2018 Q3 Macro Quarterly update: Trump s highway to hell?

Transcription

1 Macro Quarterly update: Trump s highway to hell? 1 Please see important disclosures and disclaimers on page 25

2 Index 1. Executive summary 2. Current economic topics 3. Global macro GDP, unemployment & inflation Leading indicators Commodities 4. Nordic region GDP, unemployment, consumer confidence & inflation Car registrations & employment Construction & business confidence Bankruptcies & construction costs Currencies & interest rates 5. Appendix Please contact content providers for inquiries: Søren Steenstrup, Kenneth Winther, 2

3 Executive summary Trump s Highway to hell? The growth momentum currently indicates Global economic borderline downturn. The US and EU are expected to continue growing healthily and inflation pressure is slowly building. Emerging markets (EM) and especially Chinese growth is stabilizing after years of deceleration, but is still high compared to the US and EU President Trump s trade dispute is heating up and edging closer to an all-out trade war as the initial Global tariffs on steel and aluminium were accompanied with further tariffs on 50bUSD worth of Chinese exports. China has promised to retaliate 1:1 and Trump has counterthreatened to do the same if the Chinese retaliate. EU has retaliated after European cars will be hit by new American tariff, and the same story goes for Canada, Mexico, Japan and Russia to name a few. If this trend continues, Global growth will be on a highway to hell and can in its most severe form end as a self-inflicted Global recession. It is still a far out scenario, but watch this space As both the US and Eurozone have started to shift their monetary policy from easing to tightening mode, Bank of Japan is still a bit hesitant. While the economy is now running above its capacity and unemployment rate is at a multi-year low, inflation is still far from the 2% target and is not looking to reach this level any time soon. On top of this, a VAT-increase will be implemented next year and the risk of further Trump tariffs, so it seems like a good idea to wait a bit with the tightening After a couple of good years, Emerging Markets turmoil is surfacing again. As US interest rates have risen and money are flowing away from Emerging Markets, which is hurting their currencies. Furthermore, as EM countries generally are very open economies the prospect of a trade war with the US is not calming the mood Nordic countries are doing well although the economic momentum between them differ. Sweden is experiencing negative momentum as housing prices have fallen and the manufacturing sector has shown weakness. The Swedish Krona has consequently depreciated against EUR. Contrary, Norway is experiencing positive momentum as especially the high oil price is spurring investment, especially in the energy sector. Denmark is least interesting in this regard as momentum seems neutral and Denmark s negative GDP growth in Q is due to statistical technicalities rather than actual economic challenges. Across the Nordics employment growth and unemployment rates are healthy, while inflation remains stable. The fall in car registrations in Denmark and Sweden have eased, while Norway s registrations still grow. Construction confidence in Denmark and Norway remains high, while waning in Sweden 3

4 Current Economic Topics 4

5 Current topics Trump s Global trade war Harley-Davidson: Made in the US of A and EU What started as tariffs on steel and aluminium imports to the US, is slowly edging closer to a far more serious trade war as President Trump finds new tariffs and the rest of the world responds with counter-tariffs China has responded with tariffs on airplanes, cars and soybeans and vows to impose 1:1 tariffs against the US. By mid-june the US released a new tariff list of 25% for Chinese exports totalling 50 busd effective on July 6th. China has yet to retaliate, but said it has to fight back strongly Europe tried to get exempted from the steel and aluminium tariffs without success and is now actively imposing counter-tariffs on selected American products such as pork, jeans, bourbon and Harley-Davidson s US produced motorcycles. The latter has caused the motorcycle company to shift more production to its European factory to avoid the European tariffs, but also to avoid the American metal tariffs, which has increased US production cost. Quite symbolical of how trade wars often backfire Many other countries have also warned or retaliated against the US. Japan, Russia and Turkey have warned the US, while Canada, Mexico and India have imposed retaliatory tariffs If this spiral continues, the effect will be felt across the Global economy and could in the worst case cause a self-inflicted Global recession. Let s hope president Trump doesn t see the lower figure, where the lowest US trade deficits coincide with major recessions, and concludes he is on the right way US monthly trade balance (busd) Sources: Frank C. Müller (upper right), Bloomberg and Tryg Invest

