Weekly Focus US recovery loses momentum short term

Transcription

1 Investment Research 8 October 203 Weekly Focus US recovery loses momentum short term Market Movers ahead With the end of the government shutdown in the US the calendar will return to normal. The September employment report will be released next week. The data should be undistorted and we expect a decent report. In the euro area a number of important soft data are due for release with PMIs as the most interesting we expect further signs of a brighter economic outlook. We have revised our forecast for Q3 GDP growth in the UK upwards to 0.7% q/q. Minutes from Bank of England s October meeting are due for release. Chinese flash HSCB manufacturing PMI is expected to have improved slightly. Contents Market movers ahead... 2 Global macro and market themes... 5 Scandi Update... 8 Latest research from Danske Bank... 9 Macroeconomic forecast... 0 Financial forecast... Calendar... 2 Japan s CPI figure might emphasise that it will be very difficult for Bank of Japan to reach its 2% inflation target. In the Scandi sphere focus will be on monetary policy decisions in Sweden and Norway. We expect both central banks to keep their interest rates unchanged. Global macro and market themes US politicians struck a last-minute debt deal but some damage to US activity has already been done. Combined with this year s sharp fiscal tightening and significant rise in bond yields, this could leave H2 growth clearly weaker than expected. Fed tapering is likely to be pushed into next year and our baseline scenario is now the 29 January meeting. A later tapering is already pretty much priced in our view. The postponement of Fed tapering helps risk sentiment. The recovery of Chinese growth should also support risk assets and Emerging Markets. Financial views Major indices 8-Oct 3M 2M 0yr EUR swap EUR/USD ICE Brent oil Oct 6M 2-24M S&P /-5% 5%-0% Source: Danske Bank The news coming out of Europe is still quite encouraging and we continue to see clear upside risk to euro area growth relative to the consensus expectations. We expect US bonds to continue to outperform Germany, as the euro area continues to recover while the US is stuck at a low growth track in the short term. Job growth in September to be decent Euro PMIs to signal brighter outlook Editors Allan von Mehren alvo@danskebank.dk Source: Macrobond Source: Markit PMI, Eurostat Steen Bocian steen.bocian@danskebank.dk Important disclosures and certifications are contained from page 4 of this report.

2 Market movers ahead Global With the end of the government shutdown in the US the calendar is set to return to its normal schedule. The employment report for September, which was postponed just before its planned release, will come out on Tuesday and as it was made just before the shutdown, the data should be undistorted. We expect to see a decent report with 80,000 jobs added to the economy during September, as higher chain store sales and a rise in expected service demand indicate an increases in service sector employment. Initial jobless claims have also indicated that job growth is keeping up despite the subdued growth picture. Currently it is unclear when to expect the rest of the delayed releases but it is most likely that the shutdown will affect postponed September releases and some of the October data. Of the releases still on the schedule one of the most interesting is the final release of the University of Michigan consumer confidence. We expect a fall in confidence, as TIPP economic optimism has dropped significantly, which could be due to uncertainty caused by the government shutdown and the debt ceiling debate. Also of importance the coming week are the preliminary Markit PMI and existing home sales. There will be several important releases and events in the euro area next week. Flash PMIs for the euro area, Germany and France are due and we expect the PMIs to increase, thereby confirming the brighter economic outlook within the euro area. The fact that last month s final euro area PMIs were revised upwards (albeit only very little) and that the order-inventory balance is high point towards higher euro area PMIs. We expect a minor increase in the IFO-expectations following the increase in ZEW expectations, although PMIs and the OECD leading indicator suggest the indicator could decline. Monetary development in the euro area is also likely to attract attention as the credit contraction continues to be one of the key risks to the euro area recovery. It is not unusual that credit lags behind the business cycle but if credit does not ease in the months to come it could drag down growth. Preliminary consumer confidence is also due for release and will continue to point towards higher private consumption. The new German parliament meets for the first time on Tuesday. Recently the Greens decided to stay in opposition, which means that Angela Merkel s only option is to form a so-called grand coalition with the SDP since CDU/CSU did not get enough votes to rule on their own. An ordinary two-day European Council meeting is scheduled next week. Topics like growth-enhancing initiatives, the banking union and the single supervisory mechanism are on the agenda. The ECB will present details on how to undertake the Asset Quality Review next week. As part of creating a fully-fledged banking union the ECB will take over supervision of a group of the 30 most significant euro area banks from the second half of 204. Before taking supervision the ECB has strong incentives to run harsh stress tests. The presentation of what shape the balance sheet assessment will take, is likely to attract some market attention and focus will probably be on whether the review will remove some of the uncertainty surrounding the banking system. In the UK we will have the first preliminary estimate for Q3 GDP. With the positive data releases coming out the UK since summer we have revised our forecast upwards Decent September job growth expected Source: Macrobond Financial Credit contraction could drag down growth Source: Macrobond Financial Order-inventory balance pointing towards higher PMIs Source: Macrobond, Danske Bank Markets 2 8 October 203

