SEK: PPM Flows Could Generate Temporary SEK Weakness, Opportunity To Fade
Analysts note that seasonal forces can be important drivers of SEK price action in December, with annual pension fund disbursements (‘PPM flows’) expected at the start of the month.
- PPM flows could generate temporary SEK weakness on and around the disbursement date, with funds selling SEK to purchase foreign securities (equities in particular).
- The PPM flow effect has moderated (and in some cases been immaterial) in recent years, but remains a dynamic to be aware of. Should SEK weaken beyond what would be expected by fundamentals around the disbursement date, it may provide an attractive entry point for fresh longs.
Some analyst views on PPM flows below:
- Danske Bank: “Our [disbursement data] prediction is for Monday 8 December. We expect the total amount to be around SEK56bn (up from last year’s SEK54bn)”…“Based on in-house assumptions for hedge ratios and foreign holdings, we estimate that approximately SEK8-10bn or EUR700-900m will hit the SEK around the PPM date”….“EUR/SEK spot has, on a 10y average, risen 1% immediately before (on) the PPM date and fallen by the same amount the days after. We also observe a temporary spike in short dated implied and realised volatility in EUR/SEK”
- SEB: “We expect the funds to start being paid out on December 5”….“We estimate this year’s disbursement to have risen slightly to SEK 55 bn from SEK 54 bn last year”…“we estimate this year’s PPM payout to cause a SEK outflow of up to 37 bn at the start of December”…“Implied EUR/SEK volatility has declined to historic lows. If this calm environment prevails into December, there should be greater room for technical factors like seasonality to influence the market, potentially resulting in a weaker SEK in the first half of the month followed by a strong recovery toward the end.”
- JP Morgan: “Distribution is expected towards the end of [this] week, but rather than this being a one-day event, flow will occur over several days, but we should be on the look out for any weakness in SEK that is out of line with what is going on elsewhere”. JP Morgan favour fading such weakness, and to like shorting “EURSEK while below 11.10”
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AUSSIE 10-YEAR TECHS: (Z5) Returns Lower
- RES 3: 95.982 - 76.4% retracement Sep’24 - Nov’24 downleg
- RES 2: 95.960 - High Apr 7 (cont.)
- RES 1: 95.900 - High Oct 17
- PRICE: 95.670 @ 16:16 GMT Oct 31
- SUP 1: 95.510 - Low Sep 3
- SUP 2: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 3: 95.275 - Low Nov 14 (cont) and a key support
Aussie 10-yr futures slipped lower Wednesday on the back of hotter-than-expected Australian inflation. This returned prices lower despite nascent signs of a technical recovery as recently as last week. The sustainability of the pullback will be dependent on prices holding above key short-term support at 95.510, the Sep 3 low. Near-term resistance remains 95.780, the Sep 12 high. A clear break of this level signals scope for a continuation higher and opens 95.960, the 76.4% retracement level for the Sep’24 - Nov’24 downleg.
AUSSIE 3-YEAR TECHS: (Z5) Struck by Strong CPI
- RES 3: 97.796 - 1.618 proj of the Sep 3 - 12 - 15 price swing
- RES 2: 96.780 - High Jun 26 (cont)
- RES 1: 96.700 - High Sep 12
- PRICE: 96.375 @ 16:13 GMT Oct 31
- SUP 1: 96.280 - Low May 15 (cont.)
- SUP 2: 95.900 - Low Jan 14 (cont.)
- SUP 3: 95.760 - Low 14 Nov ‘24
Having bounced well on the back of the mild US CPI print, Aussie 3-yr futures reversed course Wednesday on strong domestic inflation data containing RBA cut pricing through 2026. This keeps prices well below prior resistance at 96.615, the Sep 12 high, and refocuses attention on 96.280 as the next major support.
FED: Gov Waller: Still Advocating For A December Rate Cut
Gov Waller, one of the FOMC's more prominent doves, makes clear in an appearance on Fox Business that he supports a follow-up rate cut in December. He makes reference to Chair Powell's press conference comment that the Fed could skip a cut at the December meeting due in part to a lack of official government data during the federal shutdown (Powell: “what do you do if you are driving in the fog? You slow down").
- Waller says today: "Right now, we know that the labor market has been weak... We know inflation is going to come back down. Inflation expectations are anchored, and in that world, the standard of central bank wisdom is to look through it and proceed with worrying about the labor market. So in my view, we should just look at what the data is telling us and proceed on policy that way.... So this is why I'm still advocating that we cut policy rates in December, because that's what all the data is telling me to do. The fog might tell you to slow down. It doesn't tell you to pull over to the side of the road. You still have to go. You may want to be careful, but it doesn't mean to stop, and ... the right thing to do with policy is to continue cutting."
- This is of particular interest since he appeared to suggest he would have a more cautious outlook on further easing after cutting in October.
