would you really do it mr. in gves? wednesday · 2 currency strategy forecasts and fx scorecard fx...

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Would you really do it Mr. Ingves? WEDNESDAY

27 JANUARY 2016

Global growth worries have intensified over the past few months. Many problems still confront both developed and emerging economies eight years after the ‘Great Recession. Still, we think market fears dominant so far this year are exaggerated. Global monetary policy remains very loose. Indeed, so far only the Federal Reserve has stated it is considering tightening policy and then only gradually. Growth in both the US and Europe are expected to remain reasonable this year with the latter expanding more rapidly than at any time since 2010. Further, the negative implications of the lower oil price connected with declining capex and increasing risk of credit defaults in the commodity sectors, with which the market is currently concerned of, should sooner or later be countered by the potential positive effects of lower energy costs on private consumption. While prospects for the Chinese economy remain central, global markets are focused on the country’s currency policy rather than the growth rate. No one expects China to continue to grow by 7-10% indefinitely. Instead, it is the process by which authorities manage a soft landing while concurrently opening up the capital account that generates most un-certainty worldwide. Chinese currency policy (and CNY FX risk) will remain an important swing factor for global risk appetite, and we expect a gradual depreciation of the yuan. Emerging markets remain vulnerable but some currencies are now attractively valued and the USD-indebtedness provides an upside flow factor for the greenback. For G10 currencies stabilizing risk appetite and oil prices mean traders can focus on what matters; the growth outlook, monetary policy and valuation. We expect some oversold commodity currencies to partly reverse losses to date. Further, as the ECB has promised to do more the EUR remains a funding currency. The fundamental outlook for SEK remains very strong but Riksbank also seems credible in its threat of FX interventions. Finally, as prospects for NOK improve Norges Bank will need to continue cutting rates to prevent the currency from appreciating too fast.

EDITOR

Carl Hammer + 46 8 506 231 28

BUY THE CS BASKET We propose the following currency

basket: long SEK (30%), CAD (30%), USD (21%), AUD (11%)

and NOK (8%) vs short CHF (30%), EUR (25%), JPY (21%)

and NZD (20%) and GBP (4%).

BUY RANGEBET USD/SEK SEK has been in range for some

time vs EUR and USD and we continue to see USD/SEK stuck

between 8.30 and 8.90. Buy a 3 month DNT 8.25 vs 8.90 for

20% of notional payout. Alternatively buy a 3 month NOK/SEK DNT 0.94/1.02 at 20% of notional payout.

SELL EUR/CAD The loonie has weakened substantially on

the back of lower oil prices. But the Canadian labour market

is holding up well and the sectors outside of petroleum are

now very competitive. Bank of Canada also remains firmly on hold whereas ECB will continue to ease monetary policy.

SELL NZD/NOK One of our top (valuation) trades for 2016

is short NZD/JPY (from Dec 9th, 2015). As an alternative

commodity valuation trade we recommend short NZD/NOK

which we think is trading at least 10-15% above long-term viable levels. A bare minimum target is 5.00 in NZD/NOK.

Currency Strategy

Forecasts and FX Scorecard FX forecasts

25-Jan Q1 16 Q2 16 Q4 16 Q1 16 Q2 16 Forecasts 2

EUR/USD 1.08 1.05 1.03 1.03 1.06 1.04 The big picture 5

EUR/JPY 128 122 128 130 129 128 USD 10

EUR/GBP 0.76 0.74 0.75 0.75 0.73 0.72 EUR 12

EUR/CHF 1.10 1.10 1.11 1.12 1.09 1.09 JPY 14

EUR/SEK 9.27 9.20 9.00 8.90 9.25 9.20 GBP 16

EUR/NOK 9.47 9.60 9.40 9.20 9.00 8.90 CAD 18

EUR/DKK 7.46 7.46 7.46 7.46 7.46 7.46 AUD 20

USD/RUB 79.3 82.0 80.0 74.0 72.6 73.0 NZD 22

Cross rates CHF 24

USD/JPY 118 116 124 126 122 123 SEK 26

GBP/USD 1.43 1.41 1.38 1.38 1.46 1.45 NOK 28

USD/CAD 1.42 1.39 1.35 1.30 1.40 1.39 RUB 30

USD/CHF 1.01 1.05 1.08 1.09 1.03 1.05 CNY 32

AUD/USD 0.70 0.69 0.68 0.67 0.69 0.68 Contacts 34

NZD/USD 0.65 0.63 0.61 0.60 0.64 0.63 Disclaimer 35

USD/SEK 8.56 8.76 8.74 8.64 8.73 8.85

GBP/SEK 12.21 12.35 12.06 11.92 12.74 12.83

JPY/SEK 7.23 7.55 7.05 6.86 7.15 7.19

CHF/SEK 8.44 8.36 8.11 7.95 8.49 8.44

NOK/SEK 0.98 0.96 0.96 0.97 1.03 1.03

USD/NOK 8.74 9.14 9.13 8.93 8.49 8.56

USD/CNY 6.58 6.60 6.70 6.80 6.60 6.65

*Bloomberg survey FX forecasts.

SEB Consensus* Contents

,

SEB FX G10 Scorecard, Medium TermWeights USD EUR JPY GBP CAD AUD NZD CHF SEK NOK

Fundamentals 25.0% +2 +2 +1 +1 +1 +1 +1 0 +3 -1

Carry 0.0% 0 0 0 0 0 +2 -2 0 -1 0

Mon. policy 22.5% +1 -2 -1 0 +1 -1 -1 0 -3 -2

Flows 10.0% 0 +1 0 0 -2 0 -1 +2 +1 +1

Valuation 15.0% -3 +1 +3 -1 +4 +1 -2 -2 +2 +4

Positioning 7.5% -1 0 -3 0 0 0 0 0 -1 0

Technicals 0.0% 0 0 0 0 0 0 0 0 0 0

Liquidity 0.0% +4 +2 +3 +2 -1 -3 -3 0 -3 -4

Ec. Surprise 5.0% -1 0 0 0 0 -2 +1 0 +2 0

Event risk 0.0% 0 0 0 0 0 0 0 0 0 0

Risk appetite 15.0% +1 -2 -2 0 +1 +2 +2 -1 0 +1

Total weighted score +0.3 -0.1 -0.1 +0.1 +0.5 +0.2 -0.1 -0.3 +0.5 +0.2

G10 FX Scorecard - Contributions to total score

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Currency Strategy

SEB FX EM Scorecard, Medium TermWeights RUB CNY

Fundamentals 25.0% -2 -1

Carry 0.0% +5 +3

Monetary policy 22.5% 0 -1

Flows 10.0% 0 -1

Valuation 15.0% -2 -5

Positioning 7.5% +3 +5

Technicals 0.0% -3 -1

Liquidity 0.0% 0 0

Ec. Surprise 5.0% -1 -1

Event risk 0.0% -1 0

Global cycle 15.0% +1 +1

Total weighted score -0.5 -0.7

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Currency Strategy

Exaggerated global growth concerns focused on oil and China

In our previous Currency Strategy (“Get used to

Scandinavian Parity”) we favoured long USD, GBP, SEK

and JPY positions vs. commodity currencies and the EUR.

Given the recent collapse in both oil prices and risk

appetite we are now slightly more optimistic on some

commodity currencies given their attractive valuation.

We retain our bearish EUR and NZD view and continue to

see SEK as one of the stronger G10 currencies 2016.

SEB EXPECTS COMMODITY PRICES TO STABILISE IN

2016.

So far this year, the oil price has declined more than we

forecast. Meanwhile, concerns regarding global and

Chinese growth have intensified. Risk appetite, its

correlation to currencies and interdependencies on

commodity prices make the short term FX outlook very

“digital”. In the short term, tentative signs of risk appetite

and oil price stabilisation clearly have the potential to

improve the fortunes of hard hit currencies such as the

Loonie and Krone. Simultaneously defensive currencies

like the JPY and the EUR are giving back gains won over

the past month. Overlooking short-term volatility in oil

and risk appetite still leaves the question unresolved: Is

the recent improvement the end of the beginning or (as

we think more likely from a 3-6 month perspective) the

beginning of the end? Our view also reflects our more

positive opinion on the outlook for several beleaguered

commodity currencies.

CHINESE FX POLICY AND OIL PRICES THE DRIVER FOR

RISK APPETITE AND CURRENCIES?

No doubt China is at the epicentre of attention in global

markets. However, players can hardly be surprised by a

slowdown in Chinese growth: the debate on sustainable

growth in China has been continuing for a very long time.

Also, official growth figures remain reassuring (2015 GDP

+6.9%). Rather the change in FX policy in China has

added uncertainty in terms of Chinese currency risk. For

the past 10 years, the renminbi has appreciated against

most if not all currencies. However, the (crawling) peg vs.

the USD made life tougher for China due to the USD’s

rapid appreciation once the Fed signalled higher rates to

come. A changing currency regime and opening up of the

capital account over time (letting markets determine the

price of the currency) increases market uncertainty and

introduces FX risk to China. Clearly the new currency

regime is having a great impact on global risk appetite as

suggested below.

RORO RETURNING AS A MAJOR CURRENCY DRIVER Each currency has many individual factors affecting their

price but generally there have from time to time been some

general ones dominating the market. For example, in the

aftermath of the financial crisis there was a period where

risk appetite clearly was a major driver. Thus 2008-2012 is

often referred to as a RORO period (risk-off/risk-on). After

this period most attention has been given to Monetary

Policy outlook indicative through high correlations between

currency pairs and their rate spreads.

