRL regain vs other EM FX near term…

The change in the deficit seems to be about ¼% point above Norges Bank’s forecast from the March MPC report, i.e. somewhat more expansionary, but probably not enough to have a strong impact on Norges Bank’s view.

Greek elections and contagion risks still the major story. We are keeping our forecasts basically unchanged.

The Greek situation will continue to grab the headlines. Euro-zone Q1 GDP will likely confirm the zone has fallen into another recession, while US April retail sales growth likely weakened notably compared to March.

State Treasury Finland will re-open RFGB 1.875% Apr 2017 on Monday, 14 May 2012. With short rates virtually at zero, the search for pick-up in definitely on. We find maturity extensions from shorter German, Dutch and Finnish bonds into the 5-year Finnish auction bond attractive.

Probably the most important debate on US monetary policy is whether there really is an aggregate demand shortfall, and as a result, a negative output gap. If the answer is yes, then the Fed should continue supporting the economy. If the answer is no, monetary policy should soon be tightened.

Yesterday the Riksbank announced that it will launch a 10 bn SEK bond portfolio. When looking through the details, some interesting conclusions can be drawn…

News that the Democratic Left have tentatively agreed to participate in a grand coalition offers hope of a new Greek government being announced this weekend.

GDP growth held up in the Baltic countries in Q1. This reduces fears that the slowdown in the euro area would weigh significantly on the Baltic economies this year.

According to the Financial Times, Spain could be offered an extra year to hit the 3% of GDP deficit target. This is likely a step in the process, where the strategy of front-loaded austerity measures is rethought and economic growth given a higher priority.

Chinese inflation slowed in April in line with expectations. This leaves room for fruther reserve requirement cuts.

The Reserve Bank of India announced new restrictions on the FX markets in order to stop the INR from weakening further. This will, however, only offer temporary relief.

During the years with the present majority government, the revised budgets presented in the spring have contained few, if any, new initiatives on the expenditure or income side.

Norges Bank therefore concludes that it has not changed view on interest rates significantly

The expected slowdown in Chinese commodity imports finally showed up in preliminary April trade data and seems in-line with both our and the market’s expectations.

Norges Bank will most likely conclude that inflation is broadly in line with its forecast.

The Central Bank of Russia kept interest rates unchanged today, in line with our expectations. We expect the CBR to stay on hold in the coming two months at least, but will hike rates in H2 as inflation picks up.

The Chinese trade surplus surprised on the upside, while the weak import figures raise worries regarding domestic demand. We expect growth to remain slow in Q2.

With German bonds enjoying strong momentum, yields could fall even further. The pricing of a risk of some sort of a Euro-zone break-up will likely increase on the back of the Greek situation, while the Spanish situation continues to be another source of uncertainty.

At the moment all eyes are on the uncertain political conditions in the Euro area and Saudi Arabia flooding the market with oil. Until Iran and the P5+1 countries meet on 23 May, we believe oil prices will remain elevated. But as we move into Q3 and demand seasonally rebounds we expect oil prices to pick up steam.

The recent correction in risky asset markets has also sent residual fuel oil prices sharply lower. We still see a risk of specific tightness in global fuel oil supply over the summer. See our latest webcast where we discuss the outlook for residual fuel oil.

The Danish government has presented a new plan describing the long-term problems that the economy is facing and offers the government’s view on how the structural public budget can be restored up to 2020.

April inflation will not influence the rate deci-sion. But a reading differing strongly from Norges Bank’s forecast could have an im-pact on the wording at the press conference.

The Central Bank of Russia will not change rates and will stay on hold in the coming two months at least.

Unchanged interest rates are fully discounted and the signals from Norges Bank will de-termine whether we will see any reactions from the market.

With 99% of the votes from Sunday’s general elections counted, the two “big” parties – the conservative New Democracy and the socialist PASOK – won 149 seats in the 300-seat parliament and hence lack two seats to form a majority coalition.

Norges Bank April Regional network (business survey) says growth has been “somewhat stronger than expected”.

Markets are expected to set out with a negative tone towards risk today after the uncertain Greek election outcome and the very soft US employment report Friday. Hollande won in France, as expected.

While the soft April employment numbers leave the door open for further monetary easing, the report isn’t bad enough to force the Fed to announce QE3 at the 19-20 June FOMC meeting.

We expect CPI to have risen by 0.3% m/m and 1.4% y/y in April. Inflation pressures are modest and inflation is falling.

