Weekly Focus Tough job ahead for the ECB

Transcription

1 Investment Research 26 September 204 Tough job ahead for the ECB Market Movers ahead Nonfarm payrolls and PCE inflation both monitored closely by the Fed are due for release next week. Last month s labour market report disappointed but we expect a strong September reading due to low jobless claims and high ISM employment indices. We expect core PCE to come out at 0.0% m/m and.4% y/y which is still below the 2% target. We expect the US ISM manufacturing index to decline slightly from 59.0 to 58.5, which is still very high, indicating higher activity in the US. The ECB meeting will deliver further details on the upcoming purchase programme of asset-backed securities (ABS). Contents Market movers... 2 Global Macro and Market Themes... 6 Scandi update... 0 Latest research from Danske Bank Markets... Macroeconomic forecast... 2 Financial forecast... 3 Calendar... 4 We expect euro area HICP inflation to decline from 0.4% y/y to 0.3% y/y due to further decline in oil prices a new cycle low. The Danish FX reserves may attract some attention due to the strong krone. Global macro and market themes Weak euro surveys for September showed further weakness, adding to the downside risks to growth. The weak surveys combined with very low inflation are adding to the pressure on the ECB. The Fed s asset purchases programme comes to an end next month and, in this connection, we expect the Fed to adjust its forward guidance. The manufacturing PMI in China suggests that the Chinese slowdown may not be as severe as previously feared. Focus During the week, we have published our quarterly Nordic Outlook including our new forecasts on the Nordic economies, see Nordic Outlook September 204, 25 September. We have revised down our forecasts on Denmark and Sweden mainly due to the European stagnation. In Norway, domestic demand is keeping activity on track despite lower oil investments. The Russian recession and austerity measures are weighing on the Finnish economy. Financial views Major indices 26-Sep 3M 2M 0yr EUR swap EUR/USD ICE Brent oil Sep 6M 2-24M S&P % 5-8% Source: Danske Bank We expect a strong job report New forecasts on the Nordics Editors Allan von Mehren alvo@danskebank.dk Source: US BLS, Danske Bank Markets Source: Danske Bank Markets Steen Bocian steen.bocian@danskebank.dk Important disclosures and certifications are contained from page 6 of this report.

2 Market movers Global We are heading towards a very busy week in the US, with the release of both the September labour market report and the latest PCE figures. Last month s labour market report disappointed severely with an increase in non-farm payrolls of only 42,000 despite very optimistic labour market indicators. Even if correcting for the job loss of 7,000 due to the supermarket store strike, we still believe the August report was too bad to be true. Low jobless claims, high ISM employment indices as well as the increasing jobs plentiful versus hard to get balance all suggest that the US labour market is in a considerably better condition than reflected in last month s report. Our model estimates an increase in non-farm payroll in September of around 250,000 and we expect the unemployment rate to stay at 6.%. Non-farm payrolls to bounce back after last month s weak report Source: Macrobond Moreover, we will get the latest update on the inflation pressure as the PCE figures are due for release on Monday. The headline PCE has been closing in on the Fed s 2.0% target through the first half of the year and the 3m AR rate is now of around 2.2%. But the consumer prices did not rise much in July and our models is suggesting that August is going to be a low inflation month as well. We forecast a core PCE of 0.0% m/m and.4% y/y and low gasoline prices contribute to an expected headline PCE of -0.% m/m and.4% y/y. The ISM manufacturing index rose to 59.0 in August the highest level since February 20 and upbeat comments in the latest report indicate optimism across a large range of industries. We expect the ISM manufacturing index to stay at a high level but make a small downward adjustment to The markit PMI index is expected to close in on the ISM with an increase to 58.5 as well. Moreover, the ISM non-manufacturing index is also doing well, but we expect it to adjust slightly to 59.0 from 59.6 in August. Finally, we expect consumer confidence to increase to 94.5 from 92.4 last month and personal income and personal consumption is forecast to increase by 0.3% m/m and 0.5% m/m, respectively. In the euro area, the ECB meeting next week will deliver further details on the upcoming purchase programme of asset backed securities (ABS) and covered bonds. We expect most focus to be on the new ECB soft target on the size of its balance sheet that Draghi mentioned at the previous ECB meeting and which has been repeated by several ECB members over the past month an expansion of the ECB s balance sheet towards the dimensions it used to have at the beginning of 202. Although most market participants view the first TLTRO take (82.6bn) as disappointing, Draghi has commented that this allotment was well within the ECB s expectations and that the December auction was needed before assessing the success of the programme. We expect him to repeat this message at the meeting. Lastly, we expect Draghi to reiterate the Governing Council s unanimous commitment to using additional unconventional instruments if needed and thereby keeping the QE speculation alive. Euro area September HICP inflation is expected to decline to 0.3% y/y from 0.4% y/y due to a further decline in oil prices. Looking ahead, we expect inflation to pick up in the coming months and, for that reason, the expected low September print will Italian sentiment points to nil growth in Q3 Source: Macrobond 2 26 September 204

