Will pensioners save the Swedish krona? - November 15, 2019 - Research ...
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November 15, 2019
Will pensioners save the Swedish krona?
Hike can still be expected from the Riksbank
Greater chances of Boris winning a majority
Market pricing out a further Fed rate cut
1
THIS WEEK’S WINNERS AND LOSERS
Strong USD on the back of fewer rate cuts – weak euro Percentage change since the last FX Pilot
• In recent weeks, a further Fed funds rate cut has
“disappeared” from market pricing. There is now only
one cut left before the end of next year, and the
dollar is currently strong.
• The Swedish krona initially climbed, but then ceded
most of its gains. The October inflation figure came
in in line with the market consensus, and will not lead
to any change in the Riksbank’s December hike. The
unemployment figure from Statistics Sweden was
revised downwards, and is now well in line with the
Riksbank’s forecast.
• In the UK, the Brexit Party promised not to stand
against the Tories in constituencies where there is a
sitting Tory MP. This increases the likelihood of a
Tory majority after the General Election, and
strengthened the pound slightly versus the euro.
GBP NOK CHF USD EUR SEK JPY
Handelsbanken’s currency view from the most negative to the most positive – based on our forecasts for the quarter-
end compared with the current spot rates.
2
IN-DEPTH ARTICLES
Will pensioners save the Swedish krona?
3
Turnaround in Swedish pension flows
in SEK
• It is difficult to lay all the blame for the weak Swedish
krona with the Riksbank. The SEK has, of course,
shown a weak trend for many years. One of the likely
reasons is that Sweden, for nearly 30 years, has not
only paid off old currency debts. We have also built up
large foreign savings, mainly via our pension assets.
• Throughout this period, deposits to the pension systems
have been greater than withdrawals, which has meant
that we have invested money in non-Swedish securities.
A few years ago, we passed the Swedish demographic
tipping-point, where the number of pensioners as a
proportion of the population increases rapidly. This also
means that we are approaching the point where
withdrawals become greater than deposits, and the
pension system becomes a net seller of foreign
currency.
• As we have previously pointed out, the pension funds’
appetite for open currency risk shifts according to the
interest rate spread, particularly against the dollar,
which is the largest investment currency. But in the long
run, demographics will be decisive, supporting the
Swedish krona.
4
All parts of the pensions system include currency positions
(2017 figures)
Unhedged
currency in per
• Private pensions savings, SEK 484bn (net paid out: SEK
cent (estimate)
21bn)
• Occupational pensions SEK 2,787bn (net paid in: SEK 30%
68bn)
12%
• Premium pensions system: SEK 1,182bn (net paid in:
SEK 32bn)
25% 50%
• National pension: SEK 1,412bn (net paid out: SEK 29bn)
A total of SEK 50bn paid in in 2017
Estimated total currency risk: approx. 25%
5
5Difficult to say when disbursements will exceed in-payments, but the
trend is clear
• A thorough review of the pension system’s effects on
the SEK is a challenging task. For example, private
pension savings have changed rapidly, following the
introduction of less favourable tax regulations. A
major part of the savings have presumably been
replaced by endowment insurance and similar
products.
• It is also difficult to determine the exact currency
exposure for the system as a whole, but in this
respect we shouldn’t be too far off. We know the
exposure for most of the system.
• In the short term, the funds’ foreign exchange
holdings fluctuate with the funds’ choice of
unhedged currency risk, but there is still a long-term
trend meaning that large parts of the system will be
foreign exchange sellers, instead of buyers as they
were previously.
• In summary, this is not something that will cause a
turnaround in the krona here and now, but it’s
definitely worth bearing in mind in the future.
6THE LATEST IN THE MARKET 7
Historical trends 8 Updated: 2019-11-15
EURSEK
Our outlook in a nutshell EURSEK
• Since our last FX Pilot, the SEK initially
strengthened, but has since then dropped back.
October inflation figures came in in line with the
market consensus, and do not change the prospects
for the Riksbank’s December rate hike. The
unemployment figure from Statistics Sweden was
revised downwards, and is now well in line with the
Riksbank’s forecast.
• According to the barometers, things are looking
gloomy for the Swedish industrial business cycle,
despite the weak krona. Although the eurozone also Central bank market pricing
looks gloomy, there are some signs of bottoming out.