3 to 0.7% q/q (.4% y/y) driven by private consumption, investments and net exports. Note that the Q3 GDP breakdown in sub-components will be released with the national accounts on 20 December. Furthermore, we will have minutes from the October meeting in Bank of England and we expect an unanimous decision on the no-change policy at the meeting. Recent comments from various MPC members suggest continued support for the forward guidance and we think the acceleration of the recovery is enough to keep the doves voting for further easing. In China the main event next week is the release of the flash estimate for HSBC manufacturing PMI for October. A relatively favourable new order-inventory balance suggests that the HSBC manufacturing PMI in October improved slightly to 50.6 from a final reading of 50.2 in September. That said, it should be remembered that the final estimate for September was revised markedly down to 50.2 from 5.2 in the preliminary flash reading. This suggests that late responders in September were more negative than early responders, indicating possible deterioration throughout September. Hence, there could be downside risk to our forecast. In Japan the main release next week will be inflation for September. We expect CPI excl. fresh food to ease slightly to 0.6% y/y in September from 0.8% y/y emphasising that it will be very difficult for Bank of Japan to reach its 2% inflation target within its two-year time horizon. The explanation for the decline in inflation in September is that the increase in energy prices is easing. This increase has to a large degree been driven by the weaker JPY but because JPY has stabilised against USD in recent months, the impact from the weaker JPY on inflation has started to wane. Hence, in general we will only see a modest increase in inflation in the coming months. At some stage next year this could be an argument for more aggressive easing from Bank of Japan, as it increasingly becomes evident that the 2% inflation target remains out of reach. Foreign trade data for September will also be released next week. Preliminary data released for the first 20 days in September suggest that imports were very strong in September, while exports were broadly flat. We expect export growth to have accelerated moderately to 5.8% y/y in September from 4.6% y/y. We estimate that growth in imports in September surged 22.% after increasing 6.0% y/y in August. Moderate recovery in China Source: Macrobond, Danske Bank Markets Strong growth in Japan s imports in September Foreign trade, first 20 days of month 4.5,000 bn JPY 4.0 Import, sa Earthquake Source: Reuters EcoWin Export, sa Scandi In Denmark there is only one release of interest on the calendar in the coming week but it is one of the most important right now: consumer confidence. We expect the indicator to be largely unchanged at 5 in October, compared with 4.7 in September. Consumer confidence is currently at its highest since the crisis erupted, adding to our conviction that consumer spending will soon start to grow again. In Sweden the week ahead will prove considerably more interesting than the last one. On Thursday (at 09:30 CEST) the Riksbank will release its monetary policy decision and updated forecasts. We do not expect any major changes and definitely no change of the repo rate. Statistics Sweden (SCB) will simultaneously publish the producer price index. Then, on Friday, NIER publishes the household and business confidence surveys (at 09:5 CEST) and 5 minutes later, the SCB publishes financial sector Danish consumers have regained confidence Source: Statistics Denmark 3 8 October 203