3 probably also be at a cycle low. German HICP is expected to move sideways at 0.8% y/y with some downside risk from the movement in energy prices. Italian manufacturing PMIs have shown declines across all major sub indices since Q2 and there is nothing to suggest that the Italian manufacturing sector s sentiment improved in September. Based on the development in the flash euro area PMIs, we believe the Italian manufacturing PMI is set to decline further to 49.2 in September from 49.8 in August. Similarly, the euro area flash also indicates a decline in the Italian Service PMI to 49.2 from 49.8 in July. With both Italian PMIs below 50, contraction now appears to be widespread. Meanwhile, the July industrial production was also disappointing in Italy. This suggests that there are some downside risks to our forecast of a rebound in Q3 albeit a lot of hard data for Q3 have yet to be released. Spanish manufacturing PMI will likely improve slightly to 53.0 from 52.8 whereas service PMI could decline slightly based on the flash euro PMI s. Sentiment indicates downward trend on retail sales Source: Macrobond Euro area retail sales are somewhat volatile but consumer confidence indicates a slight downwards trend. Furthermore, euro area and German unemployment is expected to move sideways. In China, the main event next week will be the release of the official manufacturing PMI published by China s National Bureau of Statistics (NBS). The flash estimate for the HSBC/Markit manufacturing PMI in September unexpectedly improved to 50.5 in September from 50.2 in August. Nonetheless, we still believe that China is in a phase of slowing manufacturing activity driven mainly by domestic investment demand. However, the resilient HSBC/Markit manufacturing PMI at least suggest that growth in manufacturing activity is only slowing moderately. In addition, it should be remembered that the sample used in the HSBC/Markit survey is probably skewed more towards smaller export-dependent private companies compared to the sample used in the NBS manufacturing survey that is believed to more skewed towards big state owned companies within heavy industry. Hence, it is possible that the NBS manufacturing survey is more sensitive to a slowdown in domestic investment demand and for that reason could underperform the HSBC/Markit survey that to a larger degree benefits from the positive development in exports. Hence, we expect the NBS manufacturing PMI to decline slightly to 50.8 in September from 5. in August despite the improvement in HSBC/Markit manufacturing PMI in September. China will also release its official non-manufacturing PMI, which tends to be very volatile and get substantially less attention in the market. In Japan, we have a number of important releases next week. The most important event release is Tankan Business Sentiment for Q3 published by the Bank of Japan. We expect both current conditions and expectations to decline for large manufacturers and large non-manufacturers, but the expectations components should indicate a modest recovery in Q4. Based on the development in production plans, our models suggest that industrial production seasonally-adjusted increased only 0.% m/m in August after increasing 0.4% m/m in July. The main message from the industrial production data continues to be that production is only recovering slowly after the April hike in the consumption tax. Even with a solid increase in industrial production in September, industrial production is on track to have contracted more than % q/q in Q3 after contracting 3.8% q/q in Q2. Unusually warm weather probably weighed on retail sales in July and, for that reason, we expect to see some rebound in retail sales in August. The labour market report will probably show that the unemployment rate was unchanged at 3.8% in August and the improvement in employment appears to have stopped in the wake of the recent slowdown. In China, NBS manufacturing PMI is expected to move slightly lower Source: Macrobond, Danske Bank Markets In Japan, Tankan has so far indicated only weak recovery Source: Macrobond, Danske Bank Markets 3 26 September 204

4 Scandi In Denmark, a variety of data is on the agenda in the coming week. Most interesting will be the revised national accounts figures for Q2 after the preliminary release showed GDP contracting by 0.3%. The revision will be unusual as it follows the major revision of the national accounts following the implementation of ESA 200, the new European system of national accounts. This may mean that we see slightly bigger changes than normal. Elsewhere, the week brings figures for gross unemployment (seasonally adjusted) and we expect a slight improvement in the number of jobless from 34,500 in July to 34,000 in August, giving an unchanged unemployment rate of 5.%. There will also be news from industry in the form of Statistics Denmark s tendency surveys for September and housing prices for August, although these are national figures and will not shed light on regional variations. In addition, the Nationalbank will be releasing currency reserves data for September. In Sweden, the week ahead kicks off on Monday morning (at CEST) with August retail sales, where we would be surprised not to see continued low y/y growth as most indicators for the retail sector seem to have lost much of the momentum over the past few weeks. Alas, we think that private consumption, albeit still positive, will settle on a new lower pace of growth henceforth considering that 205 is expected to produce fiscal policy tightening and as new housing market related regulations put a damper on growth. On Wednesday (at CEST), we will receive another bout of survey data in the form of manufacturing PMI. We actually do not have anything intelligent (as if ever...) to say before the outcome other than that we expect it to stay put in the range. The week concludes with what we feel might be among the most important numbers to keep up with Swedish domestic cyclical developments, industrial production and orders (Friday, CEST). As diligent readers are aware, the manufacturing industry has posted a long string of disappointing data. A positive outcome would keep our hopes up for a rebound in industrial activity during H2 but, alas, it would do little to change the weak trend. In Norway, the most important releases are retail sales figures for August and PMI and NAV unemployment data for September. After strong growth earlier in the summer, retail sales dropped sharply in July, putting paid to any fears of an impending consumer boom. However, we reckon the hot weather and a correction from the strong growth in May and June were the main reasons for the fall in July. Based on signals from the trade, we expect retail sales to grow.0% m/m in August. This will still mean more or less zero growth in private consumption in Q3, but will confirm that there is little downside risk to growth from private consumption going forward. With oil-related industries slowing but the export industry growing more quickly, the outlook for industry is uncertain. Time will tell which of these effects dominates in terms of both industrial activity and GDP. So far this year, actual industrial production has been surprisingly strong, while the PMI has painted a less optimistic picture. This discrepancy may be because production is driven by order books, whereas the PMI captures expectations. It is therefore reassuring that the PMI picked up somewhat over the summer. We expect it to deteriorate somewhat now, given the decline in European indicators and the weaker outlook for the oil sector and predict a score of 5.0 in September. Rather surprisingly, the labour market has been improving so far this year, but showed signs of levelling off in August. With more and more redundancies in oil-related industries during the month, we expect registered unemployment to come out at 2.8%, with the number of jobless rising by Labour market on the mend Source: Statistics Denmark On a downward bound train... Source: Statistics Sweden Job losses in the oil sector Source: Macrobond 4 26 September 204

