I find this time of year difficult. While looking forward to Christmas I struggle with the short, cold days. The Daily Mail tells me that this 21st of December “is literally and figuratively going to be the darkest day of the year thanks to a cosmic incident that hasn’t occurred since 1664”. Astrologers say it’s to do with the sun and Saturn lining up in Capricorn, making choices tricky and, because they may have long-term consequences, should be avoided. The Sun’s focus is on Stonehenge, where ‘an adhoc celebration at dawn (08:04 GMT) brings together England’s New Age Tribes’. Avoid.
I’m not going all Mystic Meg on you, although sceptics might see technical analysis as another form of reading the runes, tea leaves and crystal balls. The dark clouds I see this winter are the currencies of four European countries north and east of us – nothing to do with astronomy, the North star, or the Bethlehem one. I’m worried by how very weak these have become against the euro.
The first is the Swedish krona, which has lost just over 6 per cent against the euro since September, due in part to the Riksbank’s unconventional monetary policy. Their key interest rate is 10 basis points under the ECB’s minus 40, a differential that has been in place since early 2016. Recently the Stockholm residential property market, which, like other Scandinavian ones, has been one of the best-performing developed market asset classes since 1980, saw sentiment slide for the first time in years. Although mortgage-backed bonds are AAA rated, we worry about heavily indebted borrowers. The chance of a burst from 10 towards 12 kronor per euro, as in 2009, cannot be ruled out.
The Norwegian krone has also suffered and is almost as weak as it was in 2008, despite North Sea crude oil prices rising since June and a key interest rate at plus 50 basis points since early 2016. To keep up with its Swedish counterpart, further weakness to 10 kronor looks highly likely. The Norges bank has clearly got its eye on this exchange rate because earlier this month it threatened to start raising its key interest rate as soon as early 2018. For three years calls on the euro (and puts on the krone) have been consistently more expensive than EURNOK puts. Watch this space!
In contrast the Hungarian forint has been very subdued over the past three years or so, despite changes in government which have met with disapproval from several quarters. What is noticeable is that since 2008 one needs more and more forints to buy a euro. Recoveries in 2009 and 2012, where the euro peaked at 317 and 324 forints, have not been repeated. Thus, the mean regression has been creeping higher to stand at 321 with an upper 1 standard deviation at 340 – easily reached if we have a dose of the jitters.
Finally, the Polish zloty, which is holding at the mean regression since the euro was introduced in 1999, 4.2 per euro. The exchange rate has been very steady over the past five years and its central banker, Adam Glapinski, is an ally of the ruling Law and Justice party. He is expected to keep rates at 1.5 per cent – where they have been since April 2015 – although he does have room to manoeuvre if push comes to shove.
