2018 Q4 Macro Quarterly update: Party like it s 1999

Transcription

1 Macro Quarterly update: Party like it s 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 Party like it s 1999 Global growth level remains healthy, although the growth momentum currently indicates a Global economic downturn. The US and EU are expected to continue growing healthily and US inflation pressure is building. Emerging markets (EM) and especially Chinese growth is stabilizing after years of deceleration, but is still high compared to the US and EU The US economy is steaming ahead and the labor market is getting very tight. Small businesses now report that it has never been harder to find people to fill job openings in nearly 30 years. The last time business saw conditions like this was in Employees are also voluntarily quitting their jobs at a rate not seen in more than 10 years. Wage growth has already accelerated and is expected to go even higher in the future The current global economic expansion is the longest in recent economic history, and although it is expected to continue in the near future, the risk of a recession are slowly starting to emerge on the horizon. As mentioned above, signs of economic overheating is starting to emerge in the US and if inflation starts to rise quickly it could trigger a new recession. Traditional bubbles in the economy (e.g. general overinvestment, housing market or excessive financial risk taking) do not seem to be present currently and a potential future US recession could therefore be milder than usual The Eurozone is again taking headlines as the new Italian populist government has decided to increase the budget deficit from -0.8% to -2.4%. As Italian government debt to GDP is already at 132%, this has led other European countries and investors to fear another debt crisis in the Eurozone Many emerging markets countries have seen their growth soften recently, but is the worst over? Depends on where you look. Mexico and China seem close to regain positive growth momentum, while many others (e.g. Turkey, Indonesia, South Africa and South Korea) still struggle. The worst may not be over as president Trump after finishing trade discussions with Mexico and Canada now can turn his undivided attention to trade disputes with China and other EM countries Nordic countries have shown positive growth after Denmark exited its technical recession and inflation remains low, except in Norway. Unemployment rates have been constant, except for the rise in Sweden, and employment growth has accelerated. New car registrations in Sweden are affected by higher registration taxes on July 1st. Construction confidence remains high in Denmark and has waned slightly in Sweden, while business confidence remains high. Building costs in Norway have accelerated in recent months 3

4 Current Economic Topics 4

5 Current topics Party like it s 1999 Wages going higher The US economy continues to be growing fast and some might even say a bit too fast as companies are finding it harder to find new employees The number of companies finding it harder to find new employees is at record high and has even surpassed the previous record from 1999 (left figure) and the number of people voluntarily quitting their jobs is equally high (right figure). This spells higher wage pressure and will likely propel wage growth even higher. An example of this trend is the giant company Amazon, which will lift their minimum wage from 11 to 15 USD/hour and effects up to 350,000 employees Apart from the wage growth, the higher import costs due to new US tariffs are likely to lift the US inflation rate going forward Hard to fill job openings for small businesses US Wage growth (%) and quits rate (%) Index 40 2,5 Quits rate (left, 12M lagged) Hourly earnings (right) 3,5 30 3,0 2,0 20 2,5 10 1,5 2, , ,5 5 Sources: Tomas Castelazo, (top right), Bloomberg (lower figures) and Tryg Invest

6 Current topics Recession risk on the rise As the longest economic expansion in newer history continues with no near-end in sight, the risk of recession may be looming on the horizon Recessions usually come from overheating of an economy, which creates imbalances and thus stops growth. The most obvious candidate for this is the US, which is furthest in the economic cycle and is starting to see inflation pressure rise (see s. 5). When it s hard for companies to find new employees or/and the wage cost continues to rise, investment usually halt and then a recession is created. Not surprisingly, models