4 statistics, exempli gratia, and importantly, household lending statistics. The latter sets of data will be interesting since we have long been pointing to a building dichotomy between (strong) survey data and (weak) hard data, such as industrial production. In Norway we do not expect any changes to interest rates at Norges Bank s meeting on Thursday. Nor do we expect any fresh signals on their future path the central bank will probably just say that the conclusions of its September monetary policy report stand. Since then, Norges Bank has had confirmation that growth in Norway has slowed, with weak spending figures, falling house prices and rising unemployment. It also appears that the surge in inflation was only temporary, as the bank predicted. On the other hand, the krone has fared much less well than assumed in September. Applying the central bank's own interest rate formula to the letter, the slide in the krone since the September report would actually warrant a slight upward revision of the interest rate path. We are confident that Norge Bank will not put out signals of this kind but the weak krone will nevertheless prevent the bank from being overly soft in its rhetoric. We do not expect Norges Bank to have any impact on market expectations on this occasion. Sweden change we cannot believe in Sources: Macrobond, Riksbank NOK has weakened Source: Reuters EcoWin, Danske Bank Markets Market movers ahead Global movers Event Period Danske Consensus Previous Mon 2-Oct :50 JPY Trade balance JPY bn Sep :00 USD Existing home sales m Sep (-2.0%) 5.30 (-3.3%) 5.48 (.7%) Tue 22-Oct - DEM New German Parliament holds first meeting 4:30 USD Nonfarm payroll 000 Sep :30 USD Unemployment rate Sep 7.3% 7.3% Wed 23-Oct - EUR ECB will give more information on Asset Quality Review 0:30 GBP Minutes from MPC meeting Oct 6:00 EUR Consumer confidence, preliminary Net bal. Oct Thurs 24-Oct 3:45 CNY HSBC/Markit flash manufacturing PMI Index Oct :00 FRF PMI manufacturing, preliminary Index Oct :00 FRF PMI services, preliminary Index Oct :30 DEM PMI manufacturing, preliminary Index Oct :30 DEM PMI services, preliminary Index Oct :00 EUR PMI manufacturing, preliminary Index Oct :00 EUR PMI services, preliminary Index Oct :00 EUR PMI composite, preliminary Index Oct :58 USD Markit PMI, preliminary Index Oct :00 EUR European Council meeting in Brussels Fri 25-Oct :30 JPY CPI - national ex. fresh food y/y Sep 0.6% 0.7% 0.8% 0:00 EUR M3 money supply y/y Sep 2.3% 2.3% 0:00 DEM IFO - expectations Index Oct :30 GBP GDP q/q y/y 3rd quarter 0.7%.4% 0.7%.3% 5:55 USD University of Michigan Confidence, final Index Oct Scandi movers Event Period Danske Consensus Previous Thurs 24-Oct 9:00 DKK Consumer confidence Net. Bal. Oct :30 SEK Riksbank, Rate decision %.00%.00% 9:30 SEK PPI m/m y/y Sep -0.3% -2.5% 0:00 NOK Norges Banks monetary policy meeting %.5%.5% Fri 25-Oct 9:5 SEK Manufacturing confidence Index Sep :5 SEK Consumer confidence Index Oct Source: Bloomberg, Danske Bank Markets 4 8 October 203