5 Taken together, therefore, the week's data will paint a rather mixed picture, underlining the differences now emerging between sectors, but will also go to show that growth is holding up relatively well despite lower oil investment. Market movers ahead Global movers Event Period Danske Consensus Previous Mon 29-Sep 9:30 SEK Retail sales s.a. m/m y/y Aug 0.50% 3.00% 0.60% 3.00% -0.70% 2.30% Source: Bloomberg and Danske Bank Markets 4:00 DEM HICP, preliminary m/m y/y Sep 0.8% 0.8% 0.00% 0.80% 4:30 USD Personal spending m/m Aug 0.50% 0.40% -0.0% 4:30 USD PCE deflator m/m y/y Aug -0.0%.40% -0.0%.40% 0.0%.60% 4:30 USD PCE core m/m y/y Aug 0.00%.40% 0.00%.40% 0.0%.50% Tue 30-Sep :50 JPY Retail trade m/m y/y Aug 0.70% 0.30% -0.50% 0.60% :50 JPY Industrial production, preliminary m/m y/y Aug 0.0% 0.20% -.0% 0.40% -0.70% 0:00 NOK Retail sales, s.a. m/m Aug.00% 0.80% -.50% 0:00 NOK Credit indicator (C2) y/y Aug 5.40% 5.40% :00 EUR CPI, preliminary y/y Sep 0.3% 0.3% 0.4% 6:00 USD Consumer confidence Index Sep Wed 0-Oct :50 JPY Tankan large manufacturers index (outlook) Index 3rd quarter :00 CNY Manf.PMI Index Sep :30 SEK PMI Index Sep :00 NOK PMI Index Sep :5 USD ADP employment 000 Sep :00 USD ISM manufacturing Index Sep Thurs 02-Oct 0:30 GBP PMI manufacturing Index Sep :45 EUR ECB announces refi rate % % % % 3:45 EUR ECB announces deposit rate % -0.20% -0.20% -0.20% 4:30 EUR ECB's Draghi holds press conference 6:00 DKK Currency reserves DKK bn Sep 44.6 Fri 03-Oct 9:30 SEK Industrial production s.a. m/m y/y Aug.30% -.20% -.0% -5.70% 0:00 NOK Unemployment % Sep 2.80% 2.70% 2.90% 0:30 GBP PMI services Index Sep :30 USD Non farm payrolls 000 Sep :00 USD ISM non-manufacturing Index Sep Scandi movers Event Period Danske Consensus Previous Mon 29-Sep 9:30 SEK Retail sales s.a. m/m y/y Aug 0.50% 3.00% 0.60% 3.00% -0.70% 2.30% Tue 30-Sep 0:00 NOK Retail sales, s.a. m/m Aug.00% 0.80% -.50% 0:00 NOK Credit indicator (C2) y/y Aug 5.40% 5.40% Wed 0-Oct 9:00 NOK PMI Index Sep Thurs 02-Oct 6:00 DKK Currency reserves DKK bn Sep 44.6 Fri 03-Oct 9:30 SEK Industrial production s.a. m/m y/y Aug.30% -.20% -.0% -5.70% 0:00 NOK Unemployment % Sep 2.80% 2.70% 2.90% 5 26 September 204