Average absolute currency correlation with risk appetite

In the graph above we have conducted a specific sensitivity

analysis of some currencies versus risk appetite. Looking at

the correlation between risk appetite and currencies it has

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FX Ringside

increased with the turning point in August 2015. Even if

average correlation is not at the highs seen during the RORO

years the steep rise still shows that this is one of the main

drivers of currency markets at the moment. However, the

rate spread is still a large driver but the average correlation

has fallen sharply since November 2015 and it is clearly on

the defense with a RORO environment taking over.

Average absolute currency correlation with rate spread

CAN CHINA HANDLE HUGE CAPITAL OUTFLOWS?

The size of the FX market has grown fivefold since 2000

according to the BIS Triennial FX survey while the global

economy is some way short of doubling its size. Indeed,

in some respects, we now have a situation in which ‘the

tail wags the dog’ with financial markets today dictating

the real economic developments rather than vice versa.

Over the past few decades there has been a clear

tendency for increased global USD borrowing as the Fed

has slashed interest rates. This time around is no

different. Since 2008, the BIS reckons that global USD

borrowing by emerging markets has grown fourfold to

USD 4000 bn. Chinese companies have seen the fastest

USD debt growth. This story is fairly familiar by now. The

US Federal Reserve signal in 2014 of increasing

borrowing rates encouraged many companies to start

decreasing their dependence on USD funding, a process

that is still on-going. Repaying debt is probably one of

the reasons why the USD has surged and indeed why the

renminbi is under pressure. However China continues to

generate a large current account surplus and has huge FX

reserves. Opening up the Chinese capital account has

also happened at a time when the renminbi is fairly

valued (according to IMF estimates). Likely Chinese and

foreign companies have started to hedge FX exposures

(China has a large net liability in FDI). Trying to assess the

drain on FX reserves and capital outflows is very hard. We

expect continued capital outflows from China in the

coming year and ultimately forecast that FX reserves will

fall back to around 2008 levels, something we think

China can handle.

China Assets Liabilities

FDI 1,038 2,852

Equities 159 554

Debt securities 98 233

Financial deriv. 18 15

CCY & Deposits 358 383

Loans 494 387

Trade credits 495 285

Other 49 47

Reserves 3,590

Total 6,281 4,741

Net 1,540

Percent of GDP 18%

There is another dimension to this question seldom cited.

The fact that many EM countries and their companies

now see a need to repay USD-denominated debt is

obviously a result of the surging greenback. However, if

the Fed remains very patient and barely hikes rates then

the USD is unlikely to surge that much. This may impact

the behavior of USD debt repayment. Another factor

signaling less pressure is a rebound in commodity prices,

which will come as a major relief for several EM countries.

Consequently, a more cautious Fed policy outlook and

commodity price stabilisation may well alleviate global

angst over continued capital outflows from EM countries

with China at the epicentre.

US GROWTH IS REASONABLY HEALTHY.

As shown in the graph below, consensus growth

expectations for the US are approaching the level at

which most economists set the potential growth rate

(also the rate at which the US has grown over the past

five years). Q4 2015 appears to have been a relatively

soft quarter (1% AR). However, for 2016 we forecast a

rate slightly above consensus driven by consumers taking

advantage of higher wages, stronger employment and

lower gas prices. The fact that US growth is holding up

should help relieve current fears of a more dramatic

global growth slowdown but does not really promote the

idea yet that the Fed must deliver rate hikes faster than

the market is pricing (which would give the USD a further

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boost). Inflation remains too subdued for that to happen

in H1 2016. Therefore, monetary policy is no longer as

supportive of the USD as it was previously.

WEAKER EURO RATHER THAN A STRONGER USD?

Ever since the ECB meeting on Dec 3, EUR/USD has

traded in a very tight range of 1.07/1.10, while short-

dated FX volatilities have sunk as a result. It is highly

plausible that this development will continue for some

time (albeit in a slightly wider range, say 1.05-1.10):

indeed our scorecard now gives the USD small positive

grading differential vs. the EUR. The growth outlook in

Europe appears reasonably positive compared to

previously. However, we repeat our view of the EUR: the

common currency is not as undervalued as most models

suggest (our estimate of fair value for the trade-weighted

euro is only 1% above current level) and with low

commodity prices the ECB will remain currency sensitive.

At its Jan 21 meeting Mr Draghi spelled out a case for

more policy easing in March this year when new staff

projections will be published, which are likely to show

very subdued inflation until 2018. At present SEB has not

formalised what form this easing will take but a

combination of a rate cut and more rapid asset purchases

seems likely. The effectiveness of this policy is

questionable. Indeed, we think weakening the EUR is the

best policy. Consequently, the ECB will be happy to see

EUR/USD down to 1.05 or lower.

STERLING HAS LOST ITS SHINE? One of our top trades

for 2016 is short Cable. We have been positively

surprised by how quickly this trade has delivered. The

currency is slightly overvalued. Its strength is holding

down inflation making the case for rate hikes distant

once again. Although the trade balance has improved the

UK still runs a fairly large current account deficit. Also,

with declining global FX reserves, central banks may have

begun to downscale previous strong purchases of gilts as

the risk of a Brexit is increasing. This is also likely the

main factor why the pound fell heavily at the start of the

year as bets on the upcoming referendum were added.

Regarding EUR/GBP, the pair has traded above our

expected 0.70-0.76 range: we would be surprised to see

an additional move to and above 0.80 unless the UK

votes to leave the European Union. Currently, the BOE is

sending few signals they are about to hike rates anytime

soon, but when that situation changes we would retune

our neutral ranking to something more positive again.

SCANDI DIVERGENCE RUNNING LATE?

For a very long time we have expressed a bias toward the

SEK over the NOK contrary to the views of many in the

market. Earlier in January, NOK/SEK reached our bearish

six month target at 0.95 and has since recovered slightly.

The dovish economic implications for Norway of dealing

with and living with a low oil price will take time to

evaluate. As such, although NOK/SEK is now trading

below our estimate of long-term fair value (1.05-1.10) we

still think it premature to buy NOK/SEK. Once the oil price

stabilises and recovers part of the fairly severe losses it

has incurred, the market will immediately buy the NOK as

a favoured currency. Also, Norway has ample resources

to stimulate the economy should it prove necessary.

Increasing government spending will result in an even

higher rate of NOK purchases by Norges Bank on behalf

of the Government Pension Fund Global (expected

buying NOK 500-600m daily in 2016). Further, it looks

fairly likely that at some stage long-term real money

investors will look at the NOK’s attractive valuation and

sell FX/NOK. Avoiding recession (but entering a very

prolonged economic slowdown) coupled with a positive

flow outlook means that Norges Bank will face pressure

to limit this development and maintain a weak currency

for longer. While SEB only expects one more rate cut,

there is clearly a risk that the policy rate will end up closer

to zero in 2016. We expect a fairly sharp rally by the NOK

once the oil price stabilises and Norges Bank nears the

end of cutting rates.

In Sweden, the Riksbank remains very focused on the exchange rate and the outlook for EUR/SEK is fairly

straightforward: FX interventions will occur if EUR/SEK falls towards 9.00 before CPIF has been established at or above 1.5% y/y. At the same time we

think that investors and companies will use weaker SEK

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FX Ringside

levels to increase their FX hedges making range-trading

the expected outcome in EUR/SEK (9.00-9.40). Without

previous firm Riksbank interventions through a negative

repo rate, the QE programme and verbal threats of FX

interventions, the SEK would clearly be stronger than it is

at present. The more robust growth outlook for 2016

together with our expectation that the Riksbank will need

to address its inflation target more flexibly (a view

bolstered by the recent Riksbank monetary policy

evaluation by Mervyn King and Marvin Goodfriend) make

us believe that the hurdle that must be cleared before

further easing takes place is becoming higher (at the

same time as the inflation outlook has deteriorated again

due to lower commodity prices making the Riksbank

more sensitive to the SEK). This means FX interventions are as likely as any other policy option to boost inflation near-term.

Eventually however, the Riksbank will lose the battle to

contain the SEK and the currency itself will become the

factor tightening Swedish financial conditions. The

biggest risk (apart from FX interventions) is continued

risk aversion, which may force foreign investors to reduce

their remaining high ownership of Swedish equities. We

expect EUR/SEK at or below 9.00 in H2 2016.

FX SCORECARD PERFORMANCE SINCE SEPTEMBER Once again our core view on further upside potential for

the USD and EUR weakness because of the prospects for

further divergence in monetary policy was key for the

outcome expressed in our last scorecard in September

2015.

Then, the USD was once again at the top, this time

sharing the lead with the SEK. Other currencies supposed

to outperform according to our framework were the JPY

and GBP. On the other side of the portfolio were

currencies that suffered from high valuations and

exposures towards the commodity sector (AUD, NZD and

NOK).

Since Sep 9, when we last rebalanced the scorecard

basket, it has remained almost unchanged (Jan 20)

including carry. Performance was extremely weak

following the Fed’s decision to leave rates unchanged at

the Sep 17 policy meeting. We had expected the first hike

that very month. In just a few weeks between Sep 24 and

Oct 15 the Scorecard portfolio index lost more than 4%

as commodity-related currencies rallied substantially on

the back of the dovish Fed decision. However, this was

only a temporary reaction and signals that the first rate

hike would take place in December triggered a reversal.

