We do not know what will happen to the USD in 2010. In a bull case, the US economy will recover as usual when leaving recession and as neither deflation nor a jobless recovery will force the Fed to keep its interest rates down the USD will strengthen alongside a gradually stronger US economy. In the bear case, the USD will weaken further due to extraordinary macroeconomic weakness following the credit crisis.Click on chart to enlarge, courtesy of Danske Markets Equities.
In our view, the direction for the USD has the potential to be the factor that determines the relative performance between sectors during 2010 as it has partially done in 2009. When it comes to our bull case for the USD, Nordic Energy and Industrials stand to be the prime beneficiaries while Nordic Consumer Discretionary is likely to underperform other cyclicals.
In our bear case, the opposite is obviously true for the aforementioned sectors. However, it is also obvious, that segments of the Nordic market that have ignored the weak USD trend are likely to start to react. This could hit the defensives Health Care and Consumer Staples which currently rate as Overweight.
Overall, today’s financial risk management has delayed the effects of the weaker USD. In fact, according to our calculations, most of the effects of the weaker USD vs. local Nordic currencies during 2009 have still not been reported by companies and will be reflected in Q4 09 and Q1 10 reports.
Who knows?
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