SEK: More pain ahead? – Deutsche Bank

According to Robin Winkler, analyst at Deutsche Bank, fiscal stimulus in Europe would also help Sweden, but they fear it would come too late as its the only developed economy that is already seeing a clear deterioration in its labour market.

Key Quotes

“The unemployment gap with the Eurozone - the most reliable driver of EUR/SEK post-crisis - is set to flip positive for the first time. This spike is more than a statistical fluke; a range of labour market indicators such as vacancies and firms' intentions to hire are deteriorating at a recessionary rate. Against this background, it is striking that the Riksbank is now the only central bank in the world that plans to hike rates this winter.”

“After all, the perfectly intact Swedish Philips curve suggests that an unemployment rate above 7% is far from consistent with the 2% inflation target. Inflation expectations are also declining again ahead of important wage bargaining rounds. We therefore consider a hike this winter unrealistic and expect the board to relent on it before long, though the risk is that the pivot happens as late as December.”

“The Norwegian krone, meanwhile, is likely to trade in close sympathy with the krona for the rest of the year. Norges's lonely hiking cycle has come to an end with disappointing follow-through in the krone, despite almost making it the highest yielder in G10. With Norges done, there is no clear catalyst.”

“Upside risks to oil prices stem largely from negative supply shocks, and recent price action suggests that supply shocks are not that helpful for the increasingly risk-sensitive krone. Lastly, if Sweden is to see greater turbulences in coming months, worries over household debt and consumption could start spilling over to Norway again, similar to late 2017.”