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PPM and EUR/SEK: Buy on "rumour" sell on fact
Thu, Nov 20 2008, 16:17 GMT
by Stefan Mellin
EUR/SEK: Buy on "rumour" sell on fact
- On 9 December this year's PPM money will be allocated to the savers' funds in the pension system. Total amount is SEK 27bn, in line with last year.
- The PPM payment has been part of the flows that tend to be blamed for the seasonal depreciation of the SEK around year end together with financial institutions' allocations flows and thin liquidity
- Part of the sum is placed in domestic assets, part in foreign dittos, partly currency hedged and partly not
- According to our estimates and assumptions the total SEK transaction (selling) will be ca SEK10bn
- Counter to what might be commonly anticipated we find that, on average, EUR/SEK rises prior to the PPM date, is roughly flat directly after and then falls. Three weeks (15 trading days) after PPM EUR/SEK is back at the same level as three weeks prior to the PPM date
- Hence, the historical pattern supports a strategy where you are long prior, not after, the PPM date
- We wrote last week ("EUR/SEK update, 13 Nov") that short-term (before year end) EUR/SEK is likely to move higher on weak macro data, risk aversion and forced flows due to rebalancing needs. Until market fear eases the SEK is likely to remain under pressure.
Published on Thu, Nov 20 2008, 16:22 GMT
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