The positive return since September has been due to the

continued weakness of the NOK and CAD as a result of

the lower oil price, a slightly stronger dollar and

appreciation by the JPY. Basically, there are two sources

of negative return. Firstly, there was a large short NZD

exposure as we believed the RBNZ would continue to

ease policy with inflation virtually at zero. However, it still

appears substantially overvalued based on our models.

The NZD recovered sharply in early October and

although it has weakened again it is still stronger than in

early September. Secondly, we have maintained a long

exposure in GBP. Since the September report when we

expected the BOE to be the first central bank to follow

the Fed in tightening policy, which we thought would be

GBP positive, conditions have changed substantially.

Today, it seems it will take a lot longer before rising

inflation and increased domestic cost pressure will cause

the BOE to tighten policy. In September last year we

expected the first BOE rate hike at its meeting this

February. Currently it appears it will not happen at all this

year.

THE UPDATED FX SCORECARD

The FX Scorecard takes into account the relative

importance of various categories reflected by the weight

we attach to each category. For a long time monetary

policy has been the key factor for exchange rates. We still

believe relative monetary policy and the outlook for

growth will remain important factors for the currency

market over the coming 3-6 months. The weight

attached to monetary policy expectations is 22.5 (25%).

One reason monetary policy receives a slightly lower

weight than has been the case for several years is that it

has reached its outer bound (as set by the ECB, BOJ and

Riksbank) and further policy easing by these institutions

is unlikely to have any material impact on currencies

going forward. Additionally, the growth outlook captured

by “Fundamentals” receives a fairly high weight of 25%

as we expect growth and to some extent the terms of

trade to be important drivers for currencies in the present

environment.

Due to falling oil prices and the general sell-off in

commodities the valuations of some currencies with

commodity exposures have become stretched, which in

the long term is unsustainable. When the present rout in

oil prices and commodities ends, which it will eventually,

these currencies are set to recover substantially simply

because of their valuation. Valuation receives a 15%

weight. Finally, the weight attaching to risk appetite has

increased to 15%. This is because the correlation

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between changes in market risk sentiment and currencies

appears to have increased in recent periods of increased

stress in financial markets following the sharp fall in oil

prices and increased uncertainty related to the Chinese

growth outlook.

Based on the individual scores for each currency and the

new set of category weights the SEK and the CAD receive

the highest scores, each with a 30% weight in our new

Scorecard portfolio. Next comes the USD (for which we

have a fairly positive view) with a 21% weight. The

scorecard also recommends being long the NOK and the

AUD. Currencies with the largest short exposures include

the CHF (30%), EUR (25%), JPY (21%) and NZD (20%).

Finally, the FX basket is basically neutral in GBP.

The following portfolio represents the FX Scorecard Currency Strategy update:

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Currency Strategy

US dollar Although the year has started poorly we expect the US

economy to perform fairly well this year with household

spending the key driver for US growth. Weakness in the

second half of last year is partly related to lower inventories.

Further rate hikes from the Fed later this year and easing by

other central banks should sufficiently support the USD to

finally push it through the recent EUR/USD lows at 1.05.

However, the valuation of the dollar is becoming stretched limiting further upside potential.

ECONOMIC FUNDAMENTALS The slump in oil prices in

2014 and 2015 did not fully translate into increased

spending. Instead US households increased savings almost

equally as gains from lower fuel prices. We expect this to

change in 2016 with household spending set to rise by 3.2%

this year, slightly faster than in 2015. The US labour market

is strong. On average 220,000 new jobs were created each

month in 2015 and unemployment dropped to 5.0%, which

should lead to faster wage growth this year. Capital

spending has so far failed to recover in a similar way.

Business sentiment indicators show a marked contrast

between the manufacturing sector (ISM 48.2) and the

service sector (ISM 55.3). Nevertheless a composite index

based on these would suggest GDP growth of around 2.5%.

Part of the weakness in the manufacturing sector is

probably related to a stronger dollar and reduced

inventories in H2 2015. Although current market sentiment

seems to suggest that US growth could disappoint this year,

we believe fundamentals are set for another year of stable

US economic expansion. �� +2

MONETARY POLICY Expectations that the Fed would begin

to tighten monetary policy while the ECB and other central

banks would move in the opposite direction have helped

the dollar. Although the Fed is likely to continue to slowly

tighten policy later this year subdued inflation from lower

fuel prices and below average wage growth allow it to

remain on hold until June. Subsequently, we expect one hike

each quarter with the Fed fund target rate reaching 1.00-

1.25% by the end of 2016. This is more than is currently

discounted in market prices. Although we view monetary

policy as a positive factor for the dollar given our Fed

forecast,] it will probably be less important than what

happens to monetary policy outside the US. �� +1

FLOWS Relatively strong US growth and a stronger dollar

have increased the US current account deficit since 2013. In

Q3 it widened to 2.75% of GDP. Most likely the trade deficit

will continue to increase going forward as we expect US

domestic demand to remain the key driver for US growth.

Capital flows related to long-term securities (TIC-flows)

have been fairly volatile since 2013. Overall, these show net

inflows of capital to US long-term securities, although more

recently inflows have been related to US investors scaling

back on holdings of foreign securities. Amongst those from

overseas, there is a marked difference between official and

private investors. While foreign official accounts have net

sold US long-term securities over the last 12 months private

investors have instead increased their purchases. Currently,

capital flows are probably neutral to the dollar. �� 0

EUR speculative positions

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Speculative positions

USD/CADUSD/CADEUR/USD

The lack of significant upside progress in EUR/USD makes the current substantial net long speculative position a burden. Should the sub-1.29-area be revisited, speculative longs will have to be reduced.

-0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8

Risk appetite

Event risk

Ec. Surprise

Liquidity

Technicals

Positioning

Valuation

Flows

Mon. policy

Carry

Fundamentals

USD Weighted score: 0.3

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Currency Strategy

US dollar VALUATION Our internal long-term fair value model,

SEBEER, indicates the USD probably has been

undervalued in trade weighted terms since 2003. It

appears the general dollar weakness coincided with the

introduction of the euro in 2002 and its reputation as an

alternative global reserve currency. However, superior US

growth and expectations of widening rate differentials

have triggered a recovery for the USD since May 2014.

Our internal valuation model as well as the real effective

exchange rate, indicate the USD now trades on the rich

side of its long-term fair value. Although it is approaching

stretched territory where valuation would become a drag

on the USD it is too early to argue for a weaker dollar just

on the back of its valuation. Based on the real effective

exchange rate the dollar is still substantially below

valuations in previous dollar peaks in 1985 and 2002. �� -3

POSITIONING Speculative accounts are long USD and

have so been since May 2014. The general trend in 2015

was downscaling as the strong USD trend faltered when a

Fed hike was pushed further out in time. However

beginning at the end of October, when a rate hike in

December became increasingly probable, the net long

USD position was added again. Positioning peaked at an

all-time net long the week ECB had their (to the market

disappointing rate decision) and has since then, in a

classical buy the rumour (Fed hike) and sell the fact

manner, fallen back to more normal levels. Current

positioning is only 0.2 standard deviations above the

three year average position but the sharp trend lower,

representing a negative USD sentiment, provides the

current positioning score of -1. Also note the building

divergence between a rising USD index and falling

positioning. Such deviations occurred also in 2015 and

then the USD index tended to eventually fall in

accordance with the negative sentiment indicated by

positioning. �� -1

LIQUIDITY, EVENT RISK AND GLOBAL CYCLE With its

superior liquidity the USD has traditionally been seen as a

typical safe haven currency which is negatively correlated

with risk appetite. However since 2012 these

relationships between currencies and risk appetite have

disappeared and that goes for the USD as well. More

recently it has actually been the other way around and

currently the USD seems to be punished against funding

currencies like the EUR and the JPY when financial

markets come under increased stress. Another reason is

probably that the outlook for the USD is closely related to

monetary policy and the timing and pace of coming rate

hikes by the Fed, which probably enforces the positive

relationship between the dollar and risk appetite. Based

on the rate differential between the euro area and the US

the EUR/USD exchange rate seems to be fairly accurate

slightly below the 1.10-level.


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Currency Strategy

The euro The euro continues holding up very well but new

downside risks are on the horizon. The ECB signalled its

willingness to ease its monetary policy even further in

March due to a worsening of the inflation outlook. On the

other hand, a high current account surplus and falling

budget deficits are supporting the currency. However,

additional ECB easing measures may be required before

too long. Moreover, the crisis is far from over and latest

political developments indicate that additional steps to

more integration look distant.

ECONOMIC FUNDAMENTALS The composite purchasing

manager index (PMI) as well as the Economic Sentiment

Indicator (ESI) of the EU Commission were stronger than

expected in December showing that the economic

recovery strengthened at the end of last year. Looking

ahead, real GDP is expected to expand by 2.0% and 2.1%

this year and next, but downside risks are mounting. On a

political level, its handling of the refugee crisis shows the

EU is in bad shape. Still, recent general elections in some

member states saw anti-euro parties strengthen their

position. In future it will be even more difficult to reach

agreement on further integration, leaving the framework

of the monetary union very fragile. �� +2

MONETARY POLICY Times remain very challenging for

the ECB. Falling oil prices indicate that the ECB will miss

its inflation target in 2016 and in 2017 despite the

additional measures announced in December 2015. After

the January meeting, the ECB signaled to review and

possibly reconsider its monetary policy stance at its next

meeting in March, due to the fact that the outlook for

inflation has worsened significantly. Downward revised

March ECB staff inflation projections for 2017 and

disappointingly low ones for 2018 could be a trigger to

act. After having extended the lifetime of its QE program

in December, the focus could now lie on increasing

monthly asset purchases by €10bn or €20bn.