France and Spain are the main countries boosting
the eurozone’s macro figures, and there are some
signs of Germany beginning to bottom out. The ZEW
figures for the zone as a whole were a major positive
surprise.
• EURUSD is trading at our year-end forecast, but in
our view, EURSEK may move a little lower.
9 Updated: 2019-11-15USDSEK
Our outlook in a nutshell USDSEK
• A trade agreement seems to be creeping nearer,
although many would say that it more closely
resembles a a 'ceasefire' of sorts. There is also
uncertainty as to whether the tariffs already
implemented will be lowered, in line with China's
wishes.
• Continued strong data from the US labour market,
but with a slight downturn in barometers,
nonetheless paints a picture of a country
outperforming the majority of others.
Central bank market pricing
• In recent weeks, a further Fed funds rate cut has
“disappeared” from market pricing. There now
remains just one cut between now and the end of
next year, and the dollar has performed well since
the last FX Pilot.
• We foresee a somewhat lower USDSEK in the short
term, with a further decline some time into the new
year.
10 Updated: 2019-11-15GBPSEK
Our outlook in a nutshell GBPSEK
• In the UK, the Brexit Party has promised not to
contest the Conservative Party's safe seats. This
increases the likelihood of the election resulting in a
Tory majority, and saw sterling rise somewhat.
However, it is not impossible that similar
machinations will be planned by the Liberal
Democrats and Labour, and British elections are
notoriously difficult to predict.
• Two out of the nine members of the Bank of
England's monetary policy committee called for a cut Central bank market pricing
to the base rate at its latest meeting.
• We stand by our outlook of a weaker sterling, but
would not go so far as to encourage short-term
positions. The political outcome is difficult to guess,
and our general view is that it will be a while yet
before the UK leaves the EU.
11 Updated: 2019-11-15JPYSEK
Our outlook in a nutshell JPYSEK
• On the macro front, it is most interesting to see that
unemployment has come in higher than expected,
but just two-tenths lower and it would be at a 26-year
low. The Bank of Japan held a meeting at the end of
the month, and some members of the Monetary
Policy Board argued for further economic stimuli.
• The yen has strengthened against the euro, but has
been trading at a slightly weaker level against a
generally stronger dollar. We do not expect any new
initiatives from the Bank of Japan in the short term,
but it will eventually be forced to act. Until then, we
believe the yen will strengthen slightly.
12 Updated: 2019-11-15CHFSEK
Our outlook in a nutshell CHFSEK
• The franc has strengthened by almost one per cent
against the euro since the release of the last FX
Pilot. The headache for the central bank (SNB) is not
helped by inflation falling below zero once again.
• One ray of light was, though, that the economic
tendency survey for manufacturing industry showed
surprising results, being well above expectations.
• It now remains to be seen what the SNB will come
up with to reverse the trend for its currency and for Central bank pricing
inflation. What will come first – more additions to the
currency reserve or a new rate cut?
• We foresee no changes in the CHF against the euro
and a slight depreciation against the SEK.
13 Updated: 2019-11-15NOKSEK
Our outlook in a nutshell NOKSEK
• After the historically weak levels in late October, the
NOK has climbed in November, backed by an
increase in risk appetites, coupled with higher oil
prices.
• The most important domestic figures have, however,
been on the low side compared with the expectations
of Norges Bank (NB). This applies to both core
inflation in October and GDP growth in the third
quarter. Consequently, it can be said that the lower
domestic figures are currently neutralising the Central bank pricing
weaker exchange rate.
• Our view is that the Norwegian krone will depreciate
against the EUR, towards 10.20 at year-end, and will
also depreciate against the SEK.
