Market News & Insights
11 September 2018

Could Swexit Be Another Name in the Pot?

Euro-sceptic thoughts and the political turmoil in Europe has entered the fray again as concerns over Sweden’s political future continue to grow. A nail-biting election ended with the centre-left bloc gaining 144 seats to the centre-right’s 142 (as reported amidst an initial vote counting error) with the newly reigning third largest party, the Sweden Democrats, gaining a revised 63 seats. Det här är oroande.

Although further gains from the Sweden Democrats were expected, it’s a fresh reminder of the days that had the bloc (and the global stage) worrying about the populist wave submerging Europe. Frexit, Ita-leave and the all too real Brexit are just a few. The next couple of weeks, that will roll into months are crucial for Swedish politics as we know it as a nation governed by the Social Democrats for over five decades has been somewhat infiltrated by a reoccurring theme across the bloc. Immigration is the fuel to the parties drive. Looking ahead, the main concern for markets and more importantly, Sweden, is how this ‘hung government’ comes about forming a coalition. Any coalition will be a weak majority in any case and there is little to no initial prospects in how Sweden are going to overcome this issue. The Swedish krona’s initial response against the euro saw EURSEK drop -1.8% from last week’s highs and -2.9% of August’s highs. Markets will also look to how the Riksbank respond to the newly introduced political threat following last week’s announcement of potential rate hikes in either December this year or February 2019.

With the euro in focus, the threat imposed by the Swedish election outcome seems to have little initial impact on the currencies performance. EURUSD has opened strongly above 1.16 seeing highs of 1.1641 whilst also seeing gains against CHF, SEK and other G10 currency pairs. Global trade fears have continued to dominate news headlines as reports state that there has been no progress in establishing a revised trade agreement between the EU and the US following a meeting between trade officials. US President Donald Trump had previously stated that he wanted to “lower tariffs” while “increasing commerce” between the two nations. With the US battling a ‘trade war on two fronts’, the escalating issue of the introduction of $200 billion in tariffs on Chinese goods is starting to boil over to hit home with global businesses. Apple, the recently certified $1 trillion market cap company saw its stock price drop yesterday as Trump pressured the company to move production and manufacturing back to the US. Swedish car maker Volvo has also delayed its listing amidst growing fears on the global impact of a trade war. China has passed the buck to Wall Street in an effort for companies (and White House officials) to question how aggressive the levies should be.

Moving closer to home and sterling saw reasonable gains against both the dollar and the euro yesterday following the EU’s Chief Negotiator Michel Barnier’s statement that he believes the EU and UK can reach a deal on Britain’s departure from the bloc in the next six to eight weeks. Whilst recognising that the EU and UK still have several key issues to agree on, particularly the Irish border and future trade agreements, Barnier stated that a deal by the beginning of November is “realistic” and “possible”. Sterling’s movement on the back of the statements compared the economic performance of GDP m/m coming in above forecast at 0.3% to 0.2% forecast just further reiterates the pounds vulnerability to Brexit related news.

GBPEUR saw highs of 1.1238 from 1.1165 lows as movement was restricted to 0.65%. Sterling has opened relatively tight against the euro this morning as mixed reports have emerged of the UK government’s reaction to what has been conceived as positive news. Prime Minister Theresa May welcomed the progress in talk while challenging senior Tory members to sway remaining sceptics. However, this was met with a response from an unnamed Senior Tory member stating that ‘more than 80’ members were set to reject May’s Chequers plan. Another one bites the dust. Sterling saw most of its movement against the dollar yesterday with a range of 1.14% (who said volatility was dead?) from 1.2898 lows to 1.3047 highs.