Swedish consumers back in business

The euro has strengthened on new hopes on solutions to Greece's imminent debt problems. Swedish reta

(31.05.2011) The euro has strengthened on new hopes on solutions to Greece's imminent debt problems. Swedish retail trade rebounded markedly in April, and we expect the corresponding Norwegian statistics today to show the same bounce.

By Kjersti Haugland, Senior Economist at DNB Markets

In thin trading, due to closed markets in the US and the UK yesterday, new hopes for a solution to the precarious situation where Greece needs 12 bn euros to cover debt that matures by end-June, has served to strengthen the euro. During the night EURUSD came up to 1.44, but has since fallen slightly again.

A triggering factor for the rise was an article in the Wall Street Journal asserting that the Germans, that apparently have been very reluctant to lay more money on the table to save the Greek without private investors taking their part of the costs, now will end their pressure to obtain an early restructuring of Greek government bonds. EU representatives are working hard to establish a new emergency plan at the moment. After talks with France's Sarkozy yesterday, the Eurogroup leader Jean-Claude Juncker said he was optimistic regarding the outcome.

Scandies have strengthened since yesterday morning. The oil price rose during the Asian session.

Yesterday's Swedish retail trade numbers showed strong growth in April (+1.6% m/m), after a drop in March (-0.8%). 2011 started off badly for Swedish and Norwegian retailers, partly due to exceptionally high electricity bills this winter. March sales were probably also affected by the very late Easter vacation this year, which has made season adjustments particularly challenging. We now expect the "electricity effect" to have waned, and consumption growth to increase going forward. The interest rate level is still low, employment growth is strong and income growth is increasing.
Norwegian retail trade is released today, and we expect it to show an equally strong rebound as in Sweden (+1.5% m/m). Note: Consensus is 0.4% m/m.

SEK has developed strongly in the aftermath of the financial crisis. Not so strange considering the impressive economic rebound, accompanying interest rate hikes (six consecutive since July - and more are signalled to come) and solid government finances. So far in 2011 EURSEK has been quite stable, trading in a range between 8.70 and 9.10. According to May's Consensus Forecast it is expected to stay within this range throughout the next 12 months. This is probably due to expectations that the effect of growth and hikes should be exhausted. We share this view. However: Since we expect the euro to weaken going forward this implies a further decline in EURSEK to 8.70 during the next 12 months.

There are several important Norwegian macro events today. In addition to the previously mentioned retail sales, April credit growth numbers are released. Special attention will be given to the development in household credit, given the surging house price growth of recent.

Both central bank governor Olsen and deputy governor Qvigstad will give speeches today, and the former will be published on the central bank website at 7.35 AM GMT. Expect no market-moving news in the speech, although any new insight on what is on the new governor's top list of attention is interesting.

Norges Bank will also give its monthly announcement of whether (and if so, how much) currency will be bought by the central bank to the Government Pension Fund Global next month. The government's NOK income from the oil sector that is not used to cover the budget deficit has to be exchanged to foreign currency before it is invested in foreign assets. After five months without purchases, the central bank daily bought currency worth about NOK 300 mill in May, and we expect the amount to be the same in June.

Norwegian money market rates have increased recently. This is partly due to a rise in risk premium abroad, both in the euro zone and the US. A certain threat of a strike in the financial sector from 7 June may also have contributed to the rise in Norwegian risk premium.