6 Global Macro and Market Themes More soft euro data adds pressure on the ECB This week s euro surveys for September showed further weakness adding to the downside risks to growth. PMI data for the euro area weakened further, driven by weakness in German manufacturing and the German ifo expectations index dropped yet again more than expected, highlighting downside risks to Q4 growth (following a technical rebound in Q3). The German ZEW sentiment index already warned of a weak reading for ifo last week when it showed a continued drop. Although many commentators do not like the ZEW index because it is a survey of financial analysts, it is better than its name suggests (see chart). We expect surveys to move a bit lower in the coming months before staging a moderate rebound in early 205, driven by a positive spill-over effect from US growth, the easing Ukraine crisis and a weaker currency. Along with very low inflation, yet lower inflation expectations and a further decline in oil prices, the weak surveys are adding to the pressure on ECB to ensure it provides a meaningful stimulus to underpin the recovery and lift inflation. It is increasingly questionable whether the current measures will be enough and hence the likelihood of real quantitative easing (a bigger programme of government bond purchases) is going up; not least because it appears to be difficult for the ECB to increase the balance sheet as much as it might hope with the current measures. Key points More weak data adds pressure on the ECB Likelihood of real QE from ECB increasing The Fed is expected to change forward guidance in October Emerging markets in a fragile spot German ZEW has given good signal for ifo expectations Tough job ahead for the ECB It is not an easy task the ECB has of getting inflation back to 2%. First, the end of the super cycle in commodities continues to put downside pressure on commodity prices and thus inflation. Brent oil prices resumed the decline that started in July and, at USD96.6, trades at the lowest level in two years. Industrial metals have also fallen back recently due to weaker Chinese data. Second, high unemployment and low inflation continue to put downward pressure on wage growth in the euro area. In Q2 4, wage compensation fell to a new cycle low of.% y/y the lowest level in many decades. With inflation as low as it is, consumers are actually getting a decent real wage gain even with this level of nominal wage growth. This is one of the challenges for the ECB. When inflation is lower for a longer period, wage earners become satisfied with lower wage increases, which in turn makes it even more difficult to get inflation higher. In this sense, inflation is shifting to a lower equilibrium level below the ECB s 2% limit. This is also the reason why ECB president Mario Draghi has repeatedly stated that persistent low inflation is a problem for the ECB because of the risk it will get anchored in expectations. For the ECB to get inflation higher, it will need to provide enough stimulus to a) convince wage earners that they should expect 2% inflation and b) to generate enough demand to get unemployment down and dampen the downside pressure on wage increases. Source: Macrobond Financial Euro wage growth at very low level Source: Macrobond Financial 6 26 September 204

7 As two of the biggest economies in the euro area France and Italy suffer from poor competitiveness, overvalued house prices (in the case of France) and structural rigidities, the ECB really needs countries like Germany and Spain to perform. In that light, the current weak German figures should be of particular concern. On the other hand, it may help in the attempt to get Germany to ease fiscal policy as Mario Draghi has increasingly pointed to, albeit in his own cautious way. Market inflation expectations lower than before ECB measures German bond yields to stay low for a very long time With inflation expected to remain very low in the years ahead, a very sluggish recovery and high unemployment, there will be little pressure for higher bond yields in the euro area. The ECB will continue to have an easing bias for a long time and investors move out on the yield curve to get yields. The question we get a lot at the moment is whether the euro area is the new Japan. It would be a lengthy discussion to go into and there are both similarities and differences that we will look closer at it in a couple of forthcoming papers. However, it is clear that monetary policy rates will be low for a very long time, global liquidity will be ample and pension funds should continue to get new money in that needs a home some of them in the bond market. We should therefore expect bond yields in the euro area to remain low for a long time. Source: Macrobond Financial Getting closer to Japanese yield levels The Fed to adjust forward guidance in October This will also work to keep US yields in check as we are also seeing currently. The current fair value for 0-year US bond yields is around 3%, according to our models. But in a world with both the Bank of Japan and the ECB likely to stay at the zero rate bound (or even negative in the ECB s case) for a long time, it is likely to drive continued demand for US bonds as well as investors looking globally to get a return. However, we expect to see some rise in US bond yields as the Fed moves closer to lift-off on rates. The divergence in monetary policy will continue for many years, in our view, as the output gap is significantly higher in the euro area relative to the US and growth is weaker on top. As the Fed starts hiking next year, short-end yields will be pushed higher and it will have some rub-off effect on the long end. We are likely to see a significant flattening of the US yield curve, though, as the flood of global liquidity is likely to keep the rise in long yields limited. Although the Fed refrained from removing the considerable time language, we expect it to go at the October meeting when the Fed has tapered for the last time and asset purchases come to an end. Fed governor William Dudley this week reiterated the message of Janet Yellen that the guidance still implied that policy would be dependent on data. However, it is becoming increasingly difficult for the Fed to explain the meaning of the guidance and it would be easier to change it as time goes on and it becomes more uncertain whether there will be considerable time before lift-off. Job indicators are generally strong still and we expect non-farm payrolls to mirror this as well in next week s report (although admittedly we also believed so prior to the previous weak report). Our models point to slightly above 250,000 in payroll growth. Source: Macrobond Financial Historical policy divergence coming... Source: Macrobond Financial...as US slack is fading while euro area will have plenty for a long time Choppy stock markets With many soft spots in the global economy and the Fed likely to adjust its forward guidance next month, we would expect some uncertainty in global stock markets to be intact in coming months. The US continues to be the main driver of the global economy, which was again confirmed this week when US Markit PMI held up at a very strong level while PMI in both Japan and the euro area weakened. Source: Macrobond Financial 7 26 September 204

