EURSEK etc.

Stockholm

In the first half of December, the Swedish pension funds tend to buy foreign equities as new money is allocated abroad. This flow tends to peter out by mid-December, and then SEK appreciates as repatriation dominates. Therefore, there is a simple strategy that tends to make money:

1. Buy EURSEK on 05DEC
2. Flip short EURSEK on 15DEC
3. Cover at the end of the year

This flow can be offset by risk aversion, Swedish economic data, and any other macro factor that comes along, so obviously it does not work every year. It has not been as good in recent years, but the flow remains real and meaningful. Here is the P&L of the strategy since Swedish pension reform happened in 2000.

It is fair to ask why the effect stopped working after COVID, but my best guess is that it’s a matter of randomness, not that the flows stopped. Therefore, I am adding the trade to the sidebar. I like it. When it doesn’t work, the losses are small, and when it works, the gains are large. I never run positions without a stop loss, so the first trade will be long EURSEK here (10.9610) with a stop at 10.8290. If it survives, I’ll flip long on 15DEC. In case you would like to see the individual P&L by year, here you go:

Again, note the asymmetry of large gains and small losses. And one nice thing about the fact that the trade hasn’t worked in recent years is that nobody is really focused on it anymore.

The EURUSD and NZDUSD trades are doing okay, and given the slow movement in EURUSD, I am moving the stop loss up. If we break this little up trend, the idea could get stale fast. I am moving the stop up to 1.1574 as you can see the trend is pretty clear and below 1.1580 is not good. Details in sidebar as always.

Acknowledging that it’s been a tough year for seasonality trades, here is the USD seasonality into year end. It kicks off big time against most currencies around 18-20DEC.

Some of this is an artifact of higher risky assets and lower vol in late December, as that was historically USD bearish. But some of it is central bank rebalancing and repatriation flows into Europe, Sweden, Japan, etc.

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Stocks

The NASDAQ is struggling to gain enough momentum to take out the 25800/25900 zone as that was support after the 26400 ATH and now double top resistance. Google, recently crowned as the new King of AI, has stalled just as the market pivots from Armageddon and peak Fear two weeks ago to Santa Rally now. Makes me a bit nervous about my bullish view and I think open-minded on stocks probably makes sense from here, not outright bullish.

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Calendar

Next week is decent, with the RBA, BoC, FOMC, and SNB on tap. We will see if Powell delivers a hawkish hike, or just completely capitulates to the doves. JOLTS, bond auctions, and Oracle’s earnings release will also be of interest. ORCL is the poster child for the scarier side of debt-financed AI Capex, but the stock and CDS have stabilized in recent days.

New from Kuppy:
https://pracap.com/feudalism/

Have a warm weekend.

Restaurant ordering preferences in Africa.

I’ve never Benin Togo, but I’m Ghana go.

 

HT CR

good luck ⇅ be nimble