Sweden’s industrial production value rose by 5.1% month on month in December. This followed a -0.1% change in the previous month.
The recently released December data shows a significant 5.1% month-on-month jump in industrial production, a sharp reversal from the previous month’s contraction. This is a powerful bullish signal for the Swedish economy that we believe the market has not fully priced in. We should consider this a catalyst for upside in Swedish assets over the coming weeks.
This unexpected strength makes the Swedish Krona (SEK) look undervalued, especially against the Euro. With the Riksbank trying to maintain its 2% inflation target, this strong growth data reduces the likelihood of any near-term rate cuts. We are looking at buying SEK call options or selling EUR/SEK futures, anticipating a move towards the 11.10 level last seen in late 2025.
For equity markets, this report directly benefits the industrials-heavy OMXS30 index. Companies like Atlas Copco and Volvo, which make up a substantial portion of the index, are likely to see positive earnings revisions. We see value in buying call spreads on the OMXS30, targeting a 3-5% rally before the end of the first quarter.
This data also shifts the outlook for interest rates, as the strong economy may force the Riksbank to adopt a more hawkish tone. Swedish 10-year government bond yields, which have been stable around 2.5%, could face upward pressure. This makes shorting Swedish bond futures an attractive hedge or a standalone speculative position.
Finally, such a large deviation from expectations introduces volatility into the market. Implied volatility on OMXS30 options has been hovering near a low of 15%, a level that now seems too complacent. We can position for an increase in market uncertainty by buying straddles on key industrial names that are set to report earnings.