8 However, we continue to be positive on the stock market in the medium to long term as we look for growth to recover in both the euro area and Japan on a six-2 month horizon and expect US growth to continue at a 3-3.5% growth pace. With very cheap liquidity and lots of it as far as the eye can see, risk assets should continue to perform in the medium term. Slowdown not as severe as feared China s HSBC manufacturing PMI unexpectedly improved in September (see Flash Comment - China: Slight improvement in HSBC manufacturing PMI suggests slowdown less severe than feared, 23 September 204). It does not change our view that China is again in a phase of slower growth driven primarily by weaker credit growth and domestic investment demand and the manufacturing PMIs will continue to edge lower in the coming months. However, the manufacturing PMI suggests that the slowdown might not be as severe as we feared. It appears the weakness in domestic demand is to some degree being offset by stronger export growth. In the HSBC manufacturing PMI, export orders reached their highest level since March 200 and exports were also the bright spot in the overall weak hard data for August. Retail sales in China have also been relatively resilient in recent months if we adjust for the decline in inflation, suggesting that so far there has been no substantial negative impact on private consumption from the weak property market. Hence, at least for now, the data suggests that the Chinese economy is able to rebalance without a severe slowdown in growth. This is not necessarily positive for commodity markets. First, the implications are that we are unlikely to see any major stimulus from the Chinese government in the short run. Second, demand from China will also be less resource-intensive with growth gradually shifting away from investment-driven growth. Another implication is likely to be that the Chinese current account surplus will again start to increase as indicated by the surge in China s trade surplus in recent months. Hence, we expect the Chinese currency to continue to appreciate as long as growth does not slow severely. In China, surprise increase in PMI indicates less severe slowdown Source: Macrobond Financial Emerging markets in a fragile spot Emerging markets are fragile With a Fed hike moving closer, growth in China slowing and commodity prices under pressure across the board, emerging markets are fragile. Among emerging markets, fundamentals are currently strongest for Asia as it has the strongest external balances and the Asian region as a whole is benefiting from the recent declines in commodity prices. Source: Macrobond Financial 8 26 September 204

9 Global market views Asset class Equities Moderately positive on 3M view, positive on 2M view Bond market Risk of higher US rates in the near term US-Euro spread: wider 2-5Y, stable longer maturities Peripheral spreads to continue gradual tightening Credit spread to tighten gradually still, but risk of higher vol FX EUR/USD - more downside in short and medium term USD/JPY - higher EUR/SEK - lower EUR/NOK - more downside especially in the short term Commodities Oil prices - stable prices for the rest of the year Metal prices sideways before trending up in 205 Gold prices to correct lower still Agricultural risks remain on the upside Main factors The continued recovery in the US, China and, to some extent, Europe combined with stimulus from especially BoJ and ECB will support equities. On a company level, data is starting to look promising as well. Earnings growth in Q2 showed strong momentum across the board, capex in the US is picking up and earnings revisions are positive for 204 and 205 for most regions Lower long-term growth and inflation expectations and hedging flows weigh on long bond yields in the short term Policy divergence drives short-end spread wider, longer-end spread stable as close to historical highs Added liquidity, search for yield, improving fundamentals. Volatility to pick up somewhat Added liquidity, search for yield, good fundamentals. Geopolitical and idiosyncratic risk creates jitters EUR/USD to fall further on diverging monetary policy, growth and portfolio flows USD/JPY to break higher on pension reforms, portfolio outflows and diverging monetary policy EUR/SEK to decline on growth and valuation EUR/NOK to decline on growth and carry in a world of low global growth and zero interest rates Substantial supply shock to weigh in 204. Limited risk of supply disruptions Support from global recovery, supply side risks Trending down as first Fed hike draws closer. Geopolitical concerns a supportive factor Near-term stabilisation, extreme weather is key upside risk Source: Danske Bank Markets 9 26 September 204

