Welcome to Scandi Strategy 2015, in which we present our view on the Scandinavian economies and fixed income and FX markets for the coming year.
In 2015, we look for more uniform, but unfortunately low, growth across the Scandinavian area in the range of 1-2%. However, the risk is on the downside, especially in Sweden and Norway, as new amortisation rules and low oil prices specifically weigh on the growth outlook in these two countries.
Low inflation forced the Riksbank to cut rates to zero in 2014. In 2015, focus will turn to weaker growth and further easing is likely. In Norway, oil investments will be key as to whether Norges Bank will ease. In Denmark, ECB easing is likely to force the Danish central bank to ease. The central bank outlook and abundant global liquidity point to another year where investors will be hunting yield and carry in Scandi markets.
In Denmark, we recommend being long 30Y callables against swaps and DGBs and long 5Y non-callables and swapping short-dated papers into USD to take advantage of attractive FX forward. We stay sidelined in respect of DGBs in Q1. We like to receive 6M6M Cita.
In Norway, we like the long-end of the NGB curve against bunds. We recommend an open FX position. We like to receive 2Y2Y NOK but not before the 11 December Norges Bank meeting. We see value in EUR-denominated covered bonds.
We expect the NOK to strengthen in 2015, while falling growth weighs on SEK in H1. We will look to buy NOK/SEK in our FX Trading Portfolio when there is clear confirmation that oil prices are recovering.
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