Editor: Felix Ewert. The Week Ahead Key Events 6 12 Nov, 2017

Transcription

1 Editor: Felix Ewert The Week Ahead Key Events 6 12 Nov, 2017

2 Monday 6, SWE: Industrial production & orders (Sep) % mom/yoy SEB Cons. Prev. Production 2.5/ /7.3 New orders /6.3 Hard data has caught up with upbeat sentiment indicators and industrial production has trended higher this year. It is now growing at the fastest pace since 2015, in line with historical peaks (2010/11 excluded). The production component in the NIER business tendency survey suggest that output growth has remained firm, while manufacturing PMI recovered strongly in September before reversing lower in Oct. Order inflow in the NIER survey has remained strong and near previous cyclical highs. Industry data is highly volatile. We expect production to reverse the decline in August while strong comparison month 2016 will weigh on the y/y change. Note that Statistics Sweden will as of September no longer publish reports on industrial production and service sector production. Instead, SCB will publish a more comprehensive Production Value Index that aims to measure production in the business sector in Sweden (service, industry, trade in both sectors and construction output), released at the same time. Output data for industry and services will still be updated in the SCB statistical database.

3 Monday 6, SWE: Service sector production (Sep) % mom/yoy SEB Cons. Prev. Service production 0.5/ /5.2 Service production has been very strong during the first two months of Q3. PMI services rose sharply in September, from weak levels during summer and remained at a high level also in October, while NIER business tendency survey has remained at firm levels but still far below earlier cyclical peaks. As such, sentiment indicators continue to indicate solid growth in the service sector, but below historical peaks. Note that Statistics Sweden will as of September no longer publish reports on industrial production and service sector production. Instead, SCB will publish a more comprehensive Production Value Index that aims to measure production in the business sector in Sweden (service, industry, trade in both sectors and construction output), released at the same time. Output data for industry and services will still be updated in the SCB statistical database.

4 Monday 6, EMU: Sentix investor confidence (Nov) % SEB Cons. Prev. Sentix Sentix has had a clear upward trend during the last year and has now stabilised around levels last noted in summer Sub-index for present situation is clearly stronger than expectations. In the last months, the assessment on current situation has been the main positive driver, given overall development in the region expectations could improve somewhat more ahead. Data continue to surprise on the upside according to surprise indicators and hard data like GDP was a positive surprise last week So far there are no signs of political uncertainty (German government formation, Catalonia) affecting sentiment.. Small changes are expected, we expect a slight further increase in Nov.

5 Tuesday 7, NOR: Manufacturing production (Sep) % mom/yoy (WDA) SEB Cons. Prev. Manufacturing production /0.2 Industrial production /6.7 Manufacturing output recorded a significant downside surprise in August, following a strong upward correction in the preceding month. This index has been especially volatile lately and we treat these recent surprises in opposite directions with skepticism. Industrial output has improved in 2017 in line with stronger external demand from Norway s main trading partners and an ongoing recovery in the oil-intensive capital goods sector. We think the trend should continue ahead, which is supported by sentiment indicators: Norwegian manufacturing PMI indicates increasing activity while the quarterly manufacturing sentiment (BTS) has reached a multi-year high. Moreover, new orders may rise ahead as the NOK has weakened recently.

6 Tuesday 7, SWE: Central government borrowing (Oct) SEK bn NDO Prev. Month (NDO estimate) Last 12 months Over the last 4 months government finances have been SEK 35bn stronger than the NDO s forecast in June and as expected, the NDO lowered its borrowing forecast for 2017 and 2018 on October 25. In total, net borrowing requirement was lowered by SEK 74bn in 2017 and As a consequence, gross issuance of nominal bonds was reduced to SEK 40bn in 2018 (from SEK 50bn in June), while inflationlinked bond issuance was reduced to SEK 8.5bn (from SEK 13bn). However, the largest part of the stronger finances was affecting the outstanding amount of T-bills, which now is predicted to fall to SEK 20bn at the end of next year and stay at this level in The NDO made a larger upward revision to the budget surplus than we had expected and risks for upside surprises have been reduced considerably, at least in the medium term. Reducing the T-bill issuance almost to zero, however, means that the line of defence for protecting liquidity in the bond market now is very thin, and any upside surprise to finances will now directly feed into a lower bond issuance NDO (Oct) SEB NIER ESV

7 Tuesday 7, EMU: Retail sales (Sep) % mom/yoy SEB Cons. Prev. Retail sales 0.3/ /1.2 Household confidence is at a very high level. Except the peak in 2001, todays level is the highest in the last 30 years. Given confidence, retail sales has been on the weak side in the last months. Continued positive development in the labour market and a generally good economic sentiment should push retail sales and consumption higher during the rest of One explanation could be inflation rising, eroding real income Already published car registration was weak in Sep posing a downside risk to our forecast.

8 Wednesday 8, SWE: Prospera inflation expectations (Nov) Money market, CPI/CPIF SEB Prev. 1y 2.0/ /2.0 2y 2.1/ /2.0 5y 2.1/ /2.1 Short-term inflation expectations have increased steadily over the last two years and in October both 1 year and 2 year expectations reached 2% for the first time since late Expectations for 5 year have stabilized around 2% in recent months. After five consecutive upside surprises, inflation was lower than expected in September and supports our (and the Riksbank s) projection that the inflation rate peaked in September. We expect CPIF to fall below the 2% target later during the autumn. Break-even inflation (BEI) according to inflation-linked bonds has also declined slightly in October. As a consequence, we expect inflation expectations to be largely unchanged in November. Following Riksbank s change of target variable to CPIF in September, Prospera presented expectations also for CPIF for the first time in October. Differences between the two measures were small, which indicates that most participants have likely responded based on their expectations for CPIF already before.