10 Scandi update Denmark New forecast from Danske Bank: Fragile recovery Both Danske Bank and the Nationalbank published updated forecasts for the Danish economy during the week. Our take is that we are in the early stages of recovery but recent data have underlined that progress will be slow and fragile and could easily be derailed. Although the numbers have been disappointing of late, we do not think that the recovery has been knocked completely off course, but we have revised down our growth forecast. We now anticipate growth of 0.8% this year and.8% next year, which is closely in line with the 0.8% and.7% predicted by the central bank in its Q3 monetary review. The week s data included figures for consumer confidence showing a decrease from.4 in August to 7. in September, which can be seen in the light of rather less positive economic news lately, such as the disappointing GDP figures for Q2. The fall should also be seen as a normalisation, as the indicator had previously climbed for six successive months, which has never happened before. Despite the fall in September, consumer confidence remains high. Fragile Danish recovery Source: Statistics Denmark Sweden We remain positive but are feeling less so The NIER s confidence data provided a relief for those worried about the consumption outlook as consumers apparently were not as pessimistic as we thought and August data were revised markedly stronger. Alas, the same cannot be said for those of us more worried about the manufacturing sector and its pervasive importance for Swedish GDPgrowth. Manufacturing confidence continues to point to consecutive growth but not in a very confident fashion. In addition, the overall economic tendency is just barely positive, raising some doubt about the expected acceleration in demand during autumn. To further that proposition, the (August) trade balance was again far below last year and exports are uncannily weak for a country that has the worst performing currency in the G0- universe! Isn t external demand recuperating? Source: Statistics Sweden. DBM calculations Norway Tighter labour market Norwegian unemployment has been surprisingly stable given the downturn in oil-related industries. It actually seems to have fallen so far this year after rising towards the end of last year. Employment growth has also picked up to around 2% annualised over the past three months. This points to stronger growth in other sectors, such as the export industry, retail, construction and, of course, the public sector. Given all the downsizing in oilrelated industries over the summer, we nevertheless believe that unemployment could rise gently during the autumn before falling again next year. Signals seem to suggest that 5,000 people may be made redundant in these industries, equivalent to 0.2% of the labour force. Since we expect oil investment to pick up again from 206, our provisional conclusion is that this will be a one-off effect, pushing up overall unemployment only to a limited degree, and will peter out over the winter. Falling unemployment Source: Macrobond 0 26 September 204

11 Latest research from Danske Bank Markets 25/9 Nordic Outlook - September 204 Quarterly update on the Nordic economies. 23/9/4 Flash Comment - China: Slight improvement in HSBC manufacturing PMI suggests slowdown less severe than feared The flash estimate for China's HSBC/Markit manufacturing PMI in September unexpectedly improved to 50.5 (consensus: 50.0, DBM: 49.4) from a final reading of 50.2 in August. 23/9/4 Flash Comment: Euro PMI still soft - German manufacturing weakens further Euro flash PMI weakened further in September 9/9/4 Monitor - Global: business cycle monitor Strong divergence - US the only pillar of strength 26 September 204

12 Macroeconomic forecast Macro forecast, Scandinavia Year GDP cons. Private cons. Fixed inv. Stock build. 2 Exports Imports Inflation Unemploym. 3 budget 4 debt 4 Current acc. 4 Denmark Sweden Norway Macro forecast, Euroland Year GDP cons. Private cons. Fixed inv. Stock build. 2 Exports Imports Inflation Unemploym. 3 budget 4 debt 4 Current acc. 4 Euroland Germany France Italy Spain Finland Macro forecast, Global Year GDP Private cons. cons. Fixed inv. Stock build. 2 Exports Imports Inflation Unemploym. 3 budget 4 debt 4 Current acc. 4 USA Japan China UK Source: OECD and Danske Bank. ) % y/y. 2) % contribution to GDP growth. 3) % of labour force. 4) % of GDP September 204

13 Financial forecast Bond and money markets Source: Danske Bank Markets Currency vs USD USD 26-Sep m m m EUR 26-Sep m m m JPY 26-Sep m m m GBP 26-Sep m m m CHF 26-Sep m m m DKK 26-Sep m m m SEK 26-Sep m m m NOK 26-Sep m m m Equity Markets Regional Risk profile 3 mth. Price trend 3 mth. Price trend 2 mth. Regional recommendations USA (USD) Strong growth & earnings, expensive Medium 0-3% 5-8% Neutral Emerging markets (local curr) Commodity-related equities are pressured High 0-3% 0-5% Underweight Europe (ex. Nordics) Recovering economy, fair valuation Medium 0-3% 5-0% Overweight Nordics Strong cyclical profile Medium 0-3% 5-0% Overweight Commodities Key int. rate 3m interest rate yr swap yield 0-yr swap yield Currency vs EUR Average Currency vs DKK 26-Sep Q Q2 Q3 Q4 Q Q2 Q3 Q NYMEX WTI ICE Brent Copper 6,695 6,996 6,768 6,850 6,850 7,000 7,50 7,300 7,450 6,866 7,225 Zinc 2,266 2,024 2,080 2,300 2,350 2,400 2,450 2,500 2,550 2,89 2,475 Nickel 7,325 4,723 8,529 8,500 8,500 8,750 9,000 9,250 9,500 7,563 9,25 Aluminium,95,754,839 2,000 2,000 2,050 2,00 2,50 2,200,898 2,25 Gold,223,292,29,275,250,240,230,220,20,277,225 Matif Mill Wheat ( /t) Rapeseed ( /t) CBOT Wheat (USd/bushel) CBOT Corn (USd/bushel) CBOT Soybeans (USd/bushel) 98,358,470,40,050,070,090,00,0,254, September 204

