Nordea’s Torbjörn Isaksson says weak Swedish CPIF data strengthens the case for a dovish Riksbank and lowers inflation forecasts
Sweden’s January CPIF inflation was confirmed at 2.0%. CPIF excluding energy was confirmed at 1.7%. The main downside surprise came from services inflation.
Core services inflation (excluding foreign travel and administratively set prices) fell and was below expectations. Car rental prices dropped, and hotel accommodation prices also fell, which was described as seasonal.
In the United States, quarterly PCE prices rose to 2.9% in Q4, beating the 2.8% forecast
US Personal Consumption Expenditures (PCE) prices rose 2.9% quarter-on-quarter in the fourth quarter. This was above the 2.8% forecast.
The Q4 2025 PCE price report came in hotter than expected at 2.9%. This suggests inflation was stickier than forecast heading into this year. That makes the Federal Reserve less likely to cut rates in the near term. Even though this is a backward-looking figure, it adds to a worrying pattern for markets.
Market Expectations Reprice
That worry is reinforced by last week’s January 2026 CPI report. Headline inflation rose to 3.2%, reversing the steady decline seen in the second half of last year. As of this morning, fed funds futures are pricing in less than a 10% chance of a March rate cut. Just six weeks ago, markets were pricing roughly a 75% chance. Expectations for monetary policy across the whole year are shifting quickly. In response, the 2-year Treasury yield has climbed back toward 4.6%, a level not seen since last November. Higher yields put direct pressure on equity valuations. This backdrop argues for positioning for more market turbulence. A similar setup played out in early 2024, when sticky inflation delayed rate-cut hopes and triggered a sharp, but brief, market drop. Derivative traders may want to consider buying put options on major indices such as the S&P 500 and Nasdaq 100. This can help hedge downside risk or profit if markets fall. The CBOE Volatility Index (VIX) is around 17, which is still low relative to past periods of policy uncertainty. That suggests options are not yet especially expensive, creating a potential opportunity to build defensive positions before volatility rises. Another approach is to use option spreads to express a bearish-to-neutral view with defined risk. For example, selling call spreads on technology-heavy ETFs can benefit from time decay if the market trades sideways or drifts lower under the pressure of higher interest rates. This can deliver downside exposure without taking the full directional risk of shorting futures outright.Defined Risk Options Positioning
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US annualised gross domestic product rose 1.4% in the fourth quarter. This came in below the 3% expectation.
This release suggests growth was slower than forecast for the period. No other figures were included in the statement.
Implications For Monetary Policy
The weaker-than-expected 1.4% GDP growth in Q4 2025 is a clear sign the economy is slowing faster than most expected. This raises the chance that the Federal Reserve will move away from its restrictive stance. Rate cuts may now arrive sooner, possibly before summer. With more uncertainty, equity market volatility may rise in the weeks ahead. The CBOE Volatility Index (VIX) sat in the low teens through much of late 2025, but it has already climbed above 19 this month. Buying VIX call options or protective puts on major indices like the SPX may be sensible defensive strategies. Rate futures are already reflecting this change. Fed funds futures now point to at least two cuts by year-end. The 2-year Treasury yield, a key gauge of Fed expectations, has dropped from 4.5% in January to just under 4.1% after the recent weak data. If this trend continues, trades that benefit from falling short-term rates may perform well. This outlook may also weigh on the U.S. dollar. Lower rate expectations tend to reduce its appeal. The dollar index (DXY) has already slipped below 103, a notable change after its strength through 2025. Currency options may be one way to position for further weakness, especially against the euro and the yen. This GDP report also supports other warning signs seen in January. The latest jobs report showed unemployment edging up to 4.1%. Recent retail sales also missed expectations, suggesting consumer spending may be softening. Together, these data points strengthen the case that the slowdown is real and may require a quick tactical response.Key Data To Monitor
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US personal consumption expenditures (PCE) price index inflation rose 2.9% year over year in December. This was above the 2.8% forecast.
The reading was 0.1 percentage points higher than expected. This suggests inflation was a bit hotter than markets predicted.