14 Updated: 2019-11-15APPENDIX 15
Currency forecasts
Handelsbanken's FX Forecast
FX forecasts updated 14/11/2019
Latest value End 2019 Q1 2020 Q2 2020 Q3 2020 End 2020 End 2021
EUR/SEK 10.69 10.65 10.65 10.65 10.65 10.65 10.55
USD/SEK 9.72 9.68 9.68 9.51 9.42 9.34 8.79
GBP/SEK 12.50 11.97 11.97 11.97 12.10 12.10 11.99
NOK/SEK 1.06 1.04 1.06 1.04 1.03 1.03 1.02
DKK/SEK 1.43 1.43 1.43 1.43 1.43 1.43 1.41
CHF/SEK 9.83 9.77 9.59 9.51 9.51 9.51 9.34
JPY/SEK 8.95 9.22 9.05 8.64 8.41 8.34 7.85
CNY/SEK 1.38 1.34 1.33 1.30 1.27 1.26 1.16
EUR/USD 1.10 1.10 1.10 1.12 1.13 1.14 1.20
USD/JPY 108.64 105.00 107.00 110.00 112.00 112.00 112.00
EUR/GBP 0.86 0.89 0.89 0.89 0.88 0.88 0.88
GBP/USD 1.29 1.24 1.24 1.26 1.28 1.30 1.36
EUR/CHF 1.09 1.09 1.11 1.12 1.12 1.12 1.13
USD/CNY 7.02 7.20 7.30 7.30 7.40 7.40 7.60
EUR/NOK 10.12 10.20 10.05 10.20 10.30 10.30 10.30
SEK/NOK 0.95 0.96 0.94 0.96 0.97 0.97 0.98
USD/NOK 9.20 9.27 9.14 9.11 9.12 9.04 8.58
GBP/NOK 11.82 11.46 11.29 11.46 11.70 11.70 11.70
CHF/NOK 9.30 9.36 9.05 9.11 9.20 9.20 9.12
JPY/NOK 8.47 8.83 8.54 8.28 8.14 8.07 7.66
16 Updated: 2019-11-15Indicators
EURSEK USDSEK GBPSEK NOKSEK JPYSEK
Interest rate forecast
Data
GDP
PMI
Momentum
Risk
Sources: Bloomberg, Macrobond, Handelsbanken Capital Markets
Up arrow means that the currency pair will strengthen, i.e. that the krona will
depreciate.
The arrows are based on Handelsbanken's calculations.
17 Updated: 2019-11-15Looking for carry?
Market rates via FX swap Yield spread against USD
The graph shows 3-month market rates in different currencies against USD. USD is 3- The graph shows the yield difference between the respective 3-month market rates
month USD Libor and 3-month USD Libor. A negative value means that the currency's market rate, via
the FX swap, is lower than the 3-month USD Libor rate.
18 Updated: 2019-11-15Policy rates Two-year swap yields Handelsbanken's long-term equilibrium rates Budget balance 19 Updated: 2019-11-15
Performance since the last FX Pilot
FX Heatmap USD EUR JPY GBP CHF CAD AUD NZD HKD NOK SEK
SEK 1.138 -0.1096 0.6778 0.5866 0.7578 0.3313 -0.7837 0.3351 1.2458 0.4843 1
NOK 0.6033 -0.6272 0.0845 0.0179 0.1605 -0.3396 -1.3366 -0.2499 0.6379 1 -0.5786
HKD -0.1021 -1.3417 -0.5633 -0.5585 -0.4918 -0.9173 -2.01 -0.8814 1 -0.6265 -1.2323
NZD 0.7907 -0.4778 0.3477 0.1787 0.4119 -0.0338 -1.0516 1 0.9068 0.2922 -0.3688
AUD 1.9428 0.5616 1.4734 1.2804 1.5606 1.1176 1 1.0531 2.0585 1.3828 0.6601
CAD 0.8142 -0.4402 0.3424 0.3176 0.435 1 -1.1442 0.0474 0.9183 0.2766 -0.3636
CHF 0.3754 -0.8659 -0.0768 -0.1333 1 -0.4267 -1.396 -0.4104 0.4818 -0.1577 -0.7748
GBP 0.4917 -0.7509 0.042 1 0.1276 -0.3061 -1.413 -0.2617 0.6085 0 -0.6188
JPY 0.4529 -0.7864 1 -0.0529 0.082 -0.3474 -1.332 -0.3092 0.5613 -0.1042 -0.6585
EUR 1.2617 1 0.7961 0.7421 0.8805 0.4402 -0.6783 0.4864 1.3123 0.7107 0.1174
USD 1 -1.2449 -0.4543 -0.5484 -0.3746 -0.8017 -1.7671 -0.7624 0.1019 -0.5455 -1.1414
Sources: Bloomberg, Macrobond, Handelsbanken Capital Markets
The table shows the change during the last 14 days, as a percentage. The first cell shows USDSEK performance. A positive value means that the dollar has
strengthened against the krona, while a negative value means that the krona has strengthened against the dollar.
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