Furthermore, another cut in the deposit rate to -0.40% or

even -0.50% cannot be excluded. Additional monetary

easing in March could lead to renewed downward

pressure on the euro.��-2

FLOWS In the 12 month period ending in October 2015,

the 12-month cumulated current account surplus rose to

€299.9bn or 2.9% of GDP, compared with a surplus of

€237.5bn during the 12 months to June 2015. In the same

period, combined direct and portfolio investments of

euro area-based investors totalled €819bn, surpassing

similar investments by foreigners in the euro area by

€267bn. Looking ahead, without a major rebound in oil

prices no change in trend in the current account will

occur in the foreseeable future. It therefore looks

increasingly likely that the surplus will rise beyond 3% of

GDP towards the end of 2016, indicating that the euro is

already undervalued at current levels. �� +1


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12

Currency Strategy

The euro VALUATION When the euro began to depreciate in 2014

it was clearly overvalued in trade weighted terms

according to the SEBEER long-term fair value model. The

common currency began to weaken after the ECB had

announced further policy easing including rate cuts and

eventually an extensive asset purchase program. Today,

the valuation of the euro is quite close to its estimated

long-term fair value in trade weighted terms. However,

the sharp drop in the euro was not only related to euro

weakness but a broad based dollar appreciation

contributed as well. The euro appears slightly

undervalued according to other valuation measures as

the real effective exchange rate or in nominal trade

weighted terms. Altogether valuation should be slightly

positive for the euro going forward. �� +1

POSITIONING Speculators are net short EUR vs. USD and

has been so since May 2014. However, current

positioning is more bearish than usual situated 0.9

standard deviations below its three year average. The net

short position peaked early December when the ECB

disappointed speculators’ far reaching expectations on

further easing. Since the beginning of the year

speculators have been quite inactive in the EUR but last

week they reduced their net short substantially. After the

ECB once again seemed more dovish at the Jan 21 rate

decision there is scoop for a similar development as after

their meeting in Oct, which would weigh in EUR/USD.

However, increased uncertainty and risk-off mood also

diminish the speed, by which Fed is expected to hike

rates which could partially balance the downside

potential due to dovish ECB. All in all, the lack of an

extreme positioning or sharp trend in positioning renders

a neutral positioning score for EUR in this report. �� 0

LIQUIDITY, EVENT RISKS, GLOBAL CYCLE ECB bond

purchases will continue at a monthly rate of €60bn or

more at least until March 2017 and longer if necessary.

Early tapering of such purchases looks unlikely at present.

We expect markets to refocus on fundamental economic

data but at the same time downside risks have increased

due to slower growth in many emerging markets and

China in particular.


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Japanese yen The JPY is stuck in the 115-125 range. We expect JPY

weakness to continue vs USD but we would need to see

another round of QE by Bank of Japan or continued Fed

rate hikes to break out of current range. The economy

remains too weak to increase inflation and BoJ will sooner

or later have to act. A Fed and/or BoJ event will act as a

catalyst to break 125 and reach 130.

ECONOMIC FUNDAMENTALS The economic recovery post the VAT tax hike in April 2014 has been

disappointing. The economy has only recovered to 0.6%

growth in 2015 after a recession in 2014. The outlook for

2016 is a small bounce to 1.1%. Weakness in exports to

US, Europe and China are weighing on growth. Domestic

activity in investment and consumption is increasing but

many are reluctant to spend aggressively in fear of

another recession in 2017 from the second round of

planned VAT tax hike to 10% from 8%. Prime Minister

Abe will announce some positive economic plan going

into the July Upper House election but reaction will be

limited with a tax hike looming over. �� +1

MONETARY POLICY BoJ is facing difficulties in reaching

the “2% inflation in 2 years” promise. Due to 3 rounds of

QQE, BoJ has gained credibility from markets that it will

react to any adverse effect. However, market patience is

running low as BoJ is nowhere close to its 2% target and

lower commodity prices and a weaker China are acting as

major headwinds to inflation. We think markets may test

BoJ’s resolve in early 2016 by pushing down the equity

market and strengthening JPY towards 115. We think BoJ

will react in Q3 to a stronger JPY and weaker equity

market where they will likely quadruple the size of the

monetary base. It will also add purchases of local

government bonds as JGB purchases reach a limit. A

possible trigger for an earlier than expected easing is if

April annual wage negotiations disappoint. �� -1

FLOWS The current account surplus is growing as

nuclear power plants are restarting and energy import

volumes and prices decline. Capital outflows led by equity

are still putting weakening pressures on the JPY. 6

months currency movements will be driven by capital

flows and we are worried that Fed tightening will lead to

capital flows returning to Japan and strengthen Yen.

However, over the 12 months horizon, we think capital

flows will turn outward as markets become accustomed

to Fed hikes and emerging markets stabilize, which will

lead to Japan hunting for yields abroad. �� 0


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JPY Weighted score: -0.1

-6

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00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Real GDP % y/y Forecast

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% yoy BoJ Forecast

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0

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Japan BOP 12 month rollin sum as % of GDP

Current Account FDIEquity Inv Debt InvOther Inv

14

Currency Strategy

Japanese yen VALUATION The rapid depreciation since Q4 2012 has

moved JPY valuation into a stretch on the downside.

From previously being substantially overvalued according

to virtually all measures the SEBEER long-term fair value

model now places the JPY among the cheapest G10

currencies. Similarly the long-term real effective

exchange rate is currently far below the historical average

(more than 2 standard deviations), and so is the JPY in

nominal trade weighted terms if the long-term trend is

removed. Altogether it is difficult to come to any other

conclusion than the yen currently is substantially

undervalued and likely to move higher if the weak

economy improves and the BOJ indicates they will end

bond purchases. �� +3

POSITIONING Speculative accounts are net long JPY vs. USD a position they haven’t had since Oct 2012.

Positioning is highly excessive 3.3 standard deviations

above its three year average level. Downscaling of the net

short position begun already in the middle of November

2015 and was especially aggressive the week that Fed

hike the rate. However with falling risk appetite at the

beginning of 2016 the change in the net JPY position has

changed from being driven by speculators scaling down

on short JPY contracts to being driven by speculators

adding long JPY contracts. Given the excessively positive

JPY position normalization is expected which renders the

negative positioning score of -3 in this report. �� -3

LIQUIDITY, EVENT RISK AND GLOBAL CYCLE

There are several risks to Japan in this category. On

liquidity, too much liquidity has made short term yields in

Japan turn negative and mass BoJ purchases of JGBs are

reducing activity. These conditions are fine in normal

markets but in times of shock, it leads to sudden

movements that can be negative for Japan. Next, Japan

has an upper house election in July. A big win for Prime

Minister Abe’s party will be negative Yen and a loss will be

positive Yen. We are leaning towards the risk that Yen

can strengthen. PM Abe’s popularity has been falling due

to his stance on a more active military and he may lose a

couple of seats in the election which will dent confidence

in Abenomics, the equity market and ability to reflate the

economy.


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Currency Strategy

British pound sterling The outlook for the GBP is closely related to the

probability of monetary policy tightening by the BOE.

However, both low inflation and signs it will be some

time before inflation rises towards the BOE target have

clearly postponed any action from the BOE until 2017.

This could potentially contribute to further GBP

weakness in coming months. The referendum on EU

membership has also created political uncertainty and is

negative for the currency. However, a positive outcome could trigger a recovery for sterling.

ECONOMIC FUNDAMENTALS In 2015, the UK economy

was growing by around 0.5% q/q with household

spending the key contributor, as it has been since the

recovery began in 2013. Household expenditure is

supported by rising employment and there are signs of

faster wage growth, even if it has slowed in recent

months. However, household spending is related to

lower household savings, the level of which has fallen

sharply from nearly 12% in 2010 to 4.7%, which is below

previous lows. Therefore, going forward wage growth

probably needs to pick up to support further spending

increases. Sentiment in the manufacturing sector has

dropped to just above 50 with its moderate growth

confirmed by production data. Although PMI services has

also declined, it still remains fairly strong at around 55

indicating that activity in the service sector is expanding.

Various measures show annual growth in house prices at

between 5-10%, which supports household wealth and

spending. �� +1

MONETARY POLICY The BOE has kept its policy rate

unchanged at 0.5% since 2009. Like the rest of the world

lower fuel and food prices and subdued global export

prices have exerted significant downward pressure on

inflation which stands far below the bank’s target:

headline inflation was 0.1% in Nov while core inflation

was 1.2%. The expected base effect from the previous

fall in fuel prices which was supposed to lift inflation at

the beginning of this year will be much smaller than

expected. Although inflation is likely to grind higher we

now expect the BOE to revise its forecast lower in its Feb

inflation report. Wage growth has slowed in recent

months showing that present low domestic cost

pressures look set to continue. Given the current inflation

and growth outlook, the BOE is likely to leave its key rate

unchanged in 2016, as shown by current market pricing.

