Both expressions are oxymorons, "sweet despair" is finding some sort of pleasure for being in pain, that pain might be caused by someone or something loved.
"Suavely merciless" means soft and cruel, confident and unforgiving. In the poem, the narrator follows a beautiful doe which in the end disappears, he follows something something beautiful and innocent-looking like a promise to a treasure but in the end disappears mercilessly.
