Denmark Hikes Rates As Draghi's "Hawkish" Ease Relieves Peg Pressure

Tyler Durden's picture




 

When Mario Draghi “disappointed” markets in December by “only” cutting the depo rate by 10 bps and “merely” extending PSPP by six months while electing not to expand monthly asset purchases, the Riksbank, the Nationalbank, the Norges Bank, and the SNB all breathed heavy sighs of relief.

Essentially, Denmark, Sweden, Switzerland, and Norway are beholden to Mario Draghi. When the ECB eases, those countries’ central banks must ease as well or risk falling behind in the global currency wars.

This beggar thy neighbor race to the Keynesian bottom has resulted in negative rates for all of the central banks mentioned above with the exception of the Norges Bank and you can bet that when slumping crude proves incapable of bringing about sufficient NOK weakness, Norway will take the NIRP plunge as well.

While we doubt the ECB is done when it comes to going "full-Krugman" (as it were), Mario Draghi’s “hawkish” ease did buy his counterparts some breathing room. Case in point: Denmark just hiked.

Earlier this week, Handelsbanken predicted the move, noting that strengthening pressure on DKK vs EUR has eased, while Danish FX reserves may have fallen to DKK415b by the end of December, "which would be below level before attack on DKK peg began almost one year ago." 

As Dow Jones reminds us, Denmark has "sold huge amounts of its own currency and suspended bond auctions to limit the inflow of foreign currency into the country." On Tuesday, the central bank published figures showing currency reserves are now back at levels last seen at the end of 2014," Bloomberg said, earlier this week, adding that FX reserves are now roughly where they were "just before hedge funds and other short-term investors started betting the krone’s peg to the euro wouldn’t last." 

Of course no one should think this marks some kind of epochal shift in European monetary policy. "While the ECB didn’t deliver as much QE in December as expected, there’s no guarantee it won’t come up with more later and the Danish central bank needs to take that into consideration," Nordea's Jan Stoerup Nielsen says. Here's a bit more color from Realkredit Danmark's Christian Heinig: 

  • Increase largely expected given falling foreign currency reserves, especially after central bank last month sold FX for about DKK50b to support krone
  • Market expected bank to raise rate when reserves reached level maintained before last year’s attack on the krone, and reserves, at DKK434.9b, now largely there 
  • Rate increase unlikely to have a big impact on mortgage rates especially since it was expected
  • Rate increase shrinks negative spread to ECB to minus 0.35%; no reason, however, to expect it to normalize above zero any time soon

And here's more from Nielsen: 

  • Whether today’s rate hike will be followed by further tightening will fully depend on the krone exchange rate versus the euro
  • Nordea’s baseline scenario doesn’t assume any further rises until into the autumn; see CD rate at -0.5% by yr-end while ECB is expected to keep its deposit rate unchanged at -0.3%
  • Danish central bank tightening is a fine-tuning of its key policy rate vs euro area; comes after a long period of pressure for a weaker krone, which has reduced currency reserves by more than DKK300b
  • The bank has for quite a while been normalizing monetary policy after the extraordinary measures introduced early 2015; last step in this process is a gradual narrowing of the interest-rate differential vs euro area

In other words, at the slightest sign that Mario Draghi is set to either cut the depo rate or expand PSPP to include other "assets" (because the supply of purchase-eligible EGBs is running dangerously low), you can expect Denmark to do a quick about-face as the market will once again put to DKK peg to the test. Or, as WSJ puts it, "the slightest sign of a weaker euro against the krone will have the Danes stamping on the brake and even shifting into reverse if necessary."

And on cue:

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Thu, 01/07/2016 - 10:44 | 7010982 Seasmoke
Seasmoke's picture

Shouldn't this be even more bullish for Price of Gold/USD

Thu, 01/07/2016 - 10:49 | 7011010 Haus-Targaryen
Haus-Targaryen's picture

Seriously Tyler, that is the best click bait for Denmark you could come up with when they have given the world politicians like Nikita Klaestrup!? 

Thu, 01/07/2016 - 11:10 | 7011123 Ghordius
Ghordius's picture

OT, isn't it? -1. very, very cute gal

oh, and my compliments for your recent ZH article: hedgelesshorsemans-revolutionary-call-arms , +2

I particularly appreciated the reading list and the https://en.wikipedia.org/wiki/List_of_fallacies

UR made a comment, 7006485 that ended with "However, if you want to be a more effective citizen, then your list makes perfect sense"

yes, please. more effective citizens, thanks

Thu, 01/07/2016 - 11:01 | 7011086 thesonandheir
thesonandheir's picture

Sorry @Haus, had to neg rep you because you provided no link to said politician.

 

 

Very nice young lady though after I googled it myself.

Thu, 01/07/2016 - 11:05 | 7011104 Haus-Targaryen
Haus-Targaryen's picture

I'm at work ATM, and even though I've already resigned -- soft porn surfing on their computers is not the best of ideas. 