�� 0

FLOWS While the UK trade balance has improved slightly

since 2013, it has proved insufficient to improve the

current account balance, which posted a record deficit of

nearly 6% of GDP in Q1 last year. Much of this increase

was attributable to the income balance, which has

switched from a surplus to a deficit in the last few years,

due to sharply lower net income from FDI. �� 0


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GBP Weighted score: 0.1

16

Currency Strategy

a

British pound sterling VALUATION In just a few months the GBP has

depreciated substantially in trade weighted terms after it

became clear that low inflation will delay the expected

monetary policy tightening by the BOE. In addition

increased political uncertainty related to the referendum

on the British EU-membership has probably also

contributed to GBP weakness. Before its recent

depreciation the sterling was slightly overvalued in trade

weighted terms according to the SEBEER long-term fair

value model. However, the correction lower has brought

it back towards a neutral valuation. The nominal trade

weighted index is also quite close to the long-term

average confirming this view. In contrast the real

effective exchange rate for the GBP remains substantially

above its historical average as relatively high UK inflation

in the years following the financial crisis wasn’t offset by

a nominal depreciation. Altogether the GBP seems to be

close to its fair value but still on the expensive side. �� -1

POSITIONING Speculators are net short GBP versus USD

and have so been for most of 2015. However most of

2015 was signified by downscaling of the net short

position which culminated with a small net long position

at the end of October. After the ECB and Fed meetings in

October however the sentiment turned negative GBP

again. End of 2015 and beginning 2016 speculators have

been adding to their net short GBP position rendering a

small negative score for the slope but this is not enough

to render a total positioning score of anything but neutral.

Current positioning is 0.6 standard deviations below the

three year average level and thus somewhat more GBP

bearish than usual. Looking at the development in

GBP/USD the increase in the net short GBP position

seems small. One interpretation of the forming

divergence is that GBP/USD approaches levels from

where a correction should be expected as specs seems

increasingly hesitant to add to their net short position.

�� 0

EVENT RISK, LIQUIDITY AND GLOBAL CYCLE The

outlook for the GBP is closely related to the outlook for

the UK economy and the probability for monetary policy

tightening by the BOE. However, low inflation has clearly

delayed any action from the BOE until 2017 at the

earliest. With domestic demand being the main driver for

growth one obvious risk related to our outlook for the

GBP would be another shift in expectations on the BOE

policy, which could lead to a stronger GBP than what we

currently expect. One additional risk is the uncertainty

related to a potential referendum on British EU-

membership already this year. The outcome will of course

depend on what PM Cameron can achieve in negotiations

with other member states. Currently expectations

probably reflect a situation where the UK will remain an

EU-member following the referendum. Increased

likelihood for and adverse outcome would put renewed

downward pressure on the GPB.


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Currency Strategy


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CAD Weighted score: 0.5

Canadian dollar After having cut the key rate twice last year, surprisingly

the Canadian central bank (BOC) maintained the target

rate at 0.50% at its most recent policy meeting. While

GDP growth likely stalled in the fourth quarter last year

and with the renewed decline in prices for oil and other

commodities having adverse effects on the economy, the

slowdown is probably temporary. Indeed, above-trend

growth rates should return before long. Certainly, the

supercharged loonie is already enabling Canada to

recoup lost shares of employment and production. We

expect the CAD to outperform other commodity

currencies due to its present valuation and extensive

connections to the comparatively strong US economy.

ECONOMIC FUNDAMENTALS Canadian real GDP growth

was weak last year but is expected to rebound, due to the

weak loonie, the pickup in the US economy and a

stabilisation and subsequent turnaround in oil prices.

Moreover a process of reorientation towards non-

resource activity is well underway; outside the resource

sector the economy continues to grow and real consumer

spending is advancing at around 2% annually. The

extremely rapid CAD depreciation since mid-2014 is

helping Canada’s competiveness; in particular,

employment growth has recently been strong in the

manufacturing sector. Over the past 12 months,

employment in manufacturing rose 2.1%, its first increase

since 2012. In recent months, Canada’s manufacturing

sector has been creating jobs almost four times as fast as

the US, despite the economy being one-tenth the size of

its huge southern neighbour. Going forward and with the

output gap still open, we expect economic growth to

rebound to above-trend rates. �� +1

MONETARY POLICY After keeping its policy rate at 1%

for over four years, the BOC cut rates twice last year

(January and July). Since the oil price is one of the factors

that are most closely watched by the central bank, it was

surprising to see that it left the target rate unchanged at

the January meeting. Back in December, Governor Poloz

suggested that negative interest rates were a definite

possibility. However, given the present optimistic tone

that is hardly the current baseline. Insofar as the bank

wanted to talk down the CAD, it has been very successful

as the loonie now trades well below its fair value. That the

new Liberal government has unveiled plans for “shovel

ready” infrastructure spending projects arguably means

less pressure on the BOC to do all the heavy-lifting going

forward too. So if oil prices stabilise as we forecast the

cheap loonie will continue to exert positive pressure on

production and employment. As such, the BOC will

probably remain on hold at least for a time rather than cut

rates or initiate large-scale bond purchases. �� +1

FLOWS The current account deficit has shrunk slightly in

recent quarters despite still sluggish US demand for

Canadian exports. However, trends in the broad basic

balance and basic balance are negative. �� -2

18

Currency Strategy

Canadian dollar VALUATION The Canadian dollar traded at rich levels for

a long time, which indisputably was negative for

Canadian competitiveness. The sharp decline in

commodity prices and in particular the oil price slump

have weakened the currency significantly in trade

weighted terms since 2014. The CAD continued to fall in

2015 and currently it trades almost as much below its

long-term fair value as it used to do on the upside.

According to our fair value estimate the CAD is more than

15% undervalued in trade weighted terms. In fact the

Canadian currency is undervalued in trade weighted

terms according to all three valuation measures used in

this report. This is usually a strong sign that things have

moved too far. However in real trade weighted terms

valuation is not as extreme as one might think given

where the currency trades in nominal terms. Valuation

has clearly turned into a positive factor for the CAD.�� +4

POSITIONING Speculative accounts are net short CAD as

has been the norm since 2014. However, currently the net

short is far larger than normal; to be exact it is 1.2

standard deviations below the three year average, which

is the second most extreme position in this report.

However, the net short is not large enough to render

positive CAD score that would indicate high probability of

a correction. But the trend with speculators adding to

their net short position, which began in November 2015,

has corrected slightly the past two weeks and therefore is

not strong enough to render a negative slope score. All in

all the positioning score for CAD is neutral in this report.

�� 0

EVENT RISK, LIQUIDITY AND GLOBAL CYCLE

Historically the Canadian dollar has correlated positively

with general risk appetite and the performance of the US

equity market. Lately however it is foremost the oil price

that dictates the development of CAD. RBA’s favoured

fair value model for AUD seems to work well for also the

CAD which isn’t very surprising as the both are

commodity related currencies. The fair-value is based on

terms of trade, relative real rate spread versus US, Europe

and Japan. Terms of trade and CAD have generally fallen

since 2011 but the pace increased greatly from mid-2014

when oil prices tumbled. March to May oil prices

corrected, USD generally weakened and the model as

well as CAD headed higher. However, oil prices has fallen

in June and July and BOC has cut the rate July making

both CAD and its fair value falling sharply again in July.


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Currency Strategy

Australian dollar Lower commodity prices and uncertainty related to the

Chinese economy have weakened the Australian dollar.

The economy is mixed with falling investments in the

mining sector being one drag. The labour market has

improved again from previous weakness and in recent

months growing employment has reduced unemployment

rate. Being exposed to China the situation is uncertain

and would things in China worsen it is not unlikely that

the central bank could ease policy further. This would

most likely weigh on the AUD. The AUD has reached a

more reasonable valuation as it currently trades around its long-term fair value.

ECONOMIC FUNDAMENTALS The Australian economy

suffers from sharp falls in mining related investments

while non-mining investments so far have failed to pick

up according to surveys. One exception is the housing

market where dwelling investments have remained strong

on the back of rising house prices in some of the major

cities. However, there were signs that price growth had

started to ease as supply of housing has increased. Mining

investments have boosted exports and in Q3 the

contribution to GDP growth was almost 1 percentage

point. Labour market has improved in recent months and

despite rising participation rate unemployment has

decreased sharply since summer although wage growth

remains muted. Altogether, the situation for households

has improved, which is reflected in rising consumer

confidence. Considering that household savings

increased significantly following the financial crisis and

has remained firm there is a case for being positive on

household spending going forward. �� +1

MONETARY POLICY The RBA reduced the cash rate by

25bps in Feb and then again in May and currently the

cash rate is 2.0%. Headline inflation was only 1.5% in Q3,

partly due to falling fuel prices and well contained

domestic cost pressure as wage growth still was abating.

Although core inflation is somewhat higher it was still in

the lower part of the target range at 2.0%. The

depreciation of the AUD probably contributes to some

upward pressure from import prices but it is unlikely to be

enough to push inflation higher near-term given the

recent drop in energy prices. Although the RBA has been

on hold since May 2015 expectations still reflect at least

one additional rate cut in 2016, which isn’t unlikely if the

situation in China would deteriorate further having a

negative impact on demand for Australian exports.�� -1

FLOWS The current account deficit has increased

dramatically in recent quarters exceeding 4% of GDP in

Q2 and Q3 last year. Still the deficit is partly compensated

for by net portfolio inflows related to equity securities and

direct investments. However, in Q3 broad basic balance,

which is the current account balance and net portfolio

flows, amounted to -2% of GDP bond related outflows

indicating substantial outflows. �� 0


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AUD Weighted score: 0.2

20

Currency Strategy

Australian dollar VALUATION Lower commodity prices have reduced

terms of trade significantly from its highs a couple of

years ago which lowered the fair value estimate.

