SEK slightly higher after inconclusive election

Summary:

• Swedish election ends with an inconclusive outcome as neither the center-left or center-right block has sufficient support to form a government

• SEK is marginally higher as Sweden Democrats score a worse result compared to polls carried out prior to the election

• Chinese consumer inflation accelerates while producer price growth decreases

In line with expectations the Swedish election did not bring a conclusive outcome ending with political gridlock as neither the left-centre (the opposition Alliance) nor right-centre (the Social Democrat-led coalition of the incumbent PM Stefan Lofven) block gained sufficient power to forge a majority government on its own.

The Sweden Democrats party made the most impressive improvement compared to the election in 2014 but its outcome turned out to be weaker than polls had suggested. Source: Bloomberg

The former group reached 40.6% of votes while the latter 40.2% of votes leaving local financial markets exposed to a period of protracted negotiations. Political pundits predict that these talks could potentially take even weeks to create either a majority or a plausible minority government. Anyway, the prime reason why the Swedish krona is not falling hard this morning is the fact the the Sweden Democrats (SD) party managed to gain much less seats compared to polls being carried out a few days before the election. Namely, they got 17.6% of votes finishing at the third place behind the Moderate party (19.8%) and the Swedish Social Democratic party (28.4%). However, even as the SD’s result turned out to be weaker than thought the party made a meaningful improvement compared to the election in 2014 gaining 4.7 percentage points more than four years ago - the most impressive improvement in the last week’s election. Keep in mind that the far-right party, wanting to hold a referendum on a possible exit from the EU, managed to convince a lot of the Swedes following an array of attacks - a lot of them were ascribed to immigrants. Indeed, the Sunday’s election showed that many Swedes were concerned about tackling a record influx of foreigners. Over the past 5 years as much as 600k immigrants crossed the Swedish frontier to stay there which is a substantial number taking into account that the country has roughly 10 million inhabitants. Let us sum up that Lofven’s parties have been given 144 seats in the 349-member parliament, and the Alliance has reached 143 seats. The anti-immigration Sweden Democrats have finished with 62 seats. Given that the far-right SD managed to score so many seats in the parliament (substantially more than four years ago) and weighting it against the fact that the party is unlikely to find an allay in forming a govt suggests that negotiations will be burdened with a lot of uncertainty leaving the SEK vulnerable to coming headlines. Either way, the final result is not so bad as many experts thought it would be (SD’s backing was much less impressive), and this is the reason why the Swedish krona is performing quite well this morning.

The EURSEK has fallen to its crucial support in the vicinity of 10.46 hence its future move will depend on whether the pair is able to move through this level persistently in the nearest future. Note that even as the pair could drive lower in the days to come the significant degree of uncertainty could impede larger appreciation of the krona in the upcoming weeks. Anyway, the SEK remains among those major currencies having the largest scope to increase in the long-term. Source: xStation5

Beside the Sweden’s election it is worth mentioning Chinese inflation which surprised in August producing a pick-up to 2.3% from 2.1%, the result turned out to be well above the median estimate of 2.1%. On the other hand, producer price inflation declined to 4.1% from 4.6%. Note that higher CPI came after Beijing’s first wave of tariffs on US goods came into force. Keep in mind that US President Donald Trump had recently pledged more tariffs on Chinese goods ($200 billion) are in the pipeline.

The China’s Hang Seng is moving on the verge of the larger fall. A possible bounce could see the index rising at least toward 10700 points. Source: xStation5

In the other news:

• Japanese economy expanded 0.7% QoQ in the second quarter compared to a preliminary reading of 0.5%

• Fed’s Rosengren sees no need to quicken the pace of rate hikes (do note that wage growth surprised to the upside last month)

• Chinese stocks lose roughly 1%, Japanese NIKKEI gains 0.3%

• Oil prices rise 0.6% after the Baker Hughes data showed that US energy companies cut two oil rigs last week