Thu, 01/07/2016 - 11:32 | 7011279 Ghordius
Ghordius's picture

resigned? and...? what's next?

Thu, 01/07/2016 - 11:29 | 7011255 Ghordius
Ghordius's picture

HT: "Seriously Tyler, that is the best click bait for Denmark you could come up with when they have given the world politicians like Nikita Klaestrup!?"

well, you know what I think about conspiracy theories. but if I was into them... I could guess that Tylers signed one of those us msm contracts to never, ever mention continental conservatives as such

and little Nikita is a self-defined conservative, even though she is not a politician, yet. she is in Denmark's Conservative People's Party 

and, if you did read a few of my posts on eurozone and EU politics, that conservative party is part of the EPP, the European People's Party

your natural political habitat in europe (not AfD), if I read you correctly. come on, Haus, do you need more arguments then Nikita's?  ;-)

Thu, 01/07/2016 - 12:07 | 7011571 Sanity Bear
Sanity Bear's picture

She has a fine set of, um, policies

Thu, 01/07/2016 - 10:58 | 7011064 Eirik Magnus Larssen
Eirik Magnus Larssen's picture

No, as it is seen as an attempt at normalization. Whether this will be successful is another matter. The first rate hikes should ideally have been done in 2010-2011.

Thu, 01/07/2016 - 10:47 | 7010986 hedgeless_horseman
hedgeless_horseman's picture

 

 

Or, as WSJ puts it, "the slightest sign of a weaker euro against the
krone will have the Danes stamping on the brake and even shifting into
reverse if necessary."

When this deflationary whirlpool is inevitably turned into an inflationary fire storm, it will snap more necks than a young Pamela Anderson in a bikini.

Thu, 01/07/2016 - 10:45 | 7010996 Dr. Engali
Dr. Engali's picture

Moar Brazilian babes please.

Thu, 01/07/2016 - 10:46 | 7011001 buzzsaw99
buzzsaw99's picture

less nirpy, lulz

Thu, 01/07/2016 - 10:53 | 7011025 kerfuffled
kerfuffled's picture

meanwhile at the neighbours;

Sweden: Welfare migrant cuts throat of host family’s 7-year-old daughter

http://10news.dk/?p=2165

(target was foreignish too but still)

 

Economic talk is irrelevant, get race aware before you're displaced.

Thu, 01/07/2016 - 10:51 | 7011029 Backin2006
Backin2006's picture

Their IRP just got fractionally less evil... Nice.

Thu, 01/07/2016 - 10:55 | 7011053 savedeposit
savedeposit's picture

fuck denmark

Thu, 01/07/2016 - 11:14 | 7011167 Ghordius
Ghordius's picture

that's exactly the kind of comments we need here. informative, funny and to the point. oh, Denmark called and left a message, but I think you can guess it's content

Thu, 01/07/2016 - 10:59 | 7011070 Ghordius
Ghordius's picture

"As Dow Jones reminds us, Denmark has "sold huge amounts of its own currency and suspended bond auctions to limit the inflow of foreign currency into the country." On Tuesday, the central bank published figures showing currency reserves are now back at levels last seen at the end of 2014," Bloomberg said, earlier this week, adding that FX reserves are now roughly where they were "just before hedge funds and other short-term investors started betting the krone’s peg to the euro wouldn’t last." "

in "euro-speak", that's "evil speculators"

now before you get all righteous and free-market-fundamentalist, remember that many of those hedge-funds and short-term "investors" are tentacles of megabanks, fuelled by immense leverage and "hedged" courtesy of derivatives that ought to be banned, as they were before. Many of them use Other People's Money, and Plenty Of It, after the concept: "if I win, I win. If I lose... you pay"

as a reminder, Denmark's national bank is poised since ages on that soft peg without joining the EUR but being the last (and lonely) member of the ERM-II, the soft-peg club that was prepared for the EUR

during currency wars, size matters. though tenacity might do the job, too. perhaps

Thu, 01/07/2016 - 11:22 | 7011205 surf@jm
surf@jm's picture

Denmark just hiked.

Calling -.75 to -.65 a hike......LMAO!....

Wow,  I better run out and buy me a Danish certificate of deposit, so I can enjoy the higher rates.......

Thu, 01/07/2016 - 11:27 | 7011240 tarabel
tarabel's picture

 

 

I don't know. Those new modern Femi-Vikings just aren't as intimidating as the old ones.

Old Viking joke:

All right men, we're going to sail over to England and find a town to pillage.

We're going to kill all their livestock.

And rape all their women.

And this time...

Let's try and get it right.

Thu, 01/07/2016 - 13:06 | 7012064 Bopper09
Bopper09's picture

I'll take the one with the horns.  She just looks like she really needs it.

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