14 Calendar Key Data and Events in Week 40 During the week Period Danske Bank Consensus Previous Mon JPY Bank lending y/y Mar 2,20% Sat JPY Official reserves assets USD bn Mar Sat 27-0 DEM Retail sales m/m y/y Aug -.0%.00% Monday, September 29, 204 Period Danske Bank Consensus Previous 9:00 ESP HICP, preliminary m/m y/y Sep % 9:00 DKK Confidence indicator, industry Index Sep :30 SEK Retail sales s.a. m/m y/y Aug 0.50% 3.00% 0.60% 3.00% -0.70% 2.30% 0:30 GBP Broad money M4 m/m y/y Aug 0.30% -.00% :00 EUR Business climate indicator Net bal. Sep 0.2 :00 EUR Industrial confidence Net bal. Sep :00 EUR Economic confidence Index Sep :00 EUR Consumer confidence, final Net bal. Sep -.4 :00 EUR Service confidence Net bal. Sep :00 DEM HICP, preliminary m/m y/y Sep 0.8% 0.8% 0.00% 0.80% 4:30 USD Personal income m/m Aug 0.30% 0.30% 0.20% 4:30 USD Personal spending m/m Aug 0.50% 0.40% -0.0% 4:30 USD PCE deflator m/m y/y Aug -0.0%.40% -0.0%.40% 0.0%.60% 4:30 USD PCE core m/m y/y Aug 0.00%.40% 0.00%.40% 0.0%.50% 5:00 USD Fed's Evans (non-voter, dovish) speaks 6:00 USD Pending home sales m/m y/y Aug -.50% 0.40% % -2.70% 8:5 USD Former chairman Bernanke speaks Tuesday, September 30, 204 Period Danske Bank Consensus Previous :05 GBP Gfk Consumer confidence Index Sep 0.0 :30 JPY Household spending y/y Aug -3.60% -5.90% :30 JPY Unemployment rate % Aug 3.80% 3.80% 3.80% :30 JPY Job-to-applicant ratio Aug... :50 JPY Large retailers' sales y/y Aug 0.30% -0.60% :50 JPY Retail trade m/m y/y Aug 0.70% 0.30% -0.50% 0.60% :50 JPY Industrial production, preliminary m/m y/y Aug 0.0% 0.20% -.0% 0.40% -0.70% 3:30 JPY Labor cash earnings y/y Aug.00% 2.40% 3:45 CNY HSBC manf. PMI, final Index Sep :00 JPY Small business confidence Index Sep :00 JPY Housing starts y/y Aug -3.70% -4.0% 8:00 GBP Nationwide House Prices m/m y/y Sep 0.50% 0.40% 0.80%.00% 8:45 FRF Household consumption m/m y/y Aug :00 DKK GDP, quarterly figure (ESA 200 main revision) q/q y/y 2nd quarter -0.30% -0.0% 9:00 DKK Gross unemployment s.a. K (%) Aug 34.0 (5.%) 34.5 (5.%) 9:30 SEK Wages (blue collars/white collars) y/y Jul 2.20% 9:55 DEM Unemployment % Sep 6.70% 6.70% 6.70% 0:00 NOK Retail sales, s.a. m/m Aug.00% 0.80% -.50% 0:00 NOK Credit indicator (C2) y/y Aug 5.40% 5.40% 0:30 GBP GDP, final q/q y/y 2nd quarter 0.80% 3.20% 0.80% 3.20% :00 ITL HICP, preliminary m/m y/y Sep -0.20% -0.20% :00 EUR Unemployment % Aug.50%.50%.50% :00 EUR CPI - core, preliminary % Sep 0.90% 0.90% 0.90% :00 EUR CPI, preliminary y/y Sep 0.3% 0.3% 0.4% 4:30 CAD GDP m/m y/y Jul :30 CAD GDP m/m y/y Jul 0.20% % 3.0% 5:00 USD S&P Case Shiller House prices Index Jul :45 USD Chicago PMI Index Sep :00 USD Consumer confidence Index Sep Source: Danske Bank Markets 4 26 September 204

