The Greek debt negotiations to reduce Greek debt/GDP to 120% by 2020 have been accepted as Euro zone finance ministers this morning approved the €130bn second Greek bail-out package. ECB will participate by contributing approx. €50bn profit made on their holdings of Greek debt, the voluntary private sector write-down of Greek debt holdings is agreed at a haircut of 53.5%. Unsurprisingly a confidential report (obtained by the FT) circulated ahead of the euro group-meeting, claimed the second bail-out package is not sufficient. In the best case scenario there will be a need for an additional €50bn in order to reach the goal of 120% debt/GDP by 2020. The fundamental Greek problems are by no means solved yet, the key is to deal and restore the internal level of competitiveness through large wage cuts in-line with the Baltic crisis management in 2008/09 -> we haven’t seen the end of Greek problems. The euro is likely to continue to range-trade in the near-term. We will watch the appetite for the 3 year LTRO on Feb 29th, demand is likely to be lower given the “resolution” to the Greek debt drama. We keep our euro-forecasts intact as the ECB balance sheet expansion is viewed as the most negative factor for the common currency. As surprisingly small need for cheap 3 year financing would make us revise higher our EUR/USD forecasts.
SEK: IS RIKSBANK MAKING A “NORGES BANK? The repo rate decision last week contained few surprises. Of interest was the alternative scenario of SEK-appreciation (12%
trade-weighted gains before year-end) where the repo rate has to be cut to 0%. We find the scenario rather improbable (too far too fast) and should more be seen as a way for Riksbank to caution markets monetary policy (like Norges Bank) will be adjusted in a dovish way on substantial Stokky-appreciation. We have not made any changes to our SEK-forecasts.
NOK: WATCH OUT FOR THE SLEEPING BEAR. Norges Bank struck a more relaxed tone in the governors annual address (the reason was rather obvious as the I44 was trading in-line with the NB own projections). We caution against chasing EUR/NOK lower from here. We look to sell NOK/SEK 1.1750-1.18 with a stop above 1.1950. We keep our short NZD/NOK trade.
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SEB tech team