Implications For Fed Policy
Because December 2025 inflation came in higher than expected, we need to rethink the Federal Reserve’s likely path. The surprise increase in the PCE index suggests inflation is more persistent than many hoped. As a result, an early-2026 interest rate cut now looks less likely. This change is showing up in interest rate futures. Futures now point to a much lower chance of a March cut than they did a few weeks ago. For example, the market is pricing in less than a 40% chance of a cut at the Fed’s March 2026 meeting, down from over 75% at the start of the year. This shift supports the idea that rates may stay “higher for longer.” This outlook also supports using derivatives to hedge against, or potentially benefit from, higher market volatility. The CBOE Volatility Index (VIX) has already risen to around 17 from its late-2025 lows, and it could move higher. We are considering put spreads on major indexes like the SPX to help protect against a possible equity decline driven by still-high interest rates. In fixed income, the data suggests U.S. Treasury yields may keep rising as expectations for rate cuts move further out. The 10-year Treasury yield has already climbed back above 4.15% in February 2026 after strong economic data. Traders may consider approaches that can benefit from falling bond prices, such as shorting Treasury futures. This backdrop is also supporting the U.S. dollar. A more patient Fed stands in contrast to other central banks that may be closer to cutting rates. The U.S. Dollar Index (DXY) has gained over 2% since the start of the year.Positioning For Dollar Strength
We see call options on the DXY, or on related currency ETFs, as a direct way to gain exposure to continued dollar strength in the coming weeks. Create your live VT Markets account and start trading now.US monthly PCE price index beats forecasts, rising 0.4% vs 0.3% expected in December
US personal consumption expenditures (PCE) price index rose 0.4% month over month in December. This was above the 0.3% forecast.
The December reading was 0.1 percentage points higher than expected. It points to faster monthly price growth than the forecast suggested.
Implications For Fed Policy
This higher-than-expected inflation reading from late last year supports our view that the Federal Reserve will delay any potential rate cuts. The December PCE data signals that underlying price pressures remain stubborn. We should adjust our positions for a more hawkish Fed, at least through the first quarter of 2026. Since the December release, markets have sharply repriced rate expectations. The CME FedWatch tool shows the probability of a March rate cut has dropped from over 50% at the start of the year to below 20% this week. That shift suggests short-term interest rate futures could face more downward pressure. For equity markets, this points to higher volatility, especially in interest-rate-sensitive growth and tech stocks. The VIX has already moved up from below 14 in late 2025 to a steadier range around 17. Derivatives traders may want to buy protective puts on indices like the Nasdaq 100 or use bearish call spreads. The inflation signal was reinforced by a stronger-than-expected January jobs report. The economy added 225,000 jobs, beating estimates. A strong labor market makes continued wage growth more likely, which can keep consumption and inflation elevated. If this continues, a dovish Fed pivot looks unlikely in the near term.Positioning Across Major Assets
This environment is bullish for the U.S. dollar because higher rates tend to attract foreign capital. We expect the Dollar Index (DXY), already at a three-month high of 104.50, to test higher resistance levels. Long dollar positions against currencies with more dovish central banks, such as the euro or yen, may make sense. We remember a similar period of stubborn inflation in 2023, when the final move back toward the 2% target was the hardest. That experience showed the risk of positioning for rate cuts too early. The market is now facing that same reality again. Create your live VT Markets account and start trading now.US personal spending rose 0.4% in December, in line with economists’ forecasts
US personal spending rose 0.4% in December, matching forecasts.
This suggests consumers kept spending at a steady pace at the end of 2025. No further details were provided.
Market Impact And Fed Outlook
The 0.4% rise in December spending supports our view that the economy is growing in a steady, but slow, way. For derivatives traders, the lack of a surprise removes a major trigger for near-term market swings. We think this supports the Federal Reserve staying patient on interest rates into the spring. With markets absorbing expected data, implied volatility on major indexes may ease in the near term. We saw the VIX drop below 14 after similar in-line releases in Q4 2025, which benefited traders selling option premium. In this type of market, strategies such as iron condors on broad-market ETFs can be appealing, as they aim to profit from range-bound trading. Our focus now shifts to upcoming inflation data to help time the first possible rate cut, since steady growth alone is unlikely to push the Fed into action. Fed funds futures currently price about a 65% chance of a 25-basis-point cut by the June 2026 meeting. If inflation comes in hotter than expected, those odds would likely fall, which could increase volatility. Although spending held firm, the same December report showed the personal savings rate fell to 3.4%, continuing last year’s trend. This suggests consumers are using savings to keep spending, which cannot continue forever. Another drop in the next report could be an early warning sign for consumer discretionary stocks.Consumer Balance Sheet Watch
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US core personal consumption expenditures (PCE) price index rose 0.4% month on month in December. The forecast was 0.3%.
