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Krona’s Anti-Euro Appeal Makes Sweden the Best Bet |
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Written by Administrator
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Tuesday, 02 March 2010 06:45 |
March 1 (Bloomberg) - The crown, last quarter's worst performing major European currency, is now in charge of the region as Sweden's shrinking deficit lures investors fleeing the growing debt crisis in nations that share the euro.
Sweden's currency strengthens, more than all the other 156 tracked by Bloomberg with the exception of the Brazilian real's February of 5.5 per cent increase against the euro, the crown's best month since January 1999. The largest retailers predict it will be appreciated at least 10 percent in 2010 if the economy is growing almost twice as fast as in Europe and the Riksbank raised interest rates by a percentage point, four times more than the European Central Bank.
While the government keeps a cradle to grave welfare system, with Prime Minister Fredrik Reinfeldt's drive state assets and cut sales tax, has provided a haven for investors by warning that ironing, Greece, Portugal and Spain through to the deficit are not overwhelmed. It is cheaper to protect bonds against default swedish as German bunds for the first time since 2008.
"In this world of zero responses, when a country with good finances and a central bank that's put forward rate hikes, the money will attract much attention," said Richard Benson, who was at $ 14 billion a executive director at the Millennium Asset currency hedge fund in London. "It was a super weak currency, and that it is cheap."
Bullish Forecasts
The crown rose 1.2 percent last week after a 16-month high of 9.7071 per euro. It can be appreciated as much as 7.2 percent in 2010-9,1 per euro and 15 percent within two years, Benson said. It traded down 0.4 percent to 9.7481 per euro as of 10:28 in London. The euro has lost 5 percent against the dollar and 9 percent against the yen this year.
UBS AG, the world's second-biggest currency trader, the three-month forecast on Feb. crown 22-9,5 per euro, from 10, and 9.2 at the end of 2010, which would be an unprecedented 11; 5 percent gain from 2009's close. Morgan Stanley, last year's most accurate forecaster euro-crown, his year-end estimates on Feb 19-9,3, from 9.8. Deutsche Bank AG, the biggest retailer, also forecast that would fall just short of 1999's record profit of 11 percent.
The economy of the nation of 9.3 million contracted an estimated 4.5 percent last year as the worst financial crisis since the Great Depression prompted Volvo AB, the world's second largest truck maker, and Ericsson AB, the largest manufacturer wireless networks, cut 12,500 jobs.
Triggering Losses
Investors speculated that the neighboring Latvia, Lithuania and Estonia would devalue their currencies, triggering losses for the Swedish banks that approximately $ 75 billion in loans to the Baltic countries. The krone depreciated 2.8 percent against the dollar in the fourth quarter.
Today, Sweden's stock and bond is outperforming European peers. The OMX Stockholm 30 benchmark index was up to 0.7 percent this year, while the Dow Jones Stoxx 600 Index of European shares fell 2.4 percent. Credit default swaps protecting the Swedish government bonds for one, two and three years have become cheaper in the past month, as German swaps for the first time since the middle of 2008, according to CMA DataVision in London.
Even with its reputation for socialism, Sweden is the world's fourth most competitive economy, behind Switzerland, the USA, Canada and Singapore, according to a World Economic Forum ranking based on the Geneva research group's assessment of stability, innovation, training and infrastructure.
"Acute and Massive '
"Just a small budget deficit and public debt levels manageable in Sweden with those in Euroland, the UK and U.S. compared," said Stefan Mellin, a currency strategist at Danske Bank A / S, Stockholm, in a February 23 letter to customers. "Acute and great need for fiscal tightening in the latter countries will weigh on their currencies and simultaneously supporting currencies like the crown," he said, predicting it would strengthen as much as 9 per euro after fall 1.9 percent in the next month .
Sweden's budget deficit will total 3.3 percent of gross domestic product in 2010, half as much as the euro zone's deficit and about a third or less of the US's and UK's., Median expectations of economists surveyed by Bloomberg show. A trade surplus predicted 7 percent of GDP, Sweden will have an easier time closing its gap with no debt, unlike the United Kingdom, where economists forecast a 2 percent trade deficit.
Faster growth
Europe's 10th largest economy will be 2.3 percent in 2010, expanding rapidly Germany, France, United Kingdom, the euro zone, Switzerland, Italy, Spain and Japan, the median forecast shows. Sweden will track the US's estimated growth of 3 percent.
Sweden's National Institute for Economic Research consumer confidence meter jumped in February to the highest in 29 months and up to 153 percent since its October 2008 low. The University of Michigan Consumer Confidence Survey for the U.S. index has risen 33 percent from its nadir a month later, while the euro-zone equivalent rebounded from 50 percent of March.