The Labour Force Survey (LFS) unemployment rate was 3.2% in February compared to 3.3% in January (revised up from 3.2%). Consensus and Nordea was 3.2%.

Our latest update on Norges Bank, NOK rates and FX.

Our latest take on Nordic and Global financial markets and economies.

The ECB decided to keep interest rates unchanged at today’s meeting and gave no new signals.

Outlook for next week’s key figures and events in the US, the euro area, China, Japan, UK, Canada, Switzerland, Australia and New Zealand.

In conjunction with its convergence report for 2012 the government has updated its budget forecasts. As a result, there may be fewer new issues and/or increased buyback of government bonds later in the year.

We revise our forecast for the Riksbank. We still look for two additional rate cuts this year, but not until the autumn.

While QE3 is still expected to be announced in June, too little Fed tightening is priced in longer out.

The CNY has in recent days taken advantage of its broadened band, as the fixing has been pushed clearly higher. We still expect a gradually stronger CNY towards the end of the year.

Additional crisis measures are not on the cards at the ECB meeting today – but we see an increasing risk of an additional rate cut if the expected recovery of the Euro area fails to materialise.

Standard & Poor’s upgraded Latvia’s credit rating to investment grade (BBB-). This is positive news for Latvia and highlights the stability of the economy.

Today’s PMI numbers increase the concerns about growth in Italy and confirms the gradually worsening growth momentum in the Euro area in total

Both manufacturing sector PMIs – the HSBC/Markit index and the NBS’s official PMI – rose in April. The indices remain, however, at very divergent levels, increasing the uncertainty of the Chinese economic outlook.

Following recent evidence of slower US growth, the April ISM manufacturing survey was a pleasant surprise.

S&P changes its outlook from “positive” to “stable” but we are still positive on TRY.

When South Sudan finally gained independence from Khartoum, we warned against the risk of increasing political tension as several critical issues had not been resolved before the separation. Unfortunately we were too right in our warning.

After a strengthening early on in the year, many Asian currencies have held steady over the past month or two.

Confusion probably best describes market sentiment these days. The European situation shows little sign of improvement while the new Fed communication policy if anything is creating less clarity. Yields will stay low while the pendulum swings between risk-on and risk-off. Longer-term investors should not look to add more risk just yet.

Italian and Spanish bond yields rose notably in March despite continued support from domestic banks. This does not bode well for the future, as the pace of purchases by banks is not at least set to increase.

At 2.2% US GDP growth was probably only slightly weaker than the Fed’s expectations for Q1. However, I believe the Fed’s growth forecast will be challenged more in Q2.

Bond markets appear due for a correction, but we expect next week’s events and economic data only to add to the gloomy sentiment.

Calmer waters in the oil market have sent implied volatilities in crude option prices to 5-year lows. We argue that event risks are plentiful in the coming months.

The March figures for retail sales and consumption of goods show a strong momentum in private consumption at the beginning of 2012. There might be some “Easter effects”, but still Q1 is very strong and stronger than Norges Bank’s forecast for growth in private consumption.

Yesterday’s move by Standard & Poor’s to downgrade Spain’s rating by two notches brought rating news back to the spotlight. More downgrades are likely in store, as austerity measures bite amidst an uncertain economic outlook.

The number of registered unemployed and those on special labour market schemes increased in April seasonally by about 550 persons.

The Finnish economy most likely outperformed our forecast in Q1. While exports have rebounded just the way we expected, retail sales have been surprisingly strong.

The HUF and HUF assets rallied on Tuesday’s hints and yesterday’s decision from the EC to enter the negotiations on financial assistance. But we believe it is too early to be relieved yet.

Federal Reserve chairman Bernanke said Wednesday that further bond purchases by the Fed remain “very much on the table”, if the economy needs further support. But it will require weak economic data for QE3 to be announced in June. And this is what I still expect to see.

Pressure on the INR is to remain until the domestic problems are resolved, but longer term strengthening is still intact. Thus we have revised up especially the short end of our INR forecast.

The need for additional crisis measures from the ECB has diminished, but interest rate cuts have become more likely!

Following the good start of the year, EM currencies did not hold on to the gains. Yet the orderly gradual EM FX decline has not produced much volatility creating the impression of a bomb waiting to explode if only another “black swan” event strikes.

At this week’s two-day FOMC meeting that concludes on Wednesday, the Fed will signal no change in the current policy stance. The Fed’s no to QE3 risks triggering a further sell-off in risky assets and a stronger USD.

The big central banks have turned out to be much less inclined to QE than expected. We no longer expect QE from the Bank of England in May.

