BRAZIL: Pressure on Local Assets Extends, BRL Declines 2.8% This Week

We've just published our preview of the Eurozone January flash inflaiton round - PDF Analysis Here:

January2025EZCPIPreview.pdf

• The Eurozone January flash inflation round is split across two weeks, with Spain, France and Germany providing data on Thursday/Friday (Jan 30-31), before Italy and the Eurozone-wide prints cross on Monday.
• The data will set the tone for inflation developments through the rest of this year, with the annual basket reweighting taking place alongside regular annual price resets in several categories.
• The MNI median of sell-side forecasts points to headline at 2.4-2.5 % Y/Y (vs 2.4% prior) and core to remain at 2.7% Y/Y.
• Headline inflation is likely to be upwardly impacted by an acceleration in Brent crude and natural gas prices in January, while services inflation remains in focus for the core measure.
• The ECB are considered near-certain to cut rates by 25bps at its January 30 meeting, with a subsequent 25bp cut in March almost fully priced - but there remains uncertainty around the speed and magnitude of cuts beyond Q1, with inflation data a key input into those decisions. 

ERH5 and ERM5 futures saw the most meaningful OI swings on Tuesday. H5 OI fell 34k (indicative of net short cover) while M5 OI rose 23k (indicative of net short setting).

• Total ERM5 OI reached a fresh high of 712k yesterday.
• A mix of net short setting and net long cover was observed in the rest of the strip. 

EXECUTIVE SUMMARY: 

• The Riksbank Executive Board voted unanimously to cut the policy rate by 25bps to 2.25%. This brings the policy rate in line with the December MPR rate path’s “terminal rate”, and also the mid-point of the Riksbank’s 1.5-3.0% nominal neutral rate range.
• The policy statement did not contain explicit forward guidance for further rate cuts, noting that “the forecast for the policy rate made in December essentially holds, but the Executive Board is prepared to act if the outlook for inflation and economic activity changes”. This was in line with the expectations in MNI’s preview, but some analysts had expected hints of another cut in H1 2025.
• Although the Governor did not respond to a question on the balance of risks to the December rate path, we think the use of “prepared to act” in the policy statement is clearly focused on the case for more cuts, rather than a surprise pivot to hikes.
• As noted in our preview, we continue to believe the Riksbank will be happy to cut rates below 2.25% if justified by the incoming data. 

FOR THE FULL PUBLICATION PLEASE USE THE FOLLOWING LINK.