5 Global macro and market themes US stalls while China and Europe strengthen Once again US politicians struck a last-minute deal and once again fears were running high as the deadline got nearer. However, markets kept their cool and were buying the rumour of a deal more than trading on fear of a breach of the deadline. So where do we go from here? Below an overview of how we see the situation and what we expect from US in the coming quarters. Some damage to US activity has been done even though the disaster scenario was avoided. The government shutdown is expected to subtract percentage points from Q4 growth and the indirect effect of weaker sentiment among households and businesses will weigh on activity. It adds to this year s double whammy of a) the sharp fiscal tightening and b) the significant rise in bond yields that has already eaten into Q3 growth, which is now tracking only.5-2%. We saw further evidence of the effect on housing this week with a decline in the NAHB housing index, which fell from 57 to 55, the second monthly decline. It looks increasingly likely that growth will be stuck in the.5-2% range also in Q4. This would leave H2 clearly weaker than expected and as the debt ceiling deal is only a case of kicking the can down the road, it does not give the much needed lift to uncertainty. This may keep businesses hesitant to invest and hire. In terms of key data we expect ISM manufacturing to correct a bit lower in coming months. The ISM new orders index fell in September and ISM non-manufacturing took a nosedive. Hard data have also failed to show the strength of ISM manufacturing and given the government shutdown the risk of a move lower is quite high. Consumer confidence is also likely to decline due to widespread frustration with Washington. While the headwinds have dragged out we expect growth in the US economy to gather pace in 204. Firstly, the drag from fiscal policy will peter out, which will significantly lift growth. Secondly, the sharp negative impulse from the rise in bond yields will also fade as bond markets take a breather. Thirdly, the housing market is still in a structural recovery phase even if it is halted temporarily by the bond yield shock this year. Wealth effects from rising house prices will underpin consumer confidence and there is still substantial pent-up demand in housing, as both sales and activity are still running at very low levels from a historical perspective. Fed tapering is now likely pushed into next year and our baseline scenario is now the 29 January meeting. Uncertainty is clearly high, though, as the short-term economic outlook is foggy. The Fed likely needs to see the recovery on a stronger footing before it will start to taper. Hence hard data on private consumption, capex and job growth should improve in order for the Fed to move. However, since the September decision was a borderline one we may not need a very big improvement in hard data. The tapering probability distribution in our view: 5% at December meeting, 40% at January meeting, 30% at March meeting and 5% later. Today s key points We are still positive about risk assets on a medium-term horizon. Fed to delay tapering but bond market is already pricing this we look for range-trading. US recovery stalls short term but gains traction in 204 as headwinds fade. Europe and China continue to deliver good news securing momentum in global recovery. Risk of ISM correcting lower hard data likely to stay soft short term 65 Index 2.5 US ISM manufacturing >> 5.0 % 3m/3m, AR << US domestic demand indicator (core retail sales+core capex orders) Source: Reuters EcoWin Headwind from rise in mortgage rates to linger rest of the year % points % points -.5 US 30y mortgage yield, 6m change Source: Reuters EcoWin October 203