The fall of the Dutch government illustrates how hard introducing austerity measures is in the core countries as well. If even the core countries show reluctance to meet the budget limits set by the EU, bringing back confidence towards the currency union and its rules is certainly not going to succeed.

Next week’s calendar looks quite interesting, with the main focus in the US on the 2-day Fed meeting concluding on Wednesday.

Presidential elections due on 22 April and 6 May. Conservative Sarkozy and Socialist Hollande are neck to neck for the first round, while Hollande looks like a winner for the run-off.

Today’s Spanish bond auctions received, again, more attention than probably warranted as the results do not really tell us that much new about the underlying demand.

The main reason why rates were left on hold today is that in the Riksbank’s view, monetary policy is already expansionary. Also, the Riksbank seems unwilling to cut rates further and this leads us to raise our repo rate forecast, with the repo rate now bottoming at 1.00% instead of 0.75%.

Fresh data showed Spanish house prices falling by 2.9% q/q in the first quarter of the year. Until the housing market stabilizes, uncertainty is likely to prevail.

The decision not to bring inflation back on target faster through lower interest rates is, according to Norges Bank, based on its wish to secure financial stability.

The G20 finance ministers will likely agree on increasing the resources of the IMF later this week. Such a decision, though not insignificant, is unlikely to change the course for markets.

Our senior analyst, Bengt Roström has published a Sweden update.

The significance of today’s successful Spanish T-bill sale should not be overplayed. The auction size was rather modest, though Spain did pay less for its 1-year funding compared to Italy last week. Thursday’s bond auctions will be more interesting.

The reserve bank of India today cut its repo rate by 50bp from 8.50% to 8.00%, which was more than the 25bp expected. The rate cut is a welcome boost to the struggling Indian economy.

Oil prices fell by more than 1% this morning following talks between Iran and the so-called P5+ 1 countries. After more than a year without negotiations the restart of talks has raised hopes that Iran and the West will finally be able to strike a deal over Tehran’s nuclear programme.

We see rates continuing lower in the coming months and the EUR/USD unchanged around the current levels.

Most news stories only report the jump in overall central bank borrowing by Spanish banks in March, but miss the increase in funds Spanish banks have in reserve to meet future funding needs. The funding position of Spanish banks – like that of the Spanish sovereign – is actually relatively good at the moment.

The trading band of the CNY around the USD was widened from +/-0.5% to +/-1.0% around the central parity set by the central bank, which was no huge surprise after recent comments.

Our chief analyst, Torbjörn Isaksson have published a central bank watch ahead of Riksbank’s rate decision Wednesday 18 April.

Although Fed officials continue to signal no imminent QE, I still expect QE3 to be announced in June.

We do not expect next week’s economic data offerings to convey a particularly encouraging message. Here is what we expect from the week ahead.

The Chinese economy grew by 8.1% y/y in Q1 – the weakest in almost three years. The GDP figures thus confirm the already established view of a continued slowdown in the Chinese economy.

New lending in China reached CNY 1010bn in March, picking up clearly from January and February. Although this supports expectations of a gradually turning Chinese economy, we continue to expect further reserve requirement cuts this year, as the economic outlook remains fragile.

Economic activity indicators have shown that the Polish economy is finally losing momentum, but the slowdown this year will not be dramatic.

The US government might be bumping up against the debt ceiling already by end-September, at the height of the presidential election campaign and significantly earlier than many analysts seem to expect.

Based on impressions from Hong Kong and Shanghai: We expect mostly negative news in the coming months, but the real challenges are in the medium term – in finding Modern Chinese Communism.

Even though the recent rise in Italian yields is worrying, the threat of an immediate funding crisis remains limited. Still, the pressure on Italian bonds is likely to continue in the near future.

Higher petrol prices are weighing on demand, and US petrol demand for Q1 is down by 5.6% compared to last year.

The huge liquidity sloshing around is boosting the safest asset classes again, while Spanish and Italian bonds remain under pressure. This is likely to continue, until we see some better economic data again.

Oil prices have been pushed up by around USD 10/barrel this year by the introduction of Iranian oil sanctions and the risk of an Israeli attack on Iran’s nuclear facility.

Core inflation one tenth above Norges Bank’s forecast should not have any strong effect on its view on rates, especially when the volatile airfares explain between 0.1% and 0.2% points of the rise in core inflation.

