Today’s Comment
In the US, foreign trade reflected by the balance of goods and services is interesting as it shows a big deficit and net exports affect GDP growth. In October the deficit was somewhat lower than expected, and that was one of the reasons why several analysts upgraded expectations of GDP growth in Q4.
The deficit on the balance of goods and services came to 32.9bn in October and even though this was below the expected level, the deficit has increased slowly since May 2009.
We expect that the deficit on the balance of goods and services will rise moderately as growth in the US will be stronger than abroad (primarily in the euro zone and Japan). In Sweden the decline in overall consumer prices fell to 0.7% in November from 1.5% in October.
Even though we expect that in December core inflation strengthened further, prospects are that it will fall in 2010 due to the many idle resources in the economy.
After being ‘absent’ for some time, the SNB again reacted as central bank governor Hildebrand made some comments. He stated that SNB will still prevent any excessive strengthening of CHF against EUR (EUR was specifically mentioned). Initially it seems that SNB managed to stop further strengthening of CHF but by now we have reached the levels of last winter where the financial markets were characterised by a really poor sentiment.
Considering Hildebrand’s comments, one might as the question: “What is meant by excessive?” CHF has strengthened by almost 2.5% since the most recent SNB interest meeting in December.
Based on these arguments, we yesterday recommended that investors buy GBP against USD (cable): US interest rates will remain low and the dollar is still used as a funding currency. We expect that the BoE will raise interest rates in Q3 and that the Fed will not raise until Q4. This will support sterling against the US dollar. Pound sterling is undervalued. According to our preferred technical indicators, the timing is right. See the list of recommendations on page 4 for further information.
Today’s Key Events
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09:30 Consumer prices (SEK)
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10:30 Trade balance (GBP)
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14:30 Balance on goods and services (USD)
Tuesday night
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00:50:00 Speech by Mr Fisher of the Fed
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01:00 Speech by Mr Plosser of the Fed
Today’s Chart – GBP/USD