6 Where does this leave the markets? In the bond markets we expect US yields to trade in a 2.5-3% range the rest of the year and probably in the lower end until the fog clears a bit. A later tapering is already pretty much priced in our view. Money markets now look for the first hike in October 205, a bit later than current Fed guidance, which is mid-205. By end-206 the market now expects a rate of just above.5%, quite a bit lower than the median estimate of Fed projections at 2.0%. US bonds have outperformed Germany recently and we expect this to continue as the euro area continues to recover while the US is stuck at a low growth track in the short term. For risk markets we still have a positive view on a medium-term horizon. While US growth is stalling, we continue to see positive signs from both Europe and China (see below). At the same time, the postponement of Fed tapering gives support to risk sentiment. In stock markets we see the most value in Europe as valuation is more attractive here and the change in growth is going to be the strongest as it moves from recession into positive growth of -.5%. US 0y nearing 2.5% - market now prices end-6 Fed rate at.5% Source: Reuters EcoWin Global stock market continues bull trend In the bond markets we look for continued credit spread compression and believe peripheral bonds will outperform in euro government bond space. The combination of a) global recovery, b) large slack in the economies and c) very low inflation will keep a continued bid in credit markets. Central banks are going to keep rates low for a very long time underpinning search for yield. In the short term peripheral bonds will also be supported by large redemptions. We especially like Italian bonds in the euro space see also Government Bonds Weekly: Here come the redemptions, 7 October. With US now being the weak link in the global recovery (in the sense that it is showing the least change in growth) and Fed tapering being pushed into next year, the USD is expected to be under pressure in the short term. We look for more upside in EUR/USD as the cross is also underpinned by continued peripheral spread compression and strengthening euro data. That said, we are not far from our m forecast at.37 and we look for a move lower in EUR/USD to.30 on a six-month horizon. European recovery continues unabated While US growth is stalling the news coming out of Europe is still quite encouraging. The German ZEW index surprised to the upside rising to the highest level since 200. Euro area industrial production also posted a positive surprise in August and the big decline seen in July was revised higher. The trend in industrial production is thus still up and data overall now point to growth in Q3 at a similar pace as in Q2 leaving annualised growth running around.25%. While it is far from a boom, it is a clear improvement compared with the recession in the early part of the year and it is a higher level than what consensus is looking for in 204 at %. We continue to see clear upside risk to euro area growth relative to the consensus expectations. Still positive news out of UK as well. Jobless claims for September fell at the fastest pace in over 5 years suggesting that the upbeat growth indicators are translating into stronger job growth. Retail sales for September also surprised to the upside and point to continued decent consumption growth. Overall the domestic UK economy seems to be recovering fast with all sectors participating. Consumption is gaining strength, housing has picked up speed and sentiment data point to a very sharp rise this year. It leaves Bank Source: Macrobond UK labour market gaining strength Source: Macrobond 6 8 October 203

7 of England with a challenging task in its forward guidance but for now it will continue to try to calm down markets and stick to the guidance. Given how strong UK data have been it may be difficult to continue to surprise to the upside. The UK economy has had a strong take-off and we expect growth to stay at a robust level over the coming years. Chinese industrial production still strongest since 200 UK growth is strong but the markets are also pricing this. Money markets are pricing Bank of England to be the first of the big central bank to hike rates currently in mid As the euro area is gaining strength the relative surprise may become more neutral and we look for a bottom in EUR/GPB close to current levels. On the other hand, we do not see a big rise and have a one-year forecast of 0.86 (currently 0.845). China recovering Another factor supporting risk assets and Emerging Markets comes from the recovery of Chinese growth. Q3 data this morning showed a pick-up in growth to 7.8% y/y from 7.5% y/y in Q2 see Flash Comment China Moderate recovery in Q3, 8 October. On an annualised q/q basis GDP growth was close to 9%. While one should always be a bit sceptical about Chinese growth data, the current picture is supported by a rise in industrial production as well as development in electricity production. Interestingly, the current activity data are stronger than the PMIs suggest. This is not the first time this has happened, though, and it may indicate some upside risk to PMI in coming months. We look for growth to keep a robust pace in coming quarters but to lose steam during 204. Investment growth should slow down again next year but a pick-up in export growth will underpin activity as the European recovery keeps going and the US growth rises a notch to 2.5-3% from the current 2%-level. Source: Macrobond, Danske Bank Chinese GDP growth % China GDP Source: Reuters EcoWin % y/y Forecast % q/q SAAR. % Global market views 3-6 months horizon Asset class Equities Higher on 6-2M horizon Bond market Core bond yields range-bound short-term, higher medium term Germany to underperform US in 0-year bonds Peripheral spreads to tighten gradually Credit spread to tighten gradually FX EUR/USD - more upside short term. Lower on 6M horizon USD/JPY - near term range but higher in long run EUR/SEK - higher short term, medium term lower EUR/NOK - gradual move lower Main factors While US recovery stalls short term, global medium-term outlook is strengthening Earnings growth to pick up. Fed tapering postponed as US recovery delayed Dovish Fed keeps yields anchored short term, global recovery gives upward pressure longer term German bonds have lagged in this year s sell-off, Fed tapering postponed, Euro area recovering Ample liquidity, search for yield, improving fundamentals Ample liquidity, search for yield, strong corporate fundamentals Re-pricing of Fed tapering has postponed USD strength but this will materialise in 204. ECB committed to low rates BoJ to continue monetary easing and Fed to eventually start tapering. Slower Japanese growth next year Soft growth short term but strong fundamentals and no rate cut from the Riksbank positive in long term Strong fundamentals, but short-term picture is soft and still risk from dovish rhetoric from Norges Bank Commodities Oil prices - short term sideways, lower price in 204 Significant supply shock from US shale and OPEC over-production to weigh in 204 Metal prices - downside risk fading as China rebounds Copper to stay volatile, aluminium to head lower as energy costs come under pressure Gold prices to correct lower still Part of the bubble now eliminated but more declines in store on Fed tapering Agricultural risks remain on the upside Stabilisation in the near term but extreme weather events remain a key challenge Source: Danske Bank Markets 7 8 October 203