6 Current topics Japan is still not ready to tighten With both the US and Eurozone in monetary tightening mode (also known as Quantitative Tightening or QT), Bank of Japan is still hesitant to join this club as risks lurk Japan GDP growth decompostion Since Abenomics began in 2012 with higher fiscal spending, loose monetary policy and structural reforms, the policy has at least been partially successful as the economy is growing faster than its natural rate and unemployment is low (see lower figure and s. 10) While this type of economic overheating would usually result in higher inflation in most other economies, Japan is much different; while inflation has turned positive, it is still running far below the 2% target (see s. 10) Now, in order to tame Japan s massive public debt and public budget deficit a dreaded VAT increase from 8% to 10% is expected to become effective in October It is therefore feared that this could mute growth Combining this with the risk of an escalating trade war, which would be devastating for an export driven economy such as the Japanese (see upper figure), and the political uncertainty of Abe losing the September election 6 Sources: Danske Markets (upper), Bloomberg (lower) and Tryg Invest Output gap (% of Japan s GDP) 3 Too fast growth vs economic potential Too slow growth vs economic potential

7 Current topics Fragile EM countries under pressure In 2013 when the US FED hinted the end of quantitative easing, many Emerging Market countries with large debt and current account deficits looked fragile as higher US interest rates would make money flow out of these countries and into higher yielding US bonds and their currencies plummeted This year looks like a repeat as the US 10yr interest rate reached the magic 3% level in May and the FED is now expected to hike the target interest rate 4 times instead of 3. And with many Emerging Market countries dependent on external financing, this is bad news for their currencies (see figures) Adding Trump s brewing trade war to the mix, only make matters worse as these countries also are highly dependent on trade While the positive story is hard to find, at least the figures can inspire cheap holiday destinations for the summer break Selected Emerging Market Currencies vs. US Dollar (Ult 2017 = 100) South African Rand Brazilian Real Turkish Lira Indian Rupee Indonesian Rupee Argentinian Peso Mexican Peso 60 jan-18 feb-18 mar-18 apr-18 maj-18 jun-18 Selected Emerging Market Current Account Deficits (% of GDP) 0% -1% -2% -3% -4% -5% -6% External financing need 7 Sources: Bloomberg and Tryg Invest -7% Brazil Mexico India Indonesia South Africa Argentina Turkey

8 Current topics Nordic Divergence While all three Nordic countries economies are doing well, the growth momentum has begun to diverge between them in the recent year Sweden is currently coping with headwinds from falling property prices, especially in the Stockholm-region, and falling optimism in the industrial sector (see Swedish PMI s. 16) as export conditions seems to have become less favorable Norway has really begun to benefit from the rising oil prices and investment spending, especially in energy related sectors, is pulling this trend. This is also helping consumer confidence, which will likely lift private consumption Denmark is perhaps the least interesting of the Nordic economies right now as no major imbalances are seems to have accumulated; the housing market, debt growth and wage pressure seem balanced, which leads to a fairly neutral growth momentum. The negative GDP growth in Q (see s. 16) is due to statistical technicalities rather than actual economic challenges Sources: Bloomberg and Tryg Invest OECD Composite Leading Indicator: Growth momentum 102 Denmark Norway Sweden >100: Positive economic momentum <100: Negative economic momentum

9 Global Macro 9

10 Global macro Economic indicators GDP, QoQ, % Unemployment rate, % USA EU Japan 15% 14% USA EU Japan 10% 12% 5% 0% -5% 10% 8% 6% 4% -10% Last Observation: 2018Q1-15% 2% Last Observation: 2018M5 0% Inflation rate, % Interest rate, 10yr, % 6% USA EU Japan 5% USA Germany Japan 5% 4% 4% 3% 3% 2% 2% 1% 1% 0% -1% 0% Last Observation: 2018M5-2% -1% 10 Figure sources: Bloomberg Finance L.P. and Tryg