15 Calendar - continued Wednesday, October, 204 Period Danske Bank Consensus Previous - USD Total Vechicle Sales m Sep :50 JPY Tankan large manufacturers index (outlook) Index 3rd quarter :50 JPY Tankan large non-manufacturers index (outlook) Index 3rd quarter :00 CNY Manf.PMI Index Sep :30 AUD Retail sales m/m Aug 0.40% 3:35 JPY Markit/JMMA manufacturing PMI, final Index Sep 5.7 8:30 SEK PMI Index Sep :00 DKK House prices (Statistics Denmark) Jul 9:00 NOK PMI Index Sep :5 ESP PMI manufacturing Index Sep :30 CHF PMI manufacturing Index Sep :45 ITL PMI manufacturing Index Sep :50 FRF PMI manufacturing, final Index Sep :55 DEM PMI manufacturing, final Index Sep :00 EUR PMI manufacturing, final Index Sep :00 USD MBA Mortgage Applications % 4:5 USD ADP employment 000 Sep :45 USD Markit manufacturing PMI, final Index Sep :00 USD Construction spending m/m Aug 0.40%.80% 6:00 USD ISM manufacturing Index Sep :00 USD ISM prices paid Index Sep Thursday, October 2, 204 Period Danske Bank Consensus Previous :50 JPY Monetary base y/y Sep 40.50% 3:30 AUD Trade balance AUD m Aug -359M 0:30 GBP PMI manufacturing Index Sep :30 GBP PMI construction Index Sep :00 EUR PPI m/m y/y Aug -0.0% -.0% -.0% -0.0% 2:00 EUR ECB announces 3-year LTRO repayment 3:45 EUR ECB announces refi rate % % % % 3:45 EUR ECB announces deposit rate % -0.20% -0.20% -0.20% 4:30 EUR ECB's Draghi holds press conference 4:30 USD Initial jobless claims :00 DKK Currency reserves DKK bn Sep :00 USD Factory orders m/m Aug -9.80% 0.50% 4:45 GBP BoE governor Carney speaks 9:20 USD Fed's Lockhart (neutral, non-voter) speaks Friday, October 3, 204 Period Danske Bank Consensus Previous 3:00 CNY Non-manf. PMI Index Sep :35 JPY Markit service PMI Index Sep :30 SEK PMI services Index Sep :5 ESP PMI Services Index Sep :30 SEK Industrial production s.a. m/m y/y Aug.30% -.20% -.0% -5.70% 9:30 SEK Service production m/m y/y Aug -0.70% 2.00% 9:30 SEK Industrial orders m/m y/y Aug -.00% -4.40% 9:45 ITL PMI Services Index Sep :50 FRF PMI Services, final Index Sep :55 DEM PMI service, final Index Sep :00 NOK Unemployment % Sep 2.80% 2.70% 2.90% 0:00 EUR PMI composite, final Index Sep :00 EUR PMI services, final Index Sep :30 GBP PMI services Index Sep :00 EUR Retail sales m/m y/y Aug.0% -0.40% 0.80% 4:30 USD Average weekly hours Hours Sep :30 USD Unemployment % Sep 6.0% 6.0% 6.0% 4:30 USD Average hourly earnings, non-farm m/m y/y Sep 0.20% % 2.0% 4:30 USD Private payrolls 000 Sep :30 USD Manufacturing payrolls 000 Sep :30 USD Non farm payrolls 000 Sep :30 USD Trade balance USD bn Aug :00 USD ISM non-manufacturing Index Sep The editors do not guarantee the accurateness of figures, hours or dates stated above For furher information, call (+45 ) Source: Danske Bank Markets 5 26 September 204

16 Disclosures This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S ( Danske Bank ). The authors of the research report are Allan von Mehren, Chief Analyst and Steen Bocian, Chief Economist. Analyst certification Each research analyst responsible for the content of this research report certifies that the views expressed in the research report accurately reflect the research analyst s personal view about the financial instruments and issuers covered by the research report. Each responsible research analyst further certifies that no part of the compensation of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed in the research report. Regulation Danske Bank is authorised and subject to regulation by the Danish Financial Supervisory Authority and is subject to the rules and regulation of the relevant regulators in all other jurisdictions where it conducts business. Danske Bank is subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority (UK). Details on the extent of the regulation by the Financial Conduct Authority and the Prudential Regulation Authority are available from Danske Bank on request. The research reports of Danske Bank are prepared in accordance with the Danish Society of Financial Analysts rules of ethics and the recommendations of the Danish Securities Dealers Association. Conflicts of interest Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of highquality research based on research objectivity and independence. These procedures are documented in Danske Bank s research policies. Employees within Danske Bank s Research Departments have been instructed that any request that might impair the objectivity and independence of research shall be referred to Research Management and the Compliance Department. Danske Bank s Research Departments are organised independently from and do not report to other business areas within Danske Bank. Research analysts are remunerated in part based on the overall profitability of Danske Bank, which includes investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate finance or debt capital transactions. Financial models and/or methodology used in this research report Calculations and presentations in this research report are based on standard econometric tools and methodology as well as publicly available statistics for each individual security, issuer and/or country. Documentation can be obtained from the authors on request. Risk warning Major risks connected with recommendations or opinions in this research report, including a sensitivity analysis of relevant assumptions, are stated throughout the text. Date of first publication See the front page of this research report for the date of first publication. General disclaimer This research has been prepared by Danske Bank Markets (a division of Danske Bank A/S). It is provided for informational purposes only. It does not constitute or form part of, and shall under no circumstances be considered as, an offer to sell or a solicitation of an offer to purchase or sell any relevant financial instruments (i.e. financial instruments mentioned herein or other financial instruments of any issuer mentioned herein and/or options, warrants, rights or other interests with respect to any such financial instruments) ( Relevant Financial Instruments ). The research report has been prepared independently and solely on the basis of publicly available information that Danske Bank considers to be reliable. While reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and Danske Bank, its affiliates and subsidiaries accept no liability whatsoever for any direct or consequential loss, including without limitation any loss of profits, arising from reliance on this research report. The opinions expressed herein are the opinions of the research analysts responsible for the research report and reflect their judgement as of the date hereof. These opinions are subject to change, and Danske Bank does not 6 26 September 204

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