Swedish Krona Watching Unemployment Data - NOK, SEK Eye Europe

TALKING POINTS – SWEDISH KRONA, SWEDEN UNEMPLOYMENT, EUROZONE FLASH PMI

• Swedish Krona traders are waiting for unemployment data

• NOK and SEK are eyeing Eurozone flash PMI publication

• How will Sweden unemployment impact Riksbank policy？

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Swedish Krona traders will be eagerly waiting for the release of the country‘s unemployment rate. Analysts estimate that unemployment will remain unchanged at 6.6 percent. According to the Citi Economic Surprise Index, Sweden’s economy has been underperforming relative to expectations, with unemployment rising from 5.50 percent in November to its current rate.

Yesterday, German Finance Minister Olaf Sholz spoke in Berlin and cut growth forecasts for 2019 down to 0.5 percent. Eurozone CPI was published with all indicators falling in line with expectations. Neither events induced any major market volatility. This indicates that perhaps markets had already priced in a less-than-optimal outlook from Sholz, and since CPI came in at expectations it left SEK and NOK shrugging.

Later in the day, Italy‘s lower house will be debating the government’s economic forecast for growth in 2019. Current estimates show between 0.1-0.2 percent growth, down from the 1.0 forecast. The country recently entered into a technical recession with the broader regional slowdown lingering in the background. The risk of a Eurozone debt crisis with Rome at the center of it is a worrying (and not completely unrealistic) prospect.

Insight on the state of economic affairs in Europe will be further illuminated by the release of Eurozone Flash PMIs. Often viewed as a leading indicator, traders with exposure to European assets will be closely watching the publication. Nordic traders will also be keeping a close eye on the report due to the unique relationship Scandinavian countries have with their European counterparts.

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Riksbank policymakers will be closely monitoring unemployment data as the central bank approaches its rate decision on April 25. Officials have expressed concern and frustration over the stubbornly weak Krona and have been disappointed that inflation has been coming in under the central banks forecasts. The Riksbank is intending on raise rates in the latter half of 2019, though it is difficult to see how they could afford to do so.

If key inflationary indicators continue to disappoint, it could force policymakers to delay the rate hike and continue to keep rates at -0.25 percent. While an accommodative monetary policy has helped Sweden‘s economy recover, it has also created unintended risks. Cheaper credit has also inflated the country’s OMX stock index, primarily due to investors taking advantage of cheap credit to inflate equities.

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