11 Global macro - Leading indicators PMI/ISM Consumer Confidence, US 65 ISM, Manufacturing, US PMI Manufacturing, EU ISM, Non-manufacturing, US PMI Services, EU 140 Conference Board UoM, Consumer Confidence UoM, Consumer Expectation Last Observation: 2018M6 30 Last Observation: 2018M6 0 IFO, Germany IFO Business Climate IFO Expectations IFO Current Assessment Last Observation: 2018M6 70 Index description PMI measures companies expectations for the Eurozone, where values above 50 indicates economic expansion and vice versa. ISM measures companies expectations for the US, where values above 50 indicates economic expansion and vice versa. IFO measures business current assessment and expectations for the next 6 month for Germany, where a rising index-value indicates economic expansion and vice versa. 11 Figure sources: Bloomberg Finance L.P. and Tryg

12 Global macro Business Cycle Clock OECD Global Composite Leading Indicator* Indicating Global downturn Upturn Expansion Change in CLI Downturn Slowdown CLI Last observation: April/2018 *OECD CLI measures the global growth momentum 6 month forward. A value above 100 indicates positive economic momentum Figure sources: Bloomberg Finance L.P. and Tryg

13 Global macro Business Cycle Clock IFO German Business Climate* Indicating German slowdown Upturn Expansion 120 IFO Expectations Downturn Slowdown Last observation: June/2018 IFO Current Assessment *The IFO-indicators measures German companies assessment of their business situation currently and expectations 6 month forward. A value above 100 indicates positive economic momentum. Figure sources: Bloomberg Finance L.P. and Tryg

14 Global macro - Commodities Broad Commodity Index and Food Index* Agriculture 550 Broad Commodity Index Food Index $/bushel 2,000 Corn Wheat Soybeans 500 1, , , , , Metals* Oil $/tonne 12,000 Aluminum (left) Copper (left) Metal Index (right) 1,200 $/barrel 140 Brent Nymex 10,000 1, , , , , *Broad Commodity Index consists of following futures: Cotton, Orange Juice, RBOB Gasoline, Heating Oil, Wheat, Corn, Soybeans, Coffee, Live Cattle, Crude Oil, Cocoa, Gold, Aluminum, Silver, Nickel, Lean Hogs, Sugar, Copper and Natural Gas. Food Index: Hogs, Steers, Lard, Butter, Soybean oil, Cocoa, Corn, Wheat and Sugar. Metal Index: Copper, Lead, Steel, Tin and Zinc. 14 Figure sources: Bloomberg Finance L.P. and Tryg

15 Nordic Region 15

16 Nordic region Economic indicators GDP, YoY, % Consumer Confidence (higher value indicates more optimism) 10% 8% 6% 4% 2% 0% Denmark Norway Sweden Denmark Norway Sweden (right) % Last Observation: 2018Q1-4% Last Observation: 2018M Inflation rate, % Unemployment rate, % 5% 4% 3% 2% 1% Denmark Norway Sweden 10% 9% 8% 7% 6% 5% 4% 3% Denmark Norway Sweden 0% Last Observation: 2018M5-1% 2% 1% Last Observation: 2018M5 0% 16 Figure sources: Bloomberg Finance L.P. and Tryg

17 Nordic region Car registrations and employment New car registrations (YoY), % New car registrations, # of vehicles Q Q Q Q Denmark Norway Sweden 25% 45,000 20% 40,000 15% 35,000 10% 30,000 5% 25,000 0% -5% 20,000-10% 15,000-15% 10,000-20% -25% Denmark Norway Sweden 5,000 Last Observation: 2018M3 0 Total employment (YoY), % Total employment (YoY), % 3.5% Q Q Q Q % Denmark Norway Sweden 3.0% 3% 2.5% 2% 2.0% 1% 1.5% 1.0% 0% 0.5% -1% 0.0% -0.5% Denmark Norway Sweden -2% Last Observation: 2018M3-3% Figure sources: Bloomberg Finance L.P. and Tryg

18 Nordic region Construction and Business Confidence Denmark construction confidence survey Sweden construction confidence survey DK Construction Confidence DK Order Book Assessment SE Construction Confidence SE Order Book Assessment Last Observation: 2018M Last Observation: 2018M5-100 Nordic confidence surveys DK Economic Sentiment Indicator (left) SE PMI (right) NO PMI (right) Last Observation: 2018M Index description Construction confidence and order book assessment measures construction companies current expectations for the activity compared to a normal level, where values above 0 indicates optimism and vice versa PMI measures companies expectations for the local economy, where values above 50 indicates economic expansion and vice versa Economic Sentiment Indicator measures companies and consumers expectations to the Danish economy, where values above 100 indicates economic expansion and vice versa 18 Figure sources: Bloomberg Finance L.P. and Tryg