Moreover, lower commodity prices were also the reason

why the RBA used to be rather explicit that they viewed

the Australian currency as overvalued. In trade weighted

terms the AUD currently trades very close to our long-

term fair value estimate after being overvalued since

2010. Despite further decline in commodity prices they

have refrained from explicitly defining the AUD as

overvalued in its policy statements, which is another

indication the AUD has reached a more reasonable

valuation. In contrast the real effective exchange rate

indicates the AUD still trades on the expensive side of its

long-term average. Altogether we consider the AUD as

quite properly valued where it trades today. Further

deterioration in terms-of-trade or lower interest rates in

Australia could weaken the AUD further. ��+1

POSITIONING Speculative accounts have been net short

AUD versus USD since June 2015. The size of the bearish

bet reached a peak mid-November and was after this

sharply reduced ahead of the year end. The first week in

2016 the bearish bet was also downscaled but in the

second week the net short AUD position was added to in

line with falling AUD/USD and sharply falling risk

appetite. In a three year perspective positioning is only

0.1 standard deviations below the average and is thus far

from providing an excess positioning score. This almost

neutral positioning is a bit puzzling given recent falls in

AUD/USD and the negative development in risk appetite

as well as Australia’s terms of trade. The sharp increase in

the net short from the latest update hints on a

development were a renewed build-up of a net short AUD

position could weigh on AUD going forward. However,

there is yet no trend that provides a negative slope score.

Thus, all in all, the positioning score for AUD is neutral in

this report. �� 0

EVENT RISK, LIQUIDITY AND GLOBAL CYCLE In a low

yield environment Australian interest rates probably are

high enough to prevent capital outflows. Previously much

of the support for the AUD was related to high

commodity prices attracting foreign capital to the mining

sector. Falling commodity prices have been particularly

bad for the AUD. As the likelihood of a recovery in

commodity prices seems low this obstacle for the AUD is

likely to remain going forward. Currently the market

discounts a positive probability for further rate cuts from

the RBA, not the least since the situation in China

worsened. The RBA might well reduce its key rate again

this year, which should weigh on the currency. Therefore

declining commodity prices and additional easing are the

main drivers for a weaker AUD.


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22

Currency Strategy

New Zealand dollar VALUATION Although the NZD has been substantially

overvalued since the financial crisis it was for a long time

unable to stop it from strengthening further. Lower

commodity prices and inflation well below the target

finally changed the monetary policy stance of RBNZ,

which was the trigger for a normalization of the NZD-

valuation. This far the NZD has weakened by slightly less

than 15% in trade weighted terms, but according to our

SEBEER long-term fair value model it is still around 10%

above its fair value. Hence, the correction is only half

done and at some point it will continue, which is why we

maintain a negative score on valuation. Other measures

of valuation like nominal or real effective exchange rate

indexes are about one standard deviation away from their

long-term averages, which is in line with the message

given by the SEBEER model. �� -2

POSITIONING: Speculators has been gyrating between

net short and net long positions in 2015. A very large net

short position has since July 2015 been reduced and

speculators even went long NZD versus USD in the

middle of October 2015. By the end of 2015 and early in

2016 they have scaled down on this long position and are

currently close to being flat. This is 0.4 standard

deviations below the three year average which indicates

that specs on average have held long NZD positions. The

trend showing specs scaling back of the recently

developed long NZD position is not strong enough for a

negative slope score and the deviation from the average

positions is not large enough for a normalization score.

Thus the current positioning score for NZD is neutral. �� 0

LIQUIDITY, EVENT RISK AND GLOBAL CYCLE. Global

growth continues to be sub-trend. Chinese growth is

being scrutinized and even more so after the devaluation

of the CNY. A more pronounced Chinese slowdown will

not only have directly negative effects to the NZ economy

but also indirect ones such as a possible more

pronounced Australian slowdown (underpinned by a

continued fall in metals prices). The runaway housing

(+25% y/y) market in Auckland imposes a rapidly rising

risk to the NZ economy. The DTI (debt to income ratio) is

rising and has since 2012 risen from 6 to almost 9. S&P

accordingly downgraded the NZ bank credit ratings

given the risk of a sharp house price correction. Given the

high dependency of overseas refinancing a house price

correction could push the NZ risk premium higher or even

tightening the liquidity. The falling dairy prices is also

seen putting pressure on farmer’s cash flow as much of

past years investments has been financed through bank

loans.


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23

Currency Strategy

Swiss franc The Swiss franc remains out of fashion. The SNB’s

strategy is to keep the franc below the radar screen of

international investors. Thus, the bank continues keeping

the franc very unattractive by maintaining policy rates at

very low levels and threatening to intervene in currency

markets to drive the currency lower. Looking ahead, the

SNB will only concentrate on fighting any unwarranted

upward pressure on the currency. At the moment we only

regard more ECB easing as a trigger for renewed capital

flows to Switzerland. Such an action is only likely to occur in the latter part of H1 2016.

ECONOMIC FUNDAMENTALS In the third quarter of

2015, GDP growth came to a halt. The annual rate slowed

to 0.8%, down from 0.9% in Q2. In December the KOF

leading indicator came in at 96.60 points, 3.40 points

below its long tem average. It therefore points to an

ongoing sluggish growth in the first half of 2016. For this

year and next, real GDP growth is expected to reach 1.5%

and 1.9% respectively. As regards inflation, Switzerland

reported a negative CPI rate of 1.1% in 2015. In the

current year, the inflation rate is expected to average

-0.3%. Only in 2017 forecasts see the CPI rate slowly

moving back into positive territory. �� 0

MONETARY POLICY The slow downward trend in the

trade weighted Swiss franc suggests that SNB policy

measures are sufficient to make investments in Swiss

franc denominated assets very unattractive for inter-

national investors. The signals from the December 2015

SNB monetary policy meeting are clear: Unchanged policy

rates indicate that despite very moderate growth and less

favourable monetary conditions than in the euro area the

Swiss National Bank is not willing to ease monetary

conditions any further. But the SNB board stressed to

fight any tightening of monetary conditions. In this

respect, interventions are the preferred measure. Since

the SNB balance sheet is already as big as the Swiss GDP

we regard the SNB’s room for manoeuvre as limited

should renewed upward pressure on the Swiss franc

occur. Therefore, also another cut in the deposit rate

cannot be ruled out. �� 0

FLOWS The Swiss current account posted a surplus of

CHF 23.0bn in Q3 2015, CHF 12.0bn higher than in Q3

2014. Cumulated over the past four quarters the surplus

totalled CHF80.4bn, up from CHF 49.5bn in the four

quarter period until Q3 2014. Since the end of May 2015

sight deposits have only risen by CHF 15.5bn to CHF

469.5bn, suggesting that there are no increased safe-

haven flows at all into Switzerland. Closer international

cooperation to avoid tax evasion may also be a major

trigger for the dry up of portfolio flows into Switzerland.

At the moment we only regard more ECB easing as a

trigger for renewed capital flows to Switzerland. But such

an action is only likely to occur in the latter half of H1

2016. ��+2


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-0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0

Risk appetite

Event risk

Ec. Surprise

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Technicals

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CHF Weighted score: -0.3

24

Currency Strategy

Swiss Franc VALUATION In January 2015 the SNB allowed its currency

to float freely again after being limited by the 1.20-floor in

EUR/CHF for more than two years. It immediately

strengthened by more than 20% as the CHF attracted

foreign inflows. According to the SEB long-term fair value

model 1.20 in EUR/CHF was well in line with our fair value

estimate, which means the CHF once again is significantly

overvalued. The SEBEER fair value estimates for

USD/CHF and EUR/CHF are at 1.00 and 1.18 respectively.

In real trade weighted terms the CHF deviation is more

than two standard deviations away from its historical

average. Valuation will eventually drag the franc lower

but probably it will take time before it is back in line with

the long-term fair value. �� -2

POSITIONING Looking at 2015 positioning has mostly

been short CHF. A relatively large net short position was

quickly built between November and December 2015.

However, when ECB disappointed the markets with less

than expected stimuli the short CHF position was quickly

reversed into a small net long. Lately speculators have

been adding to their small net long but as the pace has

been slow no positive slope score is received. As

positioning is not close to any extreme levels the

positioning score in this report is neutral. �� 0

LIQUIDITY, EVENT RISKS AND GLOBAL CYCLE The

latest slump in oil prices highlights the risk that inflation

rates will remain well below the SNB’s expectation in the

months to come, forcing additional SNB action.

Additional ECB rate cuts in coming months seems all but

unlikely thus making SNB financial assets relatively more

attractive, which could lead to renewed capital inflows. As

a consequence, resulting upward pressure on the CHF

have to be countered by SNB interventions.


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Swedish krona

In terms of currency rankings, our FX Scorecard indicators

remain constructive for the krona outlook. However, the

Riksbank is desperately trying to stimulate inflation and

has clearly indicated that FX interventions are possible to

stem positive SEK flows threatening the weak trend

higher in domestic inflation. Therefore, the SEK is

expected to continue to range-trade in the near-term with

EUR/SEK capped between 9.00/10 and 9.40/50. Strong

fundamentals and an attractive valuation will push

EUR/SEK towards 9.00 and possibly below in H2 2016.

ECONOMIC FUNDAMENTALS Swedish growth is

supported from all areas such that we expect it to

increase by between 3-4% in the next two years. Private

consumption and government spending add 1-1.5% to

GDP as the labour market is showing very satisfactory job

growth and fiscal policy will become more expansionary

to cope with the extreme influx of refugees. Also,

residential investments will boost GDP by a further 1% in

2016. Concerns regarding both the housing market and

state finances given the refugee crisis are exaggerated in

the short-term. On a relative basis Swedish fundamentals

remain a very positive factor. �� +3

MONETARY POLICY The Riksbank has increased the

hostile stance towards the SEK and the reaction function

is now fairly straightforward: whenever the trade-

weighted SEK deviates more than 2-3% from the current

KIX forecast the Riksbank will intervene in the FX market.

