SCANDIS: Short-term NOKSEK Uptrend Intact; SEB Highlight Reversal Potential
A short-term uptrend in NOKSEK remains intact, and an impending cross of the 20- and 50-day EMAs would strengthen a bullish theme. Initial resistance in the cross is the May 21 high at 0.9461, clearance of which would expose the 76.4% retracement of the March 21 – April 9 selloff at 0.9509. This level aligns closely with a key medium-term pivot level at 0.9500.
- The trendline drawn from the April 9 low, which has underpinned the recent recovery, provides important support at 0.9374.
- Near-term relative rates appear supportive of NOKSEK, with the Riksbank keeping the door open to a 25bp June cut in May and Norges Bank maintaining a cautious stance.
- However, SEK has been a clear beneficiary of this year’s rotation out of the US assets and into European counterparts, and a continuation of that theme diminishes the importance of near-term rate differentials. This morning, Riksbank Deputy Governor Jansson said that “I feel pretty convinced that the movement we have been seeing in the krona will be more persistent”..."This is a repositioning and has to do with investors wanting to decrease their exposure to US dollar. So they basically exit US assets and go into European and Swedish assets".
- SEB have noted that NOK has recently been more sensitive to moves in global equity prices rather than crude oil. However, in a scenario where Brent crude drifts closer to the $60/bbl handle and US equities revert to year-to-date average levels (~$5,500 in the S&P), their factor model “points to at least 1.5-2% downside in NOKSEK”.
- In such a scenario, they see a move below 0.9200 as feasible. One way of positioning for such a move would be a 0.9250/0.9000 put spread, “offering a risk reward of 1:3.6 for a premium of 0.7% in NOK terms”.
Figure 1: NOKSEK Since 2022
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US TSYS: Extraordinary Measures And Cash Look Sufficient To Head Off X-Date
Treasury has about $164B in "extraordinary measures" available as of April 23 to avoid hitting the debt limit, per its regular report out Friday. That's out of a maximum total of $375B (they have used $211B).
- With Treasury cash looking healthy (around $600B), that's a fair amount of dry powder to get through the summer months to wait out the debt limit impasse. Tax receipts have looked strong with tariff revenues also starting to boost cash flows, further reducing the near-term urgency to adjust bond issuance.
- This has also helped push back analyst “x-date” expectations to later in the summer/September. We expect to hear from Treasury about its own x-date assumptions next week.
US TSYS: Treasury Market Trading Stayed Orderly In April: Fed Report
Liquidity across financial markets including the Treasury market deteriorated after President Trump's April 2 reciprocal tariffs announcement but market functioning was generally orderly, according to the Federal Reserve's semiannual report on financial stability, released Friday. (PDF link is here)
- Treasury market liquidity has been poor for years and yields were particularly volatile in early April, contributing to a deterioration in market liquidity, the Fed said.
- Nevertheless "trading remained orderly, and markets continued to function without serious disruption," according to the report, which looked at information available as of April 11.
FED: Ex-Gov Warsh: Fed Has Failed To Satisfy Price Stability Remit
From our Washington Policy Team - Some fairly sharp words today from ex-Fed Governor Warsh on the central bank (who for what it's worth is seen by betting markets as by far the frontrunner for the next Fed Chair):
- The best way for the Federal Reserve to safeguard its independence is for policymakers to avoid expanding the institution's role over time, including wading into policy areas that are outside its core mission, former Fed Governor Kevin Warsh, a leading contender to replace Jerome Powell as chair next year, said Friday.
- "I strongly believe in the operational independence of monetary policy as a wise political economy decision. And I believe that Fed independence is chiefly up to the Fed," Warsh said in a speech at a Group of Thirty event on the sidelines of the IMF meetings. "Institutional drift has coincided with the Fed’s failure to satisfy an essential part of its statutory remit, price stability. It has also contributed to an explosion of federal spending." His speech made no mention of Trump's tariffs or the appropriate monetary policy to deal with them.
- He said the ideas of data dependence and forward guidance widely adopted by Fed officials are not especially useful and might even be counterproductive.
"We should care little about two numbers to the right of the decimal point in the latest government release. Breathlessly awaiting trailing data from stale national accounts -- subject to significant, subsequent revision -- is evidence of false precision and analytic complacency," he said.
"Near-term forecasting is another distracting Fed preoccupation. Economists are not immune to the frailties of human nature. Once policymakers reveal their economic forecast, they can become prisoners of their own words. Fed leaders would be well-served to skip opportunities to share their latest musings."
