SEK flows: Strong GDP data SEK supportive

Friday kicks off with strong data out of Sweden. The Q4 GDP numbers were revised substantially higher from 0.2% to 0.8% q/q, with strength in consumption, investment and net exports, and the y/y trend in 2024 now looks very healthy, with rising growth rates through the year after negative growth seen for most of 2023. This certainly suggests that he Riksbank is done easing for now. Although the latest unemployment data showed a sharp rise, unemployment does tend to lag growth, and there is also a lag between monetary policy easing and its impact on growth, so the employment situation is also likely to be turning soon.

The SEK has risen on the news, with EUR/SEK dropping a couple of figures from 11.20, having corrected higher in the last week following the sharp drop from 11.52 to 11.12 in the first half of the month. The data looks strong enough to justify a somewhat larger decline, but the move at the beginning of the month has to some extent anticipated this better data. The SEK still looks unnaturally strong against the NOK, with yield spreads having moved in the NOK’s favour in the last year but NOK/SEK still testing last year’s lows. This data will keep the pressure up on the 0.95 level in NOK/SEK, but we still see scope for a NOK recovery longer term. However, Sweden is sometimes a leading indicator for the rest of Europe, and the recovery in growth through 2024 can be seen as potentially indicative of recovery potential in the Eurozone. With some doubts emerging about US growth prospects, USD/SEK may have downside risks.