BOE: Mann on hold, increasing focus on non-energy goods inflation

• In the FI space, Bund futures have traded lower once again, today, as the contract extends the reversal that started Feb 5. Price is through an important short-term support at 132.12, a trendline drawn from the Jan 15 low. The breach strengthens a bearish theme and signals scope for an extension towards 131.59 next, the 61.8% retracement of the Jan 14 - Feb 5 bull leg. Below 131.59, lies 131.00, the Jan 25 low and a key support. Initial firm resistance to watch is 132.97, the Feb 13 high.
• A bull cycle in Gilt futures remains in play and recent weakness appears corrective for now. The climb on Feb 13 is a positive development and appears to be a bullish engulfing candle pattern. A continuation higher would open 94.35, the Feb 6 high and a bull trigger. Clearance of this level would open 94.75, the 76.4% retracement of the Dec 3 - Jan 13 bear leg. The next firm support to watch lies at 91.52, the Jan 24 low.

SONIA FIX - Source: BBG/ICE

• 1M 4.46250 -0.002
• 3M 4.43100 -0.0023
• 6M 4.32810 -0.003
• 12M 4.19330 -0.006

Although basket re-weighting effects played a role in pushing Swedish January CPIF ex-energy above consensus and Riksbank forecasts, there was enough strength in underlying price pressures to support market pricing, which assigns a ~25% implied probability of a 25bp cut in March (according to latest estimates from SEB).

• On a seasonally adjusted basis using the X-13 methodology (and data going back to 1995), CPIF-ex energy prices rose 0.71% M/M, the highest reading since February 2023. Sequential strength was more pronounced in goods ex-food (0.98% M/M) than services (0.71% M/M).
• 3m/3m seasonally adjusted CPIF-ex energy inflation momentum rose to 3.11% (vs 2.50% prior).
• Meanwhile, the proportion of sub-components with annual inflation rates between 1-3% fell to 17% from 21% in December.
• Basket re-weighting effects pushed up the January CPIF ex-energy monthly reading by 0.21pp (above consensus estimates), while the annual rate is expected to be pushed up by 0.31pp on average across 2025.
• The Riksbank have been cognizant of increases in expected prices and PPI in recent months. The January CPI report may be an early indication of feedthrough into consumer prices.
• However, we don’t expect the Board to overreact to one month of data. In a recent speech, Deputy Governor Per Jansson said that “if confidence in the inflation target is high, it is also possible to allow slightly larger and slightly longer deviations from the target without monetary policy having to react fast and forcefully”. Inflation expectations data due tomorrow is expected to reaffirm medium-term confidence in the target.