USDSEK: a cheap European rearmament trade?
The rush to rearm Europe has moved equity & bond markets a long way already. FX, and USDSEK specifically, has lagged the move & may offer the best opportunity for anyone late to the trade.
- European defence stocks are at record highs
- Euro Stoxx 600 is now up 10.5% YtD. Meanwhile SPX has fallen 0.5% in 2025
- 10y US Treasury ylds are 40bp lower YtD; 10y BUND yields are 10bp higher
Are there any “cheap” European catch-up trades left out there? Or has the move already happened?
Swedish defence contractors like Saab, Bae Systems Hagglunds are seen as some of the main beneficiaries of European rearmament. That means several investors are increasingly looking at the Swedish Krona as a way to play this theme.
In fx, USDSEK has fallen 6.5% from its mid-Jan local high but it is lagging the move in macro conditions.
Qi model value has been falling for months but momentum is accelerating. The fall in the orange line is speeding up & macro-warranted fair value now sits at 10.4167. That leaves spot 1.3% too high to the prevailing macro environment.
eyeQ macro model value is falling primarily because US bond yields are falling while Swedish yields aren’t. In the professional jargon this means interest rate differentials are moving in the Krona’s favour & against the Dollar. It’s important because they account for 34% of our model, so big moves here are having a large impact.
But, in short, the key point is if you’re looking for European rearmament plays that are lagging the aggressive moves already seen in recent weeks, then USDSEK downside looks interesting.
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