8 Scandi Update Denmark No rate hikes before the spring It has been a quiet week in Denmark, due mainly to the autumn half-term break, with no news on either the economic or political front. All is also quiet when it comes to the fixed exchange rate policy. The EUR/DKK cross has been relatively stable below the central parity rate of and the Nationalbank has had no need to intervene since January, the last time it had to raise rates unilaterally. A record-high and growing current account surplus is helping to support the krone and is probably part of the reason why the central bank has been able to take a back seat over the past eight months. Our latest interest rate forecast, published on Tuesday, therefore reiterated our expectation that the Nationalbank will leave interest rates alone for the rest of this year before raising them 0bp on a three- to six-month view and a further 0bp on a 2-month view. EUR/DKK stable below the central rate Source: Macrobond Sweden Labour forceless The only data of interest in the past week was the (September) Labour Force Survey (including unemployment rate, employment, hours worked, etc) and it did not contain any surprises. Both in seasonally adjusted and unadjusted terms, the outcome was bang in line with expectations. Employment grew at a decent clip as well (0.9% y/y), considering growth in demand, and there is basically nothing that stands out in either direction. Comparing labour market outcomes to the Riksbank s latest forecast, (Q3) employment is a tad stronger and the (Q3) unemployment rate 0. percentage points lower than the Riksbank expected. This is no big deal, and balances, inter alia, an inflation failing to reach the Riksbank s estimates. Uninspiring labour market data Sources: Riksbank, SCB. Danske Bank Markets calculations Norway No additional room for manoeuvre As expected, the departing government s budget proposals sprang no surprises, paving the way for further mildly expansionary fiscal policy in 204 with an effect on mainland GDP growth of about 0.3pp. The incoming Solberg government now has about three weeks to make its mark on the budget. Obviously there is not so much that can be done in such a short space of time, but a few fingerprints will doubtless be made. For financial markets, the most important thing is probably whether the new government decides to spend a much larger chunk of the country s oil revenue. In the light of the slowdown in the Norwegian economy, some have indicated that the new government can spend about an extra NOK0bn, or 0.5% of GDP, before having an effect on interest rates and the krone. Remember here that in its September monetary policy report, Norges Bank assumed an oil-adjusted deficit in 204 of around NOK36bn, which is roughly in line with the departing government s budget. Based on the central bank s own analyses, an increase in economic activity of 0.5% would, other things being equal, translate into a 25bp rise in interest rates. Fiscal policy impact on Norwegian economy Source: Reuters EcoWin, Danske Bank Markets 8 8 October 203

