Overall expectations and risk scenarios
General expectations
The darkest hour is just before the dawn, but the sun has risen and the day is brightening. The global economy is getting a firm foothold, and economic growth is quite robust at present. Particularly the large countries, the US, Japan and Germany, stood out. But not all the countries are recording growth: the UK and two or three euro-zone countries showed negative growth in Q3. Solid growth at present is driven by an expansive fiscal- and monetary policy and the effect of the end of stock reduction. However, this effect is fading away, and in mid-2010 and in 2011 private consumption and investment must drive the economies. This means a more moderate potential, and we therefore expect growth to decline to just below the normal level. We do not expect gradual hikes from the major central banks until late 2010.
Risk scenarios
We have two risk scenarios, of which the first one will lead to slower growth than anticipated. This may be triggered by renewed turbulence in the financial markets and continued tight credit conditions at the banks; if the upturn does not result in an improved situation in the labour market; if the monetary- and fiscal-policy stimulus packages are withdrawn too quickly; and if consumers increase their savings rate more than expected. In the second risk scenario, we expect the quick upturn to continue. This means that the positive momentum spreads in ever-widening circles and pushes growth and employment higher than expected. Furthermore, we expect the banks’ lending growth to increase and consumers to turn more optimistic again. We assess that the probability of the two scenarios is balanced.
The past month in review…
Problems in Dubai caused negative sentiment
Except for the problems in Dubai late in the month, November was a relatively positive month. The first 14 days in particular were characterised by optimism, but as in the previous months, the trend was towards a more mixed sentiment in the last two weeks. This dual development during the month is also clearly reflected in the exchange-rate development of the various currencies. A status at mid-month would have been much different from the picture at end-month.
Volatility increased (and more than usual) in the last week of the month, which was attributable to the above-mentioned situation in Dubai with Dubai World asking for more time to pay its bond debt. The situation in Dubai did, however, relatively quickly (in global terms) recede into the background, and the search for risk was back again already few days after the statement from Dubai World.
Increased fluctuations in the FX markets
The downward breach of the dollar also contributed to increased volatility, and in this connection both the Swiss franc and the yen were in focus. The USD/JPY rate was taken to a new 14- year low, and the EUR/CHF rate was as low as 1.5012 during the night after the dollar’s downward breach. When the Swiss central bank (SNB) woke up in the European time zone (just before 8:00 a.m.), the Swiss franc plunged all of a sudden, and we assume that the SNB again intervened in the market. As usual, there were no official comments from the SNB – except for ’no comments’, so we assume that the SNB did intervene. The SNB has only once confirmed to have intervened in the market, which was in connection with the first intervention in March 2009.
The economic indicators were not very important in November, i.e. the development continued from October without major surprises. So we are still on the track of a new upturn, which is still fragile though.
The yen was the big winner in November
Throughout the month, the Swiss franc was largely unchanged. The Swedish krona was almost unchanged as well for the month as a whole after looking set to strengthen by just below 3% against the euro due to the good sentiment in early November. Both the Norwegian krone, the US dollar and pound sterling closed in negative territory for the month as a whole, while the yen was the big winner of the month in November, gaining about 2.5% against the euro and more than 5.5% (!) against the dollar.
The lira and the koruna were also affected by the Dubai news
The Czech koruna and the Turkish lira also saw a dual development in November. The first two weeks were positive, while the last two weeks were characterised by a more negative sentiment. The Turkish lira in particular was also hit hard by the Dubai World news, and the EUR/TRY rate was as high as 2.30 at one time. The lira lost 3.3% against the euro in November. It was, however, an overreaction, and at the time of writing, the EUR/TRY rate is down at 2.21 again. The Czech koruna was also affected by the negative sentiment, to a smaller extent though, and it closed the month 1% up against the euro.
