The initial financial market reaction in Switzerland and the Nordics to the coronavirus followed the familiar pattern during times of uncertainty: the Swiss franc rose and Swiss bond yields tumbled on the back of safe-haven demand, while the Swedish krona and Norwegian krone both sold off in line with other ‘risky’ assets. Since the start of February, the SEK has recovered as investor risk appetite has picked up again, and the NOK has also found support from the stabilisation in oil prices and unexpectedly strong January inflation data. Nonetheless, the Norwegian krone is still about 2% lower than where it started the year and both it and the SEK remain vulnerable to another sell-off if investor sentiment sours again. Meanwhile, the SNB appears to have intervened to slow the continued rise in the franc, and we are confident in our view that policymakers will cut interest rates further into negative territory later this year.
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