Notable flight-to-safety demand has taken place today ahead of the Easter holidays. Even though the drivers are real, one should not over interpret the moves seen on thin markets ahead of a long weekend, with also tomorrow’s US employment report creating uncertainty.

Steady as he goes was the keyword for the ECB meeting today. All interest rates were left unchanged and the ECB did not announce any new liquidity operations.

Yesterday’s Fed minutes sent a signal that the central bank is not tilted towards more quantitative easing any more. Such a message opens more room for espcially longer US Treasury yields to rise from current levels.

Today’s Spanish auction results further illustrate that the support from the ECB’s 3-year refinancing operations is waning. Spanish yields will likely continue to lurch higher, leading to higher uncertainty about the Euro-zone situation again.

Politcal tension pushes oil prices to new highs, Obama is struggling with high petrol prices before the election and shale oil production is booming in the US. A discussion of Nordea’s updated oil prices forecast and risk scenarios.

Drive slowly – don’t rush if you are going to your holiday home this Easter – petrol prices are expected to remain high.

The differing collateral policies implemented by national Euro-zone central banks put banks in various parts of the Euro-zone in different positions. Such policies increase worries about the cohesion of the Euro zone.

The huge amount of excess liquidity in the Euro-zone banking system is still favouring a flatter curve, carry is positive for flatteners, while the curve tends to flatten, when short rates start to rise. The 2-5-year curve should still have flattening potential left.

Our chief analyst, Torbjörn Isaksson have published a central bank watch regarding the Riksbank.

We don’t believe Norges Bank was surprised by today’s credit growth figures. These figures have shown the same tendency for a long time – that total credit growth is increasing slowly and that is probably in line with Norges Bank’s view.

Earlier today the Eurogroup announced that the total size of the Euro area’s firewall will be raised from EUR 500 bn to EUR 700 bn. This is a welcome move – which should have a positive effect on markets as well – if they can be bothered to care now that the ECB has doped everyone with the two 3-year LTRO’s.

The March inflation readings are due out on 10 April. We forecast core inflation (CPI-ATE inflation) at 1.3% y/y, unchanged from last month. If we are right, inflation will be only marginally below Norges Bank’s forecast and nothing much will happen.

Spanish yield spreads are rising ahead of the Spanish government’s presentation of a supplementary budget for 2012. We think the government can pull out of the crisis if the it keeps the momentum behind structural reforms and consolidation.

Retail sales figures for January and February are strong and on the strong side to Norges Bank, but we need a few more months’ data to be convinced that this is the new trend in retail sales.

Spanish and Italian bond yields are likely to continue to creep higher, as the support from domestic bank buying fades. Such market action will likely increase general worries about the course of the debt crisis, keeping German bonds well-supported.

March unemployment figures suggest the trend in unemployment is slowly downwards and this is well in line with Norges Bank’s view.

The retail sales figures for February and January will show how strong Norwegian consumers started in 2012. If we are right in our forecasts for January and February retail sales, the trend in retail sales is more or less in line with both our and Norges Bank’s view. But if the consensus forecast is right, the trend is much stronger and on the upside to Norges Bank’s forecast.

Fresh data from the ECB show that Italian and Spanish banks continued to purchase solid amounts of government securities in February. No doubt the ECB’s 3-year LTRO is the main reason behind this move – driving Italian and Spanish yields lower.

The ECB’s bond purchases have been very modest recently. Arguably, bigger purchases would not even have been necessary lately. However, the Securities Markets Programme of the ECB has become more of a blunt weapon also in general, and has less potential to fight the debt crisis, if the need arises again.

Prices to trend higher as global demand rebounds.

Traffic in Shanghai and the business climate in China seem to have much in common. If you look before crossing the street – either left-right or for the green light – then bicycles, scooters and cars alike will cross ahead of you, no matter the traffic rules.

Nordea has released it Economic Outlook for March 2012, signalling a return to optimism with the title: “A glimpse of hope”.

Oil prices are expected to remain high over the forecast period as the EU/US sanctions and oil embargo targeting Iran’s oil exports and economy will continue to be a bullish factor for oil prices through a tightening of oil fundamentals and elevated geopolitical risk.

Renminbi internationalisation might be relatively swift. Gradually extending the use of CNH to include more capital transactions and promoting local currency invoicing among Chinese companies are likely ways to continue the process.

The outlook for Dutch bonds looks much more clouded than that for their Finnish counterparts. Whereas Dutch bonds are burdened by political uncertainty, big deficits and another economic recession, Finland is making headway to balance its books.

