Importantly, a so-called Swexit is off the agenda, after the Sweden Democrats got slightly less support than some polls had indicated before the election, according to Robert Bergqvist, chief economist at SEB AB. That means the central bank's plan to start raising interest rates by the turn of the year probably won't be disrupted, he said.
Swe election: EURSEK moves lower this morning, in line with our client surveys. The result suggests a new complex political landscape; gov't formation may take a couple of weeks (but not months). "Swexit" is not on the agenda. Riksbank hike around turn of the year supports SEK.
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Anders Borg, a former finance minister for the Moderate Party, said the market reaction was an expression of relief. Some polls before the election had showed the Sweden Democrats becoming the biggest party in the parliament. Now, they're set to be the third-biggest.
“For the established parties, this is a little bit of a relief,” Borg said in an interview with Bloomberg Television's Markus Karlsson in Stockholm. “Now I think economic policy will to some extent be on autopilot and therefore I think the market also takes relief.”
As leader of the center-right bloc, Kristersson wants to cut taxes and some social benefits in order to get more people into the labor market. It's an agenda he'd be able to push with the support of the Sweden Democrats. Jimmie Akesson, who leads the nationalist group, wasted no time in calling on Kristersson to affirm his willingness to collaborate.
“Now it's up to you to show how you plan to form a government,” Akesson said, as supporters gathered in Stockholm chanted his name. “Do you choose Stefan Lofven or do you choose Jimmie Akesson. I want an answer to that question now.”
Lofven struck a defiant note after the result was clear, and said he plans to continue as prime minister until parliament votes on his future when it convenes in two weeks. He also said Sweden's political parties need to wait until the election outcome is clear, given how close the result between the two political blocs was.
The inconclusive outcome with the prospect of weeks without a government is highly unusual for Sweden, which has tended to be a bastion of political stability.
Carl Michael Palmer, a 17-year-old member of the Social Democrats who lives in the Stockholm suburb of Skarholmen, said “it will definitely take some time to form a government. Lofven needs to take his time.”
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The Sweden Democrats, meanwhile, are celebrating their ascent after rising from obscurity a little over a decade ago to a position of incontestable political influence today. Their leader, the 39-year-old Akesson, attributes his success to challenging what he characterizes as the political correctness of the establishment. Most notably, he's been an outspoken critic of the rising number of immigrants in Sweden. He's also worked hard to gentrify a party that has its roots in Sweden's white supremacist movement, drawing in more voters.
Michael Grahn, chief economist at Danske Bank A/S in Stockholm, said the Sweden Democrats will hold the balance of power.
Who will get to form govt? S will not give up directly if this was the result we guess. Neither will Alliance, they will vote against Löfven in PM election. SD to hold the power of balance. Our guess is they lean toward Moderates. GOVT FORMATION NOT A WALK IN THE PARK.
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Jonas Thulin, head of asset management at Erik Penser Bank in Stockholm, described the outcome as “the most uncertain result we have had in modern times” and said a second election could become a “possible scenario” that investors need to consider.
With Lofven deciding he doesn't want to step down, he now faces a confidence vote in parliament two weeks after the election. If he loses that, the speaker of parliament presents a new candidate to become prime minister. If that person fails to form a government, it opens the door to fresh elections within three months.
Magnus Blomgren, an associate professor of political science at Umea University, said the likely election outcome reflects not only the fact that the immigration issue was prominent in voters' minds, “but also the disappointment over the established parties. This is an indication that there's a disbelief in the established parties in a fairly pronounced way.”
--With assistance from Love Liman, Hanna Hoikkala, Niclas Rolander, Anna Molin, Eric Coleman, Veronica Ek, Joel Rinneby and Hayley Warren.
To contact the reporters on this story: Rafaela Lindeberg in Stockholm at rlindeberg@bloomberg.net;Amanda Billner in Stockholm at abillner@bloomberg.net;Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net
To contact the editors responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net;Jonas Bergman at jbergman@bloomberg.net
©2018 Bloomberg L.P.
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