Nordic-based volume at FinFX increased 15% from the previous quarter (Q2 2013). This phenomenon closely resembles historic Q3 turnover figures as evidenced by our statistics in 2012 through 2010. The best performers were Finnish and Swedish markets, which experienced an uptick of 25% and 20% respectively. Our analysts forecast a net gain of 10% from the Nordic clients in Q4 of 2013 as compared to the previous quarter.
Major Q3 news came from Sweden and Denmark whose banks are exploring the option of imposing a leverage ratio before their European counterparts make any similar commitments. The legislation is also slated to underscore tougher limits on gearing than recommended by the Basel Committee on Banking Supervision.
Eagerness to regulate in areas neglected by the EU is growing among Europe’s richest nations, where record-low interest rates are distorting asset prices. The head of Denmark’s government-appointed crisis commission; Jesper Rangvid, said that a leverage ratio (a measure of capital to assets before they’ve been weighted for risk) would help national regulators catch banks understating loss probabilities. His report, released in September 2013, showed that excessive leverage at Danske Bank A/S almost destabilized the entire Danish economy in 2008.
Stefan Ingves, governor of Sweden’s central bank Riksbank and chairman of the Basel committee added a warning that without leverage requirements, banks are left with too much freedom to lower their capital base by adjusting risk weights. Though Sweden’s four biggest banks, led by Nordea Bank AB and Svenska Handelsbanken AB (SHBA), are among Europe’s best capitalized, the lenders are highly leveraged.
From a trader’s perspective, the Norwegian krone (NOK) appreciated towards the tail-end of Q3 from its weakest levels in three years. The Norwegian GDP data indicated a year over year (y/y) growth of about 2% in Q3, which was a bit lower than 2012. The data was in line with the forecast from the Central Bank of Norway (Norges Bank), which is likely to keep rates at their current level.
Conversely, Sweden’s GDP figures were disappointing as the y/y GDP growth was only 0.4 %. Therefore, we estimate that the 2 % inflation target of Riksbank will not be reached and they are forced to do a repo rate cut on 17 December.
Our analysis predicts upside potential for NOK/SEK in early Q4 based on three factors that are: 1) Q3 growth outperformance in Norway compared to Sweden, 2) higher core inflation in Norway and 3) the rate cut by Swedish Riksbank whereas Norges Bank remains unchanged.