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SEK: Not The Impact You Might Think‏

ByDanske Markets
Published 11/28/2013, 02:10 AM
Updated 05/14/2017, 06:45 AM
EUR/SEK
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This year’s transfer of pension money will take place over the weekend 7-8 December, with the first trading day being 9 December. The exact amount will be announced later this week according to the Swedish Pension Agency. We expect the amount to be close to last year’s SEK33bn (somewhere between SEK33bn and SEK35bn).

Part of the money will be invested in domestic funds and part of it in foreign funds. Under the assumption that part of the foreign investment is hedged (on average), we estimate that around SEK10bn will affect the SEK. That said, while sizeable, the evidence suggests the market impact has gradually diminished. If anything, the krona has had a tendency to weaken before the actual transfer date and then appreciate afterwards.

We find that since the beginning in 2001 the EUR/SEK has more often than not risen in the days before the PPM date, and more often than not fallen after the PPM date. Not the PPM effect you might expect but arguably logical from a game theoretical and rational expectations point of view, where investing funds and market players in general have learned to pre-trade on this information. A similar trading pattern around the PPM date applies for volatility in the EUR/SEK.

Hence, we see the PPM money as a temporary headwind for the SEK. While the PPM money will draw attention around the PPM date, the weeks ahead will be dominated by important macro data and central bank events. We continue to look for a 25bp rate cut from the Riksbank on 17 December and see mainly upside risks in EUR/SEK for the coming weeks. Our 1M target is 9.00, acknowledging the risk that the pair might get stuck above this going into year end.

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