9 Wednesday 8, SWE: Household consumption (Sep) % mom/yoy SEB Cons. Prev. Household consumption 0.5/ /3.2 Retail sales has recovered strongly since spring which should be reflected in firm household consumption growth as well in September. Consumer confidence was in October back at the highest level since 2011, except May last year. The index remains well below historical peak levels, however. Still moderate confidence among retailers suggest recent strong readings for retail sales will prove to be temporary. Despite strong employment growth and rising asset prices households have been cautious to increase spending and there are still no convincing signs for a sustained acceleration from the current trend of 2.5% consumption growth.

10 Thursday 9, SWE: Riksbank Minutes Minutes from Oct 26 decision: As expected the Riksbank left its repo rate forecast unchanged at its October meeting, signalling a first rate hike in September So far none of the board members have advocated an early rate hike despite a string of strong economic data. In the press release, the board also stated that it will consider a possible extension of its QE programme at the December meeting. Our main scenario is that QE will end in December this year, but the probability for a small extension to the first half of next year is relatively large. Board members discussion about the QE programme will be very important. We have argued that the increasingly strained situation on the Swedish bond market, the strong Swedish growth and the fact that half of the board entered a reservation against the QE extension already in July will make the board to refrain from extending the programme into next year. However, Ingves still has the opportunity to use his casting vote to decide on an extension together with Jansson and af Jochnick.

11 Friday 10, NOR: CPI (Oct) % mom/yoy SEB Cons. Norges Bank Prev. Headline 0.2/ / /1.6 CPI-ATE 0.2/ / / /1.0 CPI-ATE was lower than expected again in September as food prices continued to drop after a sharp decline in August. Lower price increases on imported goods, which has been the most important driver for the downward trend in inflation over the last 12 months, accelerated in September. We think that the inflation rate will continue to decline towards the end of the year, but stabilize in Our near term CPI-ATE forecast is close to Norges Bank, but we predict a small downside surprise also in October. We also see slightly lower inflation than the central bank in 2018 and 2019.

12 Friday 10, UK: Industrial & Manufacturing prod. (Sep) % mom/yoy SEB Cons. Prev. Industrial production / /1.6 Manufact. production 0.1/ / /2.8 Industrial and manufacturing production continued to improve in August after falling in the beginning of the year. Manufacturing PMI (new orders) tends to lead production data by roughly 6m and suggests that production should continue to increase in September. The GBP is weak which improves competitiveness. It seems like the currency effect has been a positive factor for production in recent months. Moreover demand from euro zone countries has probably remained strong considering the high level of PMIs and the overall activity in the euro zone. Our simple model suggests that manufacturing production continued to grow modestly in September. This suggests a downside risk to the consensus forecast.

13 Friday 10, UK: Trade balance (Sep) GBP/Mn Cons. Prev. Total trade balance So far a weak GBP has done little to improve the trade balance. In fact, recently it has moved the other way. In August the trade deficit widened to 3.3% of GDP. According to the latest report exports of goods and services have declined since May while imports have continued to grow, widening the deficit. Given that the GBP is almost 20% undervalued in trade weighted terms and that growth outside the UK has improved trade deficit should narrow in coming months. Export orders continued lower in Sep according to PMI but are still at a firm level. The trade deficit should improve in September. Another weak reading on trade could lower the first estimate of Q3 GDP growth.

14 Friday 10, US: U. of Michigan consumer conf. (Nov, P) SEB Cons. Prev. Preliminary The Michigan consumer confidence index rose sharply in October and reached the highest level since January The improvement was driven by strong gains in both the current conditions and expectations indices. The rise in October followed a weakening in September caused by hurricanes Harvey and Irma which pushed up gasoline prices and unemployment filings. At face value, the Michigan index is now consistent with real consumption growth of around 5% annualised. In October, households 12-month ahead inflation expectations fell from 2.7% to 2.4%. Expected inflation in five years time remained at 2.5%. Low gasoline prices, rising stock markets and a tightening labour market continue to support consumer confidence. The Conference Board fell slightly in October but correlation to the Michigan index has weakened in We expect that the Michigan index remained close to the level in October and forecast 99.7.

15 European Sovereign Rating Reviews Recent rating reviews Friday, 27 Oct 2017 Agency previous new action Italy S&P BBB- u /Stable BBB u /Stable 1 notch upgrade Upcoming rating reviews Friday, 3 Nov 2017 Agency Rating / Outlook last change Change? Belgium Moody's Aa3 / Stable 12/16/2011 no European Union Moody's Aaa / Stable 03/14/2014 no Norway DBRS Aaa / Stable 03/21/2012 no Friday, 10 Nov 2017 Agency Rating / Outlook last change Change? Croatia Moody's Ba2 / Stable 03/10/2017 no Source: Bloomberg Estonia Fitch A+ / Stable 07/05/2011 no Greece DBRS CCC H / Stable 12/11/2015 no Hungary Fitch BBB- / Stable 05/20/2016 no Sweden DBRS Aaa / Stable 04/17/2012 no