The batch of good economic news seems to have run its course, suggesting financial markets might be at a new turning point.

The economy is slowing, house prices are falling, market-based construction has stalled, and local government debt is a key concern. Yet the real challenges are in the medium term – in modernising China.

Risk is mispriced, again. And hence caution is still essential. But unless some of the key risks actually materialise, we are most likely to see Emerging currencies drift stronger over the coming months.

The decline in composite PMI was driven by a 1.3 index point fall in manufacturing PMI to 47.7 in March.

Updated trade figures published today show that China has cut imports of Iranian crude by 45% m/m or around 290k b/d in February.

The next leg upwards for base metals, notably copper and aluminium, could be approaching. Copper and aluminium buyers should therefore be aware and consider hedging their price risks accordingly.

Today’s LFS unemployment could indicate that Norges Bank underestimates the downward trend in unemployment. So far however it is too early to conclude that unemployment is on the downside to Norges Bank’s forecast.

Greece sold EUR 1.3n of 13-week T-bills at a yield of 4.25% today, down from 4.61% in February and the lowest since last May. However, confidence in the country is not about to return.

The recent sell-off in bonds has shown little signs of abating. One only needs to look back to the past couple of years to see that yields can see a substantial jump without major changes in central bank policy.

The main Euro-zone bailout fund launched a new 20-year benchmark at a cost closer to Belgium than France. Such funding levels do not exactly illustrate high confidence in the facility, while the high funding needs of the EFSF will put pressure on its funding costs to increase further going forward.

We doubt that Saudi Arabia’s latest efforts to calm the oil market will alone be enough to cool sentiment or bring oil prices down to the Kingdom’s desired USD 100/barrel level, as OPEC’s effective spare capacity will quickly fall below the comfortable threshold of 3% of global supply.

Despite its high debt, the Italian situation actually looks much better compared to Spain on many measures.

Norges Bank lowered its key rates by 25 bp to 1.50%. Both consensus and Nordea was 1.75%. 1.75% was also priced in. The interest rate forecast is flat at 1.50% until summer 2013 when it forecast gradually higher rates.

Today’s successful Italian bond auctions were another illustration of how the ECB’s 3-year liquidity injections have succeeded in changing the course for the government bond markets.

It is too early to call the end of the commodities boom.

Norges Bank will most likely conclude that inflation is about as expected in the upcoming monetary policy report. Despite the strong NOK we see the chance of a rate cut as rather small on the upcoming MPC meeting.

The ECB kept all interest rates unchanged at todays meeting. At the same time Draghi used the press conference to signal stable rates ahead, while further 3-year LTRO’s are off the table.

We are turning more optimistic on the Polish economy. The resilience so far has been surprising and now the risks coming from abroad seem to be reduced. Stronger PLN and rate cuts in the second half of the year.

GDP data for Q4 2011 were broadly in line with estimates based on earlier released tentative data for 2011 as a whole. We have decided to revise our GDP growth forecast for Poland for this year (to 3.1% from 2.5%).

High and increasing oil prices could jeopardise the economic recovery and reduce the chances of President Obama being reelected. The sharp upswing in oil prices is also a major concern for other net oil-importing countries.

After the record breaking allotment of EUR 523 bn in the ECBs second 3-year Long Term Refinancing Operation, attention has once again turned to the build-up of Target 2 balances.

Brent oil prices jumped by more than USD 4/barrel to USD 127.80/barrel yesterday surpassing last year’s high, on rumours of a pipeline blast in Saudi Arabia.

One should careful to make too much out of one single month’s figure, but it seems like private consumption started very strong in 2012 with consumption of goods in January being about 2% higher the average for 2011 Q4. If this trend continues, the very strong Norges Bank forecast for private consumption in 2012 is actually reasonable.

Oil prices measured in euros reached an all-time high last Friday at EUR 93.26/barrel, just surpassing the previous record from 2008.

Despite the slight increase in unemployment today’s figures confirm the strong picture. Capacity utilization and domestic growth are as high as Norges Bank forecasted in October or if anything higher. Despite that we will see no rate hike in the near future with the very strong NOK, a weaker international outlook and still higher spreads in credit markets than expected in the October report.

The scene is set for further “risk on” after the ECBs second 3-year Long Term Refinancing Operation (LTRO) resulted in allotments of EUR 529.5 bn.

Norges Bank has published its Q1 regional network report (a business survey done in January). Read about the results here.

Considering the macro risks hanging over the global economy, we argue that markets may be too complacent. We see four downside risks that could materialise this year, undermining global growth and eventually negatively affecting investor confidence and market valuations of risky assets.

