Krona Sinks as Swedish Jobless Data Deemed a ‘Catastrophe’

(Bloomberg) -- Sweden’s unemployment rate unexpectedly spiked to a four-year high in August, raising questions around the central bank’s plans to hike interest rates and driving the krona lower.

The seasonally-adjusted jobless rate jumped to 7.4%, much worse than the 6.8% reading in a Bloomberg survey of economist estimates. The news, which resulted in a 0.8% decline in the krona against the euro, was quickly dubbed “a catastrophe” by Martin Enlund, a currency strategist at Nordea Bank Abp in Stockholm.

At Svenska Handelsbanken AB, Head of Trading Strategy Claes Mahlen said the data “adds to our view that Riksbank will ultimately call off planned rate rises.”

The deteriorating labor market is throwing a spanner into the Riksbank’s plans to raise rates toward the turn of the year. The report coincided with the publication of minutes from the Riksbank’s latest rate meeting, which largely reaffirmed the bank’s desire to exit almost half a decade of negative rates.

Jesper Petersen, an analyst at Danske Bank A/S in Stockholm, said that while the minutes might be considered as “hawkish” on their own, they reflect a conversation that took place before the ECB’s latest decision and before a number of key economic statistics, including the jobless report, “which all have played out as negative for the Riksbank’s scenario.”

Most economists now expect Riksbank policy makers to adjust their forward guidance to take the global monetary environment and weaker economic conditions into account. According to GDP data published last week, Sweden’s trade-dependent economy all but stalled in the first half of the year.

In its analysis of the unemployment report, SEB AB said it seems that “there is more weakness behind these numbers than just uncertain summer months. The Riksbank will have to adjust its forecast.”

The report is also bad news for Finance Minister Magdalena Andersson, who is due to present the 2020 budget on Wednesday.

At a previously scheduled press conference on Tuesday to present labor market initiatives, Andersson adopted a wait-and-see stance to the labor market, arguing summer data is always uncertainty.

“What we’re seeing is that the international slowdown is now affecting Sweden more clearly,” she said at a press conference. “We’re going to analyze today’s figure more carefully. We would like to see how things have developed at the beginning of the autumn.”

--With assistance from Niklas Magnusson.

To contact the reporter on this story: Rafaela Lindeberg in Stockholm at rlindeberg@bloomberg.net

To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net, Tasneem Hanfi Brögger, Nick Rigillo

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