19 Nordic region Bankruptcies and Construction Costs Bankruptcies (#) Building costs (YoY, %) DK Bankruptcies NO Bankruptcies NO Residential Building Costs 1,400 10% 1,200 1,000 5% % 200 Last Observation: 2018M Last Observation: 2018M5-5% Norwegian types of residential building costs (YoY, %) Norwegian construction wage cost (YoY, %) 10% NO Multi-Dwelling Building Costs NO Detatched House Building Costs 8% NO Construction Wage Index 9% 7% 8% 6% 7% 5% 6% 5% 4% 4% 3% 3% 2% 2% 1% 1% Last Observation: 2018M3 Last Observation: 2018M5 0% 0% Figure sources: Bloomberg Finance L.P. and Tryg

20 Nordic currencies and interest rates Nordic Currencies Interest rates (swaps), %, Denmark 1.10 NOK/DKK SEK/DKK 4.5% 1yr 3yr 5yr 7yr 10yr 4.0% % 3.0% % 2.0% % 1.0% 0.5% % -0.5% % Interest rates (swaps), %, Norway Interest rates (swaps), %, Sweden 1yr 3yr 5yr 7yr 10yr 1yr 3yr 5yr 7yr 10yr 5.0% 4.5% 4.5% 4.0% 4.0% 3.5% 3.5% 3.0% 2.5% 2.0% 3.0% 2.5% 2.0% 1.5% 1.0% 1.5% 0.5% 1.0% 0.0% 0.5% -0.5% 0.0% -1.0% 20 Figure sources: Bloomberg Finance L.P. and Tryg

21 Appendix 21

22 Bloomberg consensus table GDP Growth Consensus expectations GDP growth US 2.89% 2.41% 1.87% EU 2.20% 1.90% 1.60% Japan 1.10% 1.00% 0.40% France 2.00% 1.80% 1.60% Germany 2.10% 1.90% 1.60% United Kingdom 1.40% 1.60% 1.80% Spain 2.75% 2.30% 2.00% Italy 1.30% 1.20% 1.10% China 6.50% 6.30% 6.20% Brazil 2.45% 2.78% 2.82% Russia 1.80% 1.70% 1.65% India 6.60% 7.40% 7.50% Denmark 2.00% 1.90% 1.80% Norway 2.30% 2.20% 1.80% Sweden 2.55% 2.10% 2.00% Finland 2.50% 2.10% 1.20% 22 Table sources: Bloomberg Finance L.P. and Tryg

23 Bloomberg consensus table Unemployment Consensus expectations Unemployment rate US 3.86% 3.63% 3.77% EU 8.40% 7.90% 7.70% Japan 2.50% 2.44% 2.54% France 8.85% 8.55% 8.30% Germany 5.20% 5.10% 4.95% United Kingdom 4.30% 4.40% 4.35% Spain 15.50% 14.00% 13.50% Italy 10.85% 10.50% 10.20% China 4.00% 4.00% 4.00% Brazil 12.00% 11.00% 11.18% Russia 5.00% 5.00% 4.95% India Denmark 4.05% 3.90%... Norway 3.75% 3.50% 3.30% Sweden 6.30% 6.15%... Finland 8.10% 7.75% Table sources: Bloomberg Finance L.P. and Tryg

24 Bloomberg consensus table - Inflation Consensus expectations Inflation (CPI) US 2.56% 2.26% 2.20% EU 1.60% 1.60% 1.70% Japan 1.00% 1.00% 1.50% France 1.80% 1.50% 1.70% Germany 1.80% 1.80% 1.80% United Kingdom 2.50% 2.10% 2.00% Spain 1.60% 1.60% 1.65% Italy 1.20% 1.35% 1.55% China 2.20% 2.20% 2.30% Brazil 3.32% 4.10% 4.00% Russia 2.90% 4.00% 4.00% India 3.70% 4.70% 4.60% Denmark 1.00% 1.50% 1.60% Norway 2.00% 1.80% 2.00% Sweden 1.90% 1.90% 2.00% Finland 1.00% 1.40% 1.50% 24 Table sources: Bloomberg Finance L.P. and Tryg

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