The decline in commodity prices once again proves a

formidable obstacle for the Swedish central bank, which

is desperately trying to reach its 2% CPIF target. After

temporary effects taking CPIF to 1.5% y/y in Jan 2016,

core inflation will remain around 1.0% for most of 2016

according to our latest forecast. Consequently, the

Riksbank will still be very sensitive to the SEK

appreciating vs. the current KIX forecast (next page).

Also, their KIX forecast will probably be revised higher

(weaker SEK) potentially raising the “floor” in EUR/SEK

(from 9.00 to 9.10/15). The Mervyn King evaluation report

of Riksbank policy 2010-2014 (19th Jan) adds to our belief

that over time Riksbank will be more flexible/tolerable to

a stronger SEK. But not yet. �� -3

FLOWS On an annualised basis, net portfolio flows in the

past four quarters have shown an outflow of SEK 145bn

driven by government bond selling. Very low interest

rates and the Riksbank’s QE programme are likely

contributing factors. Should global risk appetite continue

to worsen, the still relatively high rate of foreign investors

on the equity market (probably also with full currency

exposure) may partly leave Swedish markets contributing

to a weakening SEK flow outlook. So far net equity flows

have been surprisingly neutral (data available to Q3

2015). As we normally highlight, the current account

surplus provides implicit support but this counts for little

compared to the size of overall flows. �� +1

-0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8

Risk appetite

Event risk

Ec. Surprise

Liquidity

Technicals

Positioning

Valuation

Flows

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Fundamentals

SEK Weighted score: 0.5

26

Currency Strategy

Swedish krona VALUATION The trade weighted krona is clearly under-

valued compared to our long-term fair value model

(SEBEER). It appears to be roughly 10% undervalued in

trade weighted terms. As SEK has continued to slide a

weaker exchange rate now contributes to a pick-up in

imported prices. This is important for Riksbank as it fights

to reach for the 2% inflation target. Nevertheless

maintaining a weak SEK is desired by the central bank.

There are now even fewer arguments why SEK is a barrier

to external trade at current levels. Valuation is hence

long-term SEK supportive. Interestingly though is that the

krona still remains historically cheap in real trade

weighted terms. Therefore Swedish competitiveness has

been maintained despite a slightly stronger nominal

krona exchange rate. Based on relative CPI the real

effective krona exchange rate is almost back at the lows

from 2009, which makes it complicated to argue Sweden

would need a weaker krona. �� +2

POSITIONING Our speculative proxy position for SEK

versus USD indicates that speculators just switched into a

small short SEK position. Positioning in 2014 was mostly

short to a varying degree but has been swinging back and

forth just as USD/SEK has range traded in 2015. At the

start of the year a quite sharp drop from net long to a

small net short occurred. This sharp move provides the

SEK negative positioning score of -1. In a three year

perspective current positioning is 0.3 standard deviations

above the average. �� -1

LIQUIDITY, EVENT RISK AND GLOBAL CYCLE Liquidity

remains poor at times which is a handicap for the

Swedish krona. And Riksbank government bond

purchases (SEK 200 bn) will gradually worsen bond

market liquidity likely to add a “liquidity premium” to the

krona. The previous short speculative SEK-positioning

has made the currency trade defensively appreciating in times of risk aversion. This trading pattern will not last.

Main risks for the krona are: 1) Continue subdued

Swedish inflation as commodity prices fail to find a floor

making Riksbank consider FX interventions down towards

the low 9.00 in EUR/SEK. 2) Adverse developments on

the Swedish housing market which could trigger a foreign

exodus of portfolio investments. However, we still attach

a low probability to this event happening; 3) Strong USD-

appreciation will likely cap the downside in EUR/SEK (as USD/SEK takes off).


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USD/CADUSD/CADUSD/CAD

EUR/USD


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75

80

85

90

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100

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110

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2001 2003 2005 2007 2009 2011 2013 2015

0

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01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

% of mainland GDP% of Gov. Pension Fund Global

Cyclical-adjusted, non-oil budget deficit (LHS)Fiscal policy guideline (LHS)Central government non-oil budget deficit (RHS)

29

Currency Strategy

Russian rouble The RUB remains highly correlated to global oil prices and

with Brent set to average $25/b in Q1, we see USD/RUB

hovering around 82.00 also in Q1, before firming to 80.00

in Q2 and 74.00 in H2 ’16 on the back of a slight recovery

in oil prices. However, with global oil production running

well ahead of demand in the first half of 2016, the risk is

strongly skewed towards lower oil and an even weaker

RUB.

ECONOMIC FUNDAMENTALS The 2016 budget

assumes an average Ural oil price of $50/barrel (Brent

roughly $53) and USD/RUB at 63, translating into RUB

3,150/b. The current USD/RUB exchange rate has offset

only part of the oil price fall, leaving Ural oil at RUB

2,100/b (i.e., 35% below budget). All else equal, this price

implies that government revenue would be 17% below

projections, and it has prompted political leaders from

President Putin to Finance Minister Siluanov to signal that

the budget assumptions will be revised. The approach so

far has been to announce spending cuts. For example, on

January 12, Reuters and Vedomosti reported that the

finance ministry has asked all other ministries to identify

cuts of 10%. Pension payments and public sector

salaries, which were already targeted in the original

budget, will be exempted this time around. In addition,

significant reductions in the defence budget are also

unlikely. Nevertheless, any spending cuts would come on

top of an already tight and overly optimistic budget. Real

GDP looks set to fall in 2016 and inflation will not fall to

the projected 6.4%, which will push up spending,

especially defence, and depress revenue. In addition, a

likely recapitalisation of the state development bank,

Vnesheconombank (VEB) will cost up to 3%, potentially

double the targeted budget deficit.

Due to a strong dependence of public finances on oil

(roughly 50% of federal government revenues come from

the hydrocarbon industry), the central bank will let the

RUB depreciate, as long as the fall is not too precipitous.

To ensure financial stability, it will support struggling

banks through direct capital injections.

Real GDP contracted by 3.6% y/y through Q3 ’15, and

looks set to end the year down by 3.6%, on the back of

lower oil prices. Inflation has moderated, but remains

high at 12.9% in December (down from 15% in

November). The key drag on the economy is private

consumption, which has taken a hit from a fall in real

household income. �� -2

MONETARY POLICY The CBR has kept the policy rate on

hold at 11.0% since July 2015. Given the recent RUB

weakness, the CBR may resume the easing cycle in .July, if

oil stabilises and inflation moderates. �� 0

FLOWS The current account surplus was$65.8bn in

2015, up from $59.5bn in 2014 due to lower merchandise

imports. We see the current account continuing to

generate a surplus. The pace of capital outflows has

slowed, stabilising reserves around $365bn. We expect

net capital outflows to continue in 2016, but at a

manageable pace for the CBR. �� 0

-0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8

Global cycle

Event risk

Ec. Surprise

Liquidity

Technicals

Positioning

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RUB Weighted score: -0.5

30

Currency Strategy

Russian rouble VALUATION In real effective terms, the RUB is now

severely undervalued, standing roughly 30% below its 10-

year average. However, in terms of government finances,

the RUB is currently overvalued. Adjusted for inflation, oil prices in RUB are now at the lowest level since the brief dip in 2008 and before that since 2001. The last time oil prices in RUB were consistently below the current inflation-adjusted level was in the second half of the 1990s. With Brent oil at $28/b (Ural oil mix at roughly $26/b), USD/RUB would need to average 115 for budget revenues to be in line with budget assumptions. This back-of-the-envelope calculation

suggests that the RUB is currently overvalued by some

46%. Yet, even if Brent oil were to fall to $25/barrel, the

RUB is unlikely to weaken that much. �� -2

POSITIONING Speculators in the RUB have become

increasingly bearish and have added to their net short

RUB positions on anticipation that falling oil prices will

also drag down the RUB. We expect positioning to

continue to be strongly negative over the coming months

as oil prices stay under pressure, especially following the

addition of Iranian oil to the market. However, if the RUB

depreciates too rapidly, the CBR will likely intervene, first

verbally followed by a coordinated effort with the finance

ministry and large exporters. The 3 score reflects an

expectation that speculators will eventually begin to

normalize their short position. �� +3

EVENT RISK, LIQUIDITY AND GLOBAL CYCLE The

rouble is facing two key risks: 1) a continued fall in the

price of oil; and 2) renewed tensions in relations with the

EU and US. Oil has room to fall further and may even test

the $17.7/b low from November 2001, although we do not

expect it to stay at that level.

Regarding relations with the “West”, Russia is unlikely to

expand the war in eastern Ukraine because it does not

need to in order to keep Ukraine out of NATO and the EU.

The rebels would like to gain control over a larger, more

economically viable area including the port city of

Mariupol and the coke factory in Avdiivka. However, the

potential cost of capturing these strategically and

economically important sites would likely be high and

prompt additional sanctions. With Putin barely

mentioning the conflict in Ukraine in his speeches in late

2015 and early 2016, a resurgence of violence is unlikely.

�� -1

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Chinese yuan We expect USD/CNY to end this year at 6.9 (7.0 for CNH).

CNY went through a tectonic shift when China changed

the daily fixing methodology to be market driven. CNY

has taken a big step towards a free floating currency.

