In the markets in the run-up to the holidays, liquidity falls and finalize slack trends, which last week almost gave no reasons to change. The news background was poor, American statistics at the end of the year did not please: sales of new homes in the U.S. in November. -1.7% by October, waited -0.2%, in October it was 1.5%. The index of leading indicators in November 0%, waited for 0.1% (in October -0.2%).
However, one important news, in our opinion, should be noted: Riksbank (CB Of Sweden) has completed a 5-year experiment with a negative rate of repo, raising it from -0.25% to 0.0%. The rate on deposits in the Central Bank has been raised from -0.35% to -0.10% and so far remains negative. The Factbank warned in October that the rate would be raised, so this decision did not come as a surprise, but for us it is a clear sign that the experiment with negative rates cannot last endlessly – it provokes long-term distortions in the banking system, which accumulate swells the risks of economic recession. The Riksbank introduced negative rates before the ECB, moreover, it was the first among all the Central Bank to experiment with them in the crisis of 2008-2009. The fact that the Riksbank seems to be winding down the monetary experiment is widely perceived as a forward signal for other central banks pursuing similar policies: the ECB (-0.5%), the Swiss National Bank (-0.75%) and the Swiss National Bank (-0.75%). and the Bank of Japan (-0.1%). Because the Swedish economy has not shown any signs of improvement lately, moreover, it is now slowing down again. banking system.
Financial markets have reacted to changes in Swedish monetary policy by the growth of forwards on the EONIA (Euro Overnight Index Average, the average effective overnight rate in the interbank lending market). The market is beginning to lay the prospect of an increase in the ECB’s interest rate over the next 12 months. In addition, according to Nordea Bank, for the first time since 2017 there has been an influx of investors’ funds into ETFs for European stocks without currency hedging. We believe that these are important fundamental reversal signals for.
Last week, as we expected, EUR/USD adjusted slightly, and broke down 121.45. In the short term, it is still possible to bet on the continuation of the decline of the euro, which, however, is unlikely to be noticeable by the end of the year. We do not recommend transferring short positions in the euro through the New Year holidays, and we recommend keeping in mind the possibility of forming medium-term long positions in EUR/USD from current levels. In the first half of the year EUR/USD seems to have a good chance of strengthening even against the background of the persistence of high risk appetite, and even more so if after the holidays there will be a correction.
The British pound remains at the mercy of politics. The new intrigue is no longer the Brexit itself, which is predetermined, but the trade agreements that will be concluded after it. Johnson demonstrates a tough stance towards future negotiations with the EU, the pound has rebounded from recent highs. We advise closing the shorts in if someone has not done so when meeting our previously stated targets of 0.835, and are starting to look positively at EUR/GBP again in the medium term.
rolled back from 109.7, but the desire for further decline does not demonstrate. We expect a sluggish sideby kofic before the end of the year, with the beginning of next year the decline may continue.
USD/RUB ends the year on a minor note, setting new annual lows. The chrystomatic technical picture, which drew a rebound to 64, has not been realized, as it often happens when the market seems too obvious. We are without a position in the ruble. To short the dollar against the ruble after such a rout is uncomfortable – I would like to see attempts to break back up the previous annual lows in the region of 62.50/60, which have now become a resistance zone, and they are already judged whether to accept a new technical picture, in which the ruble has gone to another range.
The stock market.
The index of the Sp-500 triumphantly ends the year at historical highs. As we expected, the rally continued. gained above 1500 and continued to move higher in unison with U.S. markets. Our fears about him were not justified last week, but this week, RTS may be negatively affected by the sanctions imposed by Trump against Nord Stream-2.
We propose to reduce the risks before the New Year holidays and fix at least part of the profit received in the Christmas rally. In our opinion, after the holidays, the correction is more likely to continue growth. Moreover, after the holidays, banks will have to return the liquidity issued by the Fed on repo operations at one-time raised limits, and this is likely to provoke some increase in short-term dollar rates.
Dmitry Golubovsky analyst of Kalita-Finance