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11 Feb 2013
Forex Flash: SEK, what really matters? - Nomura
Nomura Strategists Geoffrey Kendrick and Matthew Slade have updated the framework for SEK and outlined what they are watching for in 2013.
They begin by noting that they find the recent SEK out performance verses rates spreads explainable via the Eurozone growth impulse (and so SEK exports), as well as Eurozone risk premia (foreign inflows to Sweden are not safe-haven flows, but rather they increase when Eurozone risks recede) angles.
In the short term, they are expecting Eurozone drivers to deteriorate slightly (adding upside EUR/SEK pressure), but for rates spreads to start to add downside pressure (following Wednesday’s Riksbank meeting). Further out, they comment that however, they are looking for Eurozone concerns to stabilise, allowing EUR/SEK to grind lower as per our constructive 2013 outlook (to 8.40 by year end).
They note that when analysing FX markets, only a relatively small number of key drivers really matter for each currency, with said drivers, shifting over time. For Sweden, they believe the key movers are Rates Spreads, Exports, most directly linked to Eurozone growth concerns and Non Resident bond purchases.
Overall, they feel that rate spreads are the dominant medium term driver for EUR/SEK. However, other drivers are just as important. Specifically, Eurozone growth continues to (unsurprisingly) drive Swedish exports with a ratio of 3:1 a rough rule of thumb (1% more Eurozone growth = 3% move Swedish exports).
In addition, rather than evidence for safe-haven inflows into Sweden, they feel that the data shows the opposite – “Foreigners buy more Swedish debt when Eurozone peripheral concerns ease not when they get worse. From here, the topside EUR/SEK pressure via the rates spread angle is likely to ease – EUR rates will likely peak for now following last week‟s ECB meeting, and Swedish rates are likely to base around these levels (the Riksbank will probably be more dovish than before, but the market largely expects this).”
They also feel that the other drivers (Eurozone growth and risk premia) have been improving (at least growth perceptions) so far in 2013, which in our framework explains why EUR/SEK remains lower than rates spreads would have suggested. However, both positive impulses may now ease. This leaves them in a balanced state where rates may become more EUR/SEK bearish, while Eurozone growth expectations and risk premia may be due to a small pullback, adding marginal topside EUR/SEK pressure.
They begin by noting that they find the recent SEK out performance verses rates spreads explainable via the Eurozone growth impulse (and so SEK exports), as well as Eurozone risk premia (foreign inflows to Sweden are not safe-haven flows, but rather they increase when Eurozone risks recede) angles.
In the short term, they are expecting Eurozone drivers to deteriorate slightly (adding upside EUR/SEK pressure), but for rates spreads to start to add downside pressure (following Wednesday’s Riksbank meeting). Further out, they comment that however, they are looking for Eurozone concerns to stabilise, allowing EUR/SEK to grind lower as per our constructive 2013 outlook (to 8.40 by year end).
They note that when analysing FX markets, only a relatively small number of key drivers really matter for each currency, with said drivers, shifting over time. For Sweden, they believe the key movers are Rates Spreads, Exports, most directly linked to Eurozone growth concerns and Non Resident bond purchases.
Overall, they feel that rate spreads are the dominant medium term driver for EUR/SEK. However, other drivers are just as important. Specifically, Eurozone growth continues to (unsurprisingly) drive Swedish exports with a ratio of 3:1 a rough rule of thumb (1% more Eurozone growth = 3% move Swedish exports).
In addition, rather than evidence for safe-haven inflows into Sweden, they feel that the data shows the opposite – “Foreigners buy more Swedish debt when Eurozone peripheral concerns ease not when they get worse. From here, the topside EUR/SEK pressure via the rates spread angle is likely to ease – EUR rates will likely peak for now following last week‟s ECB meeting, and Swedish rates are likely to base around these levels (the Riksbank will probably be more dovish than before, but the market largely expects this).”
They also feel that the other drivers (Eurozone growth and risk premia) have been improving (at least growth perceptions) so far in 2013, which in our framework explains why EUR/SEK remains lower than rates spreads would have suggested. However, both positive impulses may now ease. This leaves them in a balanced state where rates may become more EUR/SEK bearish, while Eurozone growth expectations and risk premia may be due to a small pullback, adding marginal topside EUR/SEK pressure.