The result was 0.1 percentage points above the forecast. It shows core prices grew faster than expected.
Implications For Fed Policy
The higher-than-expected Core PCE data for December 2025 was an early sign that inflation was not easing as quickly as expected. It suggested the path back to the Fed’s 2% target could be bumpy. As a result, markets have had to rethink how soon the Federal Reserve might start cutting interest rates in 2026. This worry grew after the January 2026 inflation report released last week. It showed core CPI still high at 3.1%. The labor market also remains strong. Together, these factors strengthen the case for the Fed to delay any policy easing. That makes the upcoming January PCE report, due at the end of next week, especially important. Because of this uncertainty, interest rate markets may stay volatile in the coming weeks. The MOVE Index, which measures Treasury market volatility, has already reached its highest level since last October. Options strategies that benefit from volatility, not just market direction, may be useful. Since the start of the year, the market has sharply reduced expectations for rate cuts. Fed funds futures now show only a 25% chance of a cut by the June 2026 meeting. That is down from 70% just six weeks ago. This change supports trades that assume rates stay higher for longer, such as buying puts on longer-duration bond funds. This setup looks similar to early 2024. Back then, several strong economic reports quickly removed hopes for near-term rate cuts. The 2-year Treasury yield rose as markets moved closer to the Fed’s cautious stance. A similar move could be starting now if inflation continues to surprise on the upside.Key Comparison With Early 2024
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US personal income rose 0.3% month over month in December, matching expectations. This shows income growth continued at the forecast pace.
This report tracks monthly changes in income earned by individuals in the United States. Analysts watch it as part of broader checks on household finances and overall economic conditions.
Market Volatility Outlook
The December 2025 personal income figure was exactly as expected, which suggests a more predictable economic backdrop. With no surprise in the data, market uncertainty tends to fall. That points to lower volatility in the coming weeks. In this setting, strategies that benefit from range-bound trading may fit better than those that rely on sharp breakouts. This steady reading gives the Federal Reserve little reason to change its current wait-and-see approach to interest rates. January 2026’s inflation report showed a small cooling to 2.8%, and the stable income number supports the case for patience. This backdrop can favor selling volatility in rate-sensitive markets, since an unexpected policy shift now looks less likely. The CBOE Volatility Index (VIX) is already showing this calmer tone, drifting down toward 14. That can make selling options premium on major indices more appealing. A similar quiet stretch in late 2024 also supported these types of strategies when economic data repeatedly met expectations without creating surprises. Steady income growth can support consumer spending, which is generally positive for corporate earnings. The January 2026 retail sales report showed a modest but steady 0.4% increase, reinforcing that trend. One possible approach is to look at call options on consumer discretionary sector ETFs, since these companies often benefit when households have stable finances.Consumer Spending Implications
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The US core Personal Consumption Expenditures (PCE) price index rose 3% year on year in December. This was higher than the expected 2.9%.
Core PCE excludes food and energy. It is a key inflation measure in the United States.
Core PCE And Market Implications
Core PCE for December 2025 came in hotter than expected at 3.0%. This set a cautious tone for the new year. That view strengthened after January’s jobs report showed a surprise gain of 250,000, well above forecasts. With recent CPI data also staying firm, the market is now lowering the odds of a March rate cut. Markets are also removing the chance of a first-quarter cut. The CME FedWatch Tool shows less than a 20% chance of a March cut. This points to a “higher for longer” rate outlook. In that case, selling near-term interest rate futures may still be profitable. Expect continued volatility in options tied to Secured Overnight Financing Rate (SOFR) futures as traders adjust to this shift. In this backdrop, we are putting more focus on protective strategies for equity portfolios. The CBOE Volatility Index (VIX) has risen from its December lows and recently touched 17. We think it may test higher levels. This recalls 2023, when similar inflation worries created profitable chances to buy put options on major indices for downside protection. The stronger US dollar reflects these changing rate expectations. The Dollar Index (DXY) has broken above key resistance and is now trading above 105, a level not seen since last autumn. In the weeks ahead, we see value in using options to express a bullish view on the dollar versus currencies backed by more dovish central banks.Dollar Strength And Positioning
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US flash S&P Global PMI data for February is due on Friday at 14:45 GMT. January’s Composite PMI was 53, and February is expected to increase as both manufacturing and services output rise.
The flash Manufacturing PMI is forecast at 52.6, up from 52.4 in January. The flash Services PMI is forecast at 53, up from 52.7. Services make up about two-thirds of the US economy.
