We polled investors in 10 European countries this autumn about the question whether the Fed should hike rates. On average, 64% said the central bank should take immediate action, while the remaining 36% were against an imminent rate hike.
Scandi’s against the rest
There is a strong divide between Scandinavia and the rest of Europe: In Norway and Denmark, the majority of fund buyers are against a rate hike, and it’s 50-50 in Sweden. In all other European countries we polled (Belgium, the Netherlands, Spain, Italy, Switzerland, Germany and a Pan-European audience in London), a clear majority are in favour of the Fed tightening monetary policy. In the Netherlands and Switzerland, a record 83% are in favour of an instant Fed rate hike.
Considering the consensus opinion in the asset management industry is that a Fed rate hike is long overdue, it’s the Scandinavians who are the odd ones out here. So what could explain this?
Well, all three Scandinavian countries are small economies with their own currencies and have limited possibilities to smooth the impact of a change in monetary policy by the world’s main central bank. Moreover, Sweden and Denmark have meanwhile become accustomed to negative interest rates, and Norway is an aggressive monetary easing cycle in an attempt to boost its economy, which has decelerated dramatically in the wake of the oil price collapse. So a tightening of monetary policy wherever in the world might simply sound too risky, and perhaps even inconceivable to Scandinavian investors.
Switzerland also is a small country with its own currency and negative interest rates, but investors in the country are big proponents of a Fed rate hike. The explanation is probably simple: the Swiss are struggling with an overvalued currency, and tighter US monetary policy should lead to a weaker franc versus the dollar. For the same reason, the Swiss are among the select few to oppose a fresh round of QE by the ECB: this would, in their eyes, only serve to drive the franc up further against the euro.