Cecilia Skingsley, an analyst for Swedbank AB in Stockholm, attributed the optimism to the belief that the welfare will help them weather the financial storm.
"If you think you lost your job a significant impact on your personal finances and will have to see as many precautions as not to turn in a country where welfare support is less," said Skingsley. Belastingverlagings and record-low interest rates also boosted confidence, she said.
Welfare Cuts
Reinfeldt's government cut income charges in January for the fourth time since coming to power in 2006 to strengthen the economy ahead of September's general election. His coalition has continued a process begun by social-democratic two decades ago, from scaling back parts of a welfare system so far it is known as the Swedish model. Unemployment benefits and sick leave was reduced and the regulation of utilities and telecommunications illuminated.
The crown is vulnerable to steep to be rejected because the foreign currency accounts for 1.4 percent of global foreign exchange turnover compared with 43 percent of the dollar and 18 percent for the euro, the Bank for International Settlements in Basel, Switzerland, said in A 2007 report. The 1.2 trillion kronor ($ 168 billion) public debt market is dwarfed by the U.S.. The Treasury will sell a record $ 2.43 billion in notes and bonds this year, according to the average forecast of 10 primary dealers.
Banking Crisis
Sweden's currency has fallen nearly 40 percent against the dollar in the 15 months beginning September 1992 after a banking crisis pushed the economy into the worst recession since the 1930's, forcing the government to its legal tender to drive freely. The krona tumbled as much as 19 percent against the euro in the six months following the collapse of Lehman Brothers Holdings Inc., weakening to a record 11.7896 against the euro on March 6, 2009.
The currency has lost 45 percent of its value since 1975, underperforming everyone in the group of 10 economies except New Zealand's dollar, according to Bloomberg indexes that are part baskets of currencies based on how they are correlated with each other.
The crown fell today as a government report, the gross domestic product unexpectedly shrank 0.6 percent in the fourth quarter on declining demand for exports, which more than half the country's exports it. The median estimate of 13 economists in a Bloomberg survey was for 0.3 percent growth.
Fabian Eliasson, head of the U.S. currency sales at Mizuho Corporate Bank Ltd. in New York, said that Sweden remains in danger because "if things would be worse in Europe, the Baltic countries are harder hit and it would hurt the crown."
The S & P Threats
For now, the Baltic economies are stabilizing. Standard & Poor's Ratings Services discussed the outlook for the countries' credit ratings after their budget deficits are reduced by tax increases and spending cuts. The S & P raised its outlook on Swedbank AB and SEB AB, the largest lenders in the Baltics, to negative from stable on 23 February.
The euro is under pressure from speculation in the budget crisis will spread to Greece, Portugal, Ireland and Spain, slowing of the region's economic recovery and rebuilding of the ECB to keep borrowing costs low, which would make the currency less attractive. The S & P said last week Spain's deficit could remain above 5 percent for the next four years, threatened to cut Greece's creditworthiness.
Prices of bonds insured by France, Portugal, Germany and Greece for five years has risen the fastest in the developed world this year, while Sweden's credit-default swaps have fallen most, CMA said.
'Solid Ground'
The crown is not usually regarded as "safe haven enjoying some properties," said Stockholm-based SEB currency analysts including Day Muller in a February 9 note to clients. "The nature of the current crisis in the euro-zone can change it."
Sweden's currency surged the most since July on February 11 after the Riksbank, the country's 342-year-old central bank, said that the 0.25 percent benchmark interest rate can increase as early as July after earlier indicating it would wait until September .
"The restoration of peace in a much more solid basis than before," Governor Stefan Ingves said after the decision.
Underlying momentum to a higher borrowing costs concerns housing prices are rising too fast. They have increased nine quarters in a row and surged at an annual rate of 7 percent in November, December and January, Statistics Sweden said.
'Bubble Concern "
The market is a bubble that could activate a 20 percent decline in prices and economic output, the Stockholm-based National Housing Credit Guarantee Board said February 23. The central bank said February 9 is a commission to look at housing risk will appoint.
The Riksbank's benchmark rate will be increased by one point this year when the ECB raised its rate by a quarter point to 1.25 percent and the Federal Reserve raised its target of half a point to 0.75 percent, economist forecasts show.
One-month futures last week implied a rate of SEK 9.7077 per euro, while the median forecast of 15 analysts providing 9.95, Bloomberg data show.
"The economists and the market is behind the curve on the crown," said Jonas Thulin, the Stockholm-based head of Nordea AB's Global Alpha strategy that develops commercial ideas for Scandinavia's largest bank. "We need to win."
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