9 Latest research from Danske Bank 8/0 Flash Comment: China - Moderate recovery in Q3 GDP growth accelerated moderately in Q3 3 to 7.8% y/y (consensus: 7.8%, DBM: 7.7%) from 7.5% y/y in Q2 3 and hence was broadly in line with expectations. Seasonally adjusted GDP expanded by 2.2% q/q (consensus: 2.%, DBM: 2.2%). 7/0 Flash Comment - US Congress passes debt deal The US Congress managed to pass the deal drafted by the Senate at the eleventh hour. The deal will reopen the government today and increase the debt ceiling. 6/0 US Research - The political situation and its consequences With less than 24 hours left before the deadline to raise the debt ceiling, it is worth summing up the current situation and looking at the 'what if' scenario in case a deal does not pass Congress before midnight US time. 5/0 Yield Forecast Update - Long-end EUR rates to move higher on stronger recovery Monthly yield forecast update. 4/0 Flash Comment - China: Exports disappoint but data still suggest moderate recovery China's export growth in September slowed to -0.3% y/y (Cons: 5.5% y/y) from 7.2% y/y and hence was substantially weaker than expected. 4/0 Scandi markets ahead: Low for longer in Scandinavia and value in long NOK/SEK In this note we take a closer look at the main events in the three Nordic countries over the coming week. 9 8 October 203

10 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. 0 8 October 203

11 Financial forecast Bond and money markets Source: Danske Bank Markets Currency vs USD Currency vs DKK USD 8-Oct m m m EUR 8-Oct m m m JPY 8-Oct m m m GBP 8-Oct m m m CHF 8-Oct m m m DKK 8-Oct m m m SEK 8-Oct m m m NOK 8-Oct m m m Equity Markets Regional Risk profile 3 mth. Price trend 3 mth. Price trend 2 mth. Regional recommendations USA Corporate earnings surprise Medium +/-5% 5%-0% Mild overweight Emerging markets (USD) Uncertainty has hit Asia Medium +/-5% 5%-0% Underweight Europe (ex. Nordics) (EUR) Recovering economy, attractive valuation Medium +/-5% 0%-5% Mild overweight Nordics Strong cyclical profile Medium +/-5% 5%-0% Mild overweight Commodities Key int. rate 3m interest rate yr swap yield 0-yr swap yield 8-Oct Q Q2 Q3 Q4 Q Q2 Q3 Q NYMEX WTI ICE Brent Copper 7,230 7,958 7,200 7,00 7,075 7,060 7,045 7,035 7,025 7,333 7,04 Zinc,932 2,054,875,850,835,825,85,805,795,904,80 Nickel 4,005 7,376 5,080 3,800 3,500 3,300 3,00 2,900 2,700 4,939 3,000 Aluminium,850 2,04,875,800,770,745,720,700,680,87,7 Gold,37,63,425,300,250,225,200,75,50,402,88 Matif Mill Wheat CBOT Wheat CBOT Corn CBOT Soybeans,296,449,465,450,440,435,445,455,465,45, Currency vs EUR Average 8 October 203

12 Calendar Key Data and Events in Week 43 Monday, October 2, 203 Period Danske Bank Consensus Previous :0 GBP Rightmove House Prices m/m y/y Oct -.5% 4.5% :50 JPY Trade balance JPY bn Sep :50 JPY Import y/y Sep 22.% 9.9% 6.0% :50 JPY Export y/y Sep 5.8% 4.6% 6:30 JPY All industry activity index m/m Aug 0.4% 0.5% 7:00 JPY Leading economic index, final Aug :00 EUR ECB's Coeure speaks in Paris :00 EUR Government debt 202 (% of GDP) % 90.6% 6:00 USD Existing home sales m Sep (-2.0%) 5.30 (-3.3%) 5.48 (.7%) Tuesday, October 22, 203 Period Danske Bank Consensus Previous - DEM New German Parliament holds first meeting 3:30 CNY Property prices y/y 9:30 DKK Retail sales m/m y/y Sep 0.0% -0.6% 0:30 GBP Finances (PSNCR) GBP bn Sep :30 USD Nonfarm payroll 000 Sep :30 USD Private payrolls 000 Sep :30 USD Manufacturing payrolls 000 Sep :30 USD Unemployment rate Sep 7.3% 7.3% 4:30 CAD Retail sales m/m Aug 0.3% 0.6% Wednesday, October 23, 203 Period Danske Bank Consensus Previous - EUR ECB will give more information on Asset Quality Review 2:30 AUD CPI q/q y/y 3rd quarter 0.8%.8% 0.4% 2.4% 8:45 FRF Business confidence Index Oct :00 ITL Berlusconi hearing in Naples on Senator bribery charges 0:30 GBP Minutes from MPC meeting Oct 0:30 GBP BBA loans for house purchase Sep :00 EUR ECB announces allotment in 7-day (USD) 3:00 USD MBA Mortgage Applications 6:00 EUR Consumer confidence, preliminary Net bal. Oct :00 CAD Bank of Canada rate decision Avg. yield Oct.00%.00% 23:45 NZD Trade balance NZD M Sep Source: Danske Bank Markets 2 8 October 203

