Other Survey Based Indicators Pointed To Continued Growth
Other survey-based indicators pointed to continued growth. The recovery view remained unchanged. Uncertainty linked to the war in the Middle East was expected to influence the Riksbank’s approach. The central bank was expected to keep a cautious, wait-and-see stance at next week’s monetary policy meeting. Looking back at the data from early 2025, we saw a temporary dip in GDP driven by weak construction and manufacturing. At the time, we maintained our view of a healthy recovery, anticipating the Riksbank would remain cautious. This expectation for a wait-and-see approach from the central bank proved correct through the end of that year. However, the anticipated strong recovery has been more sluggish than we initially forecasted. Recent data from Statistics Sweden shows GDP growth for the fourth quarter of 2025 was a modest 0.2%, and early 2026 indicators point to similar tepidness. More importantly, inflation has ticked up unexpectedly, with the latest CPIF reading at 2.4%, slightly above the Riksbank’s target.Markets Reprice Uncertainty In Rates And Volatility
This creates a divergence, as the Riksbank now faces the dual challenge of slow growth and persistent inflation, making their next move highly uncertain. This uncertainty is increasing the premium on interest rate swaptions, as the market is no longer confident in a clear path of rate cuts. We see this as an opportunity to position for higher rate volatility over the next few months. Consequently, the Swedish Krona has weakened, with the EUR/SEK cross moving from around 11.20 in late 2025 to over 11.45 today. Implied volatility on EUR/SEK options for the coming quarter has risen by over 15% in the last month, reflecting the market’s nervousness. Traders should consider strategies like long straddles on the Krona to profit from a significant move in either direction. The slowdown is also weighing on the domestic stock market, particularly cyclical sectors tied to manufacturing and construction. We are observing increased demand for protective put options on the OMXS30 index. This suggests that traders should be cautious about long equity exposure and could use derivatives to hedge downside risk in the coming weeks. Create your live VT Markets account and start trading now.
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