Ahead of the ECBs next 3-year LTRO it is interesting to note that the first 3-year LTRO from December prompted Italian and Spanish banks to go on a bond purchasing spree in January.

Putin is under pressure to secure progress for the middle class going forward and to reform. Political stability for the coming presidential term is by no means given!

Hardly has the dust settled on the endgame for Greece than new threats to global economic growth emerge on the horizon.

The outcome of today’s Q4 GDP is important ahead of the Riksbank’s interest rate decision in April. Our GDP forecast is considerably below the central bank’s, suggesting an easier monetary policy stance.

Spain saw its T-bill yields plunge in an auction earlier this week. 3-month bills were sold at an average yield of 0.40%, whereas still in November the corresponding yield was 5.22%.

The ECB will release the results from its second 3-year operation next week and expectations have been set high that another huge liquidity injection would boost markets again.

Friday the Brent oil price reached a new all-time-high at EUR 92.26/barrel breaking thebold record from July 2008 at EUR 91.49/barrel.

It’s exciting times in the oil markets and yesterday the Brent Oil price reached USD 120/barrel for the first time since June last year.

As expected, today the Riksbank announced its decision to trim the repo rate by 25 bp to 1.50%. In motivating its decision, the bank notes that inflation is low and that Swedish economic growth has slowed more than anticipated.

We have raised our baseline average Brent oil price forecast for 2012E to USD 118/barrel from our 1 December forecast of USD 109/barrel.

Norway Mainland Q4 GDP growth was 0.6 %q/q compared to our forecast at 0.4% and consensus of 0.5% q/q.

The EU/US sanctions and oil embargo targeting Iran’s oil exports and economy are having a big impact already.

Core inflation measured by CPI-ATE came out at 1.3% y/y in January compared to 1.0% in December.

Contrary to expectations, inflation broke a five-month easing trend in January. Monetary easing still expected, but pushed back.

A downward adjustment of the GDP forecast and prospects for a poorer labour market, in combination with low inflation, give the Riksbank few alternatives other than to cut the rate by 25 points at next week’s monetary policy meeting.

The Czech economy has been seen as the safe haven or the Switzerland of Central and Eastern Europe. However it is very vulnerable to new risks!

Until the end of 2011 it has not seemed strange that the Polish central bank sounded hawkish, despite gloomy economic prospects related to Euro-area debt crisis.

We expect oil prices will trade around the current level at USD 110/barrel if the verbal war between the West and Iran continues.

Greece seems to be very close to a deal on a voluntary debt rescheduling, which could be announced later this week.

Three topics are worth mentioning about the EU summit Monday

Nordic countries are among the few still qualifying for top ratings. However, this has not always been the case, and the Nordics will not retain their high ratings unless their public finances continue to outperform German public finances.

Recent weak Swedish data motivates a downward revision in our Q4 GDP forecast. In turn, this will lead to lower employment and higher unemployment in 2012.

Inflationary pressure is deemed moderate this year, which opens up for further rate cuts from the Riksbank. The year starts with a 0.6% m/m dip in CPI in January.

The Swedish Riksbank follows labour market trends closely and has adjusted its repo rate in correlation to the unemployment rate in no less than 95% of cases over the last 10 years. Based on this, we have formulated a simple rule of thumb for the Riksbank.

Euro area PMI’s surprised on the upside – driven by Germany.

France and Austria’s top AAA ratings fell victim of the sovereign debt crisis Friday night, when S&P downgraded nine of 16 Euro countries.

Many interesting and globally important stories in easily digestable format.

Michael Palin once said in a famous Monty Python sketch: “And you try and tell the young people of today that ….. they won’t believe you.” And at the risk of sounding old-fashioned, I’m actually not in doubt that the crisis in the late 1980s and the early 1990s was much worse for the average person than the current crisis. Though I do understand if young people today won’t believe me.

VIDEO – Hungary has been one of the top stories in the Emerging Market universe in the past few months. With the country downgraded to “junk” now by all agencies IMF help is being negotiated.

Who will replace Hu? When will Wen step down?
– Here is what you need to know about the change of leadership.

Today’s fresh data from the US labour market in December certainly shows an economy that has picked up steam in the second half of 2011.

The continuous downgrade of strong rated issuers is making high quality collateral a scarce resource.

Making a case for why an improvement could be lurking beneath the fog of doom and gloom.

We are turning more negative on the economic outlook for this year.