13 Calendar - continued Thursday, October 24, 203 Period Danske Bank Consensus Previous 3:45 CNY HSBC/Markit flash manufacturing PMI Index Oct :00 DKK Consumer confidence Net. Bal. Oct :00 FRF PMI manufacturing, preliminary Index Oct :00 FRF PMI services, preliminary Index Oct :00 ESP Unemployment rate 3rd quarter 26.0% 26.26% 9:30 DEM PMI manufacturing, preliminary Index Oct :30 DEM PMI services, preliminary Index Oct :30 SEK Riksbank, Rate decision %.00%.00% 9:30 SEK PPI m/m y/y Sep -0.3% -2.5% 0:00 NOK Norges Banks monetary policy meeting %.5%.5% 0:00 EUR PMI manufacturing, preliminary Index Oct :00 EUR PMI services, preliminary Index Oct :00 EUR PMI composite, preliminary Index Oct :30 USD Initial jobless claims 000 4:58 USD Markit PMI, preliminary Index Oct :00 EUR European Council meeting in Brussels Friday, October 25, 203 Period Danske Bank Consensus Previous :30 JPY CPI - national y/y Sep 0.9% 0.9% :30 JPY CPI - national ex. fresh food y/y Sep 0.6% 0.7% 0.8% :30 JPY CPI - Tokyo y/y Oct 0.5% 0.5% :30 JPY CPI - Tokyo ex fresh food y/y Oct 0.3% 0.2% 9:5 SEK Economic tendency survey Index Oct :5 SEK Manufacturing confidence Index Sep :5 SEK Consumer confidence Index Oct :00 EUR M3 money supply y/y Sep 2.3% 2.3% 0:00 EUR European Council meeting in Brussels 0:00 DEM IFO - business climate Index Oct :00 DEM IFO - current assessment Index Oct.4.4 0:00 DEM IFO - expectations Index Oct :30 GBP GDP q/q y/y 3rd quarter 0.7%.4% 0.7%.3% 5:55 USD University of Michigan Confidence, final Index Oct :00 EUR ECB's Asmussen speaks in Milano The editors do not guarantee the accurateness of figures, hours or dates stated above For furher information, call (+45 ) Source: Danske Bank Markets 3 8 October 203

14 Disclosure This research report has been prepared by Danske Reseach, 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 authorized 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 Services Authority (UK). Details on the extent of the regulation by the Financial Services Authority are available from Danske Bank upon 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 high quality research based on research objectivity and independence. These procedures are documented in the research policies of Danske Bank. Employees within the Danske Bank Research Departments have been instructed that any request that might impair the objectivity and independence of research shall be referred to the Research Management and the Compliance Department. Danske Bank 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 over-all 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 upon request. Risk warning Major risks connected with recommendations or opinions in this research report, including as sensitivity analysis of relevant assumptions, are stated throughout the text. Disclaimer This research has been prepared by Danske 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 which Danske Bank considers to be reliable. Whilst 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. 4 8 October 203

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