Although capital account needs to be more opened to be

a free float, this is a once in a decade shift similar to when

CNY depegged from the USD in July 2005 and China

joined the WTO in 2001.

ECONOMIC FUNDAMENTALS Growth outlook is weak.

GDP is expected to decelerate to 6.5% this year from

6.9% in 2015 and continue weakening to 6.3% in 2017.

The economy is facing headwinds from reforms reducing

investment in heavy industry, lacklustre export growth

from weak US and European demand, and downturn in

domestic demand led by the construction sector. High

inventory and tighter lending standards are slowing

construction activity. Finally, we are hearing anecdotal

evidence that the service sector, supporter of growth in

2015, is slowing. Policymakers are adding monetary and

fiscal stimulus but the amount are small and only prevent

a hard landing, rather than attempting to reaccelerate the

economy. �� -1

MONETARY POLICY Monetary conditions are easing and

the process will accelerate. Inflation has fallen to 1.6%,

well below the 3% target and PBoC and we expect

deposit rates to fall to 1.0% by year end 2016 from 1.5%.

We also expect the reserve requirement ratio to be cut by

550bps to 12%. Easier policy conditions are needed so

that total debt at close to 240% of GDP can be easily

rolled over without causing financial instability. In

addition, China is moving away from capital intensive

economy to a service oriented and consumer based

economy, which will also structurally reduce the demand

for funding and reduce rates. Lastly, China has embarked

on floating the currency so that it does not inherit the US

interest rate hike that are to come to make sure that

domestic monetary conditions remain ample. �� -2

FLOWS The shift in making the currency more free

floating will change the flow dynamics and what will drive

currency movements. China still maintains a steady long

term inflows that supports the currency over time with a

current account surplus and net FDI inflows, which add

up to 4% of GDP. However, a more liberal currency

means that short term flows like capital flows will drive

currency movements more over the short run. Capital

flows have been heading outwards and leading to CNY

weakness. For the next 12 months, capital outflows will

remain because domestic companies will need to play

catch up and hedge their currency exposure. Most

Chinese corporates have been long CNY vs USD because

the currency was appreciating and more importantly the

volatility was too low to make a big impact on profits.

Now with a more floating exchange rate, your entire

year’s profit can be wiped out in several days. This will

force domestic to diversify and continue to buy USD and

weaken the CNY. �� -1

-30

-20

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0

10

20

30

40

50

07 08 09 10 11 12 13 14 15 16

SEB China construction indicator

Steel Production

% yoy 3mma

10

15

20

25

30

35

40

05 06 07 08 09 10 11 12 13 14 15 16

Bank Loan Total loan (incl TSF)% yoy

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12

08 09 10 11 12 13 14 15

China BOP % of GDP

Current Account FDI Capital flow ex FDI

32

Currency Strategy

Chinese Yuan VALUATION China’s government and IMF have both

stated that CNY has reached fair value. Furthermore,

CNY’s real and nominal effective exchange rates (REER

and NEER) strengthened by 30% since 2009. The central

bank has stated that it will guide CNY according to REER

and NEER going forward and the recent weakness in CNY

is in line with peers as you can see on the right. We think

the currency is fair-valued or slightly over-valued by 1-

2%. �� 0

POSITIONING This is difficult to gauge but we estimate

based on long term and short term methodology. Long

term, we still think most domestics are long CNY. These

positions were accumulated over 10 years post the depeg

and domestic corporates still have not learned to hedge

FX exposure and still need to liquidate long CNY

positions. Short term, we look at how spot is trading

relative to daily fixing and the band of +/- 2%. Spot is

now above fixing meaning markets are pressuring the

currency to weaken and positioned short CNY. �� 0

LIQUIDITY, EVENT RISK AND GLOBAL CYCLE Even CNY has succumbed to the mighty USD and the global

cycle. The CNY market is still controlled by a closed

capital account but the open CNH market is selling off

rapidly and reacting to the strong USD and weak Chinese

economy. Moreover, the volatility in CNH has become so

strong that it has spread to the onshore CNY market and

PBoC experienced some loss in control. PBoC has

tightened regulations, intervened aggressively in FX

markets and pegged the fixing temporarily to the USD to

calm markets. However, this is a temporary measure and

CNY will be allowed to weaken according to

fundamentals. When PBoC allows market forces to take-

over the movements in CNY and CNH, it becomes more

difficult to control and liquidity and event risk has

increased. �� -1


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115

120

125

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07 08 09 10 11 12 13 14 15

NEER REER

CNY

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

USD/CNY spot spread to fixing %

CNY High Low

-6-4-20246810121416

6.0

6.1

6.2

6.3

6.4

6.5

6.6

6.7

6.8

6.9

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Jul-12

Oct-12

Jan-13

Apr-13

Jul-13

Oct-13

Jan-14

Apr-14

Jul-14

Oct-14

Jan-15

Apr-15

Jul-15

Oct-15

Jan-16

spread (RHS, 100pips)

CNH

CNY

33

Currency Strategy

Contacts

STOCKHOLM

Carl Hammer (editor)

+46 8 506 231 28

[email protected]

Richard Falkenhäll

+46 8 506 231 33

[email protected]

Mattias Bruer

+46 8 763 85 06

[email protected]

Per Hammarlund

+46 8 506 231 77

[email protected]

Andreas Johnson

+46 8 763 80 32

[email protected]

Karl Steiner

+46 8 506 231 04

[email protected]

FRANKFURT

Thomas Köbel

+49 69 97 27 12 45

[email protected]

OSLO

Erica Blomgren

+47 22 82 72 77

[email protected]

SINGAPORE

Sean Yokota

+65 6505 0500

[email protected]

34

Disclaimer Analyst Certification We, the authors of this report, hereby certify that the views expressed in this report accurately reflect our personal

views. In addition, we confirm that we have not been, nor are or will be, receiving direct or indirect compensation in

exchange for expressing any of the views or the specific recommendation contained in the report.

This statement affects your rights This research report has been prepared and issued by SEB Research a unit within Skandinaviska Enskilda Banken AB

(publ) (“SEB”) to provide background information only. It is confidential to the recipient, any dissemination,

distribution, copying, or other use of this communication is strictly prohibited.

Good faith & limitations Opinions, projections and estimates contained in this report represent the author’s present opinion and are subject to

change without notice. Although information contained in this report has been compiled in good faith from sources

believed to be reliable, no representation or warranty, expressed or implied, is made with respect to its correctness,

completeness or accuracy of the contents, and the information is not to be relied upon as authoritative. To the extent

permitted by law, SEB accepts no liability whatsoever for any direct or consequential loss arising from use of this

document or its contents.

Disclosures The analysis and valuations, projections and forecasts contained in this report are based on a number of assumptions

and estimates and are subject to contingencies and uncertainties; different assumptions could result in materially

different results. The inclusion of any such valuations, projections and forecasts in this report should not be regarded

as a representation or warranty by or on behalf of the SEB Group or any person or entity within the SEB Group that

such valuations, projections and forecasts or their underlying assumptions and estimates will be met or realized. Past

performance is not a reliable indicator of future performance. Foreign currency rates of exchange may adversely

affect the value, price or income of any security or related investment mentioned in this report. Anyone considering

taking actions based upon the content of this document is urged to base investment decisions upon such

investigations as they deem necessary. This document does not constitute an offer or an invitation to make an offer,

or solicitation of, any offer to subscribe for any securities or other financial instruments.

Conflicts of Interest SEB has in place a Conflicts of Interest Policy designed, amongst other things, to promote the independence and

objectivity of reports produced by SEB Research department, which is separated from the rest of SEB business areas

by information barriers; as such, research reports are independent and based solely on publicly available information.

Your attention is drawn to the fact that SEB, its affiliates or employees may, to the extent permitted by law, have

positions in, buy/sell in any capacity, or otherwise participate in, any financial instrument referred to herein or related

securities/futures/options or may from time to time perform or seek to perform investment banking or other services

to the companies mentioned herein.

Recipients In the UK, this report is directed at and is for distribution only to professional clients or eligible counterparties. In the

US, this report is distributed solely to persons who qualify as major institutional investors. Any U.S. persons wishing to

effect transactions in any security discussed herein should do so by contacting SEB Securities Inc (‘SEBSI’).

The distribution of this document may be restricted in certain jurisdictions by law, and persons into whose possession

this document comes should inform themselves about, and observe, any such restrictions.

The SEB Group: members, memberships and regulators Skandinaviska Enskilda Banken AB (publ) is incorporated in Sweden, as a Limited Liability Company. It is regulated by

Finansinspektionen, and by the local financial regulators in each of the jurisdictions in which it has branches or

subsidiaries, including in the UK, by the Prudential Regulation Authority and Financial Conduct Authority (details

about the extent of our regulation is available on request); Denmark by Finanstilsynet; Finland by Finanssivalvonta;

Norway by Finanstilsynet and Germany by Bundesanstalt für Finanzdienstleistungsaufsicht. In the US, SEBSI is a U.S.

broker-dealer, registered with the Financial Industry Regulatory Authority (FINRA). SEBSI is a direct subsidiary of SEB. =

35

With an eye for trading opportunities Did you know that you can do all your trading business via the Internet?

By using Trading Station, you are always in contact with the global trading market.

You get access to the latest exchange rates, and you can buy and sell at the blink of an

eye – spots, swaps or forwards.

To find out how you can develop your electronic trading, visit us at www.seb.se/mb.

Or call one of our traders to activate our e-service:

Gothenburg +46 31 774 90 60

Malmö +46 40 667 69 10

Stockholm +46 8 506 231 40

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