Swedish Interest Rates Hold Firm

Daily Analysis - 22/12/2016

Riksbank Repo Rate Left at Record Low as QE Expanded

In a bid to support a rise in inflation on Wednesday the Swedish Central Bank – the Riksbank – kept its key interest rate at a record low of -0.50% and stated that it will continue to buy government bonds. Three of the six governors voiced reservations against the decision to continue to buy government bonds. The divided board forced Governor Stefan Ingves to use his casting vote for the first time since 2008.

Swedish Central Bank Extends Quantitative Easing

In-line with its October estimate, the Riksbank projected inflation in Sweden to be a modest 1.40% next year, well short of the inflation target at 2.00%. The repo rate is the interest rate that commercial banks get when they deposit money for seven days at the Riksbank. Sweden’s repo rate was cut to its current -0.50% last February. A negative rate signifies that banks have to pay for keeping deposits with the central bank. As part of its expansionary monetary policy the Riksbank plans to buy government bonds and extend its quantitative easing during the first half of 2017 for SEK 30 billion or $3.2 billion dollars. A strong Krona could threaten the inflation target so the Central Bank’s move intends to prevent Krona from strengthening. After tumbling on Wednesday, USDSEK has found support, trending flat on the session.

US Existing Home Sales Hit a 10-Year High

Reaching their highest level in about 10 years, US home resales unexpectedly climbed in November. Anticipating a further increase in borrowing costs, buyers on the fence probably hurried into the market to take advantage of low interest rates. The National Association of Realtors reported that it was the third consecutive monthly increase in existing sales. After dragging in the preceding two quarters, they projected that the increase in housing sales would augment economic growth in the fourth quarter. Existing home sales improved 0.70% to an annual rate of 5.61 million units in November. Economists had forecast sales sliding -1.00% to a 5.50 million-unit pace but instead are up 15.40% from a year earlier. However, should rates rise the three times projected, sales may falter as mortgage financing costs rise. After closing at a new record on Tuesday, Nasdaq futures are continuing to retreat, extending Wednesday’s losses.

US Oil Inventories Record Surprising Climb

The US Energy Information Administration (EIA) said on Wednesday that US crude stocks unexpectedly jumped last week, although gasoline and distillate inventories were lower. Crude inventories increased by 2.256 million barrels despite predictions of a decrease of -2.563 million barrels. The EIA stated that the advance happened even though crude stocks at the key US oil storage hub in Cushing, Oklahoma actually fell by 245,000 barrels – the second drop in stocks in the last eight weeks. US crude futures fell 0.50% or 24 cents to $53.05 a barrel. Brent crude dropped to 0.60% and lost 33 cents to settle at $55.02 a barrel. EIA data indicated that refinery crude runs rose by 184,000 barrels per day with refinery utilization rates rising 1.00%. Meanwhile, US crude imports increased last week by 1.039 million barrels per day. After finding support following Wednesday’s dip, crude futures are trending flat on the session.

New Zealand’s GDP Up in Q3

Statistics New Zealand reported that the nation’s gross domestic product rose by 1.10% during third quarter. That jump upends forecasts for an increase of 0.80% following the previous three month gain of 0.70%. During the period, 13 of the 16 GDP industries increased in the third quarter with expenditure on GDP growing 1.40%. The statistics bureau said that because of scientific, architectural and engineering services – business services advanced 2.00% on quarter. Manufacturing was also higher at 1.20% because of food, beverage and tobacco manufacturing as well as transport equipment, machinery and equipment manufacturing. Investment in fixed assets rose to 1.40% largely due to increased investment in residential building and transport equipment while household consumption expenditure was also up 1.60%. After snapping a 6-session losing streak, the New Zealand dollar has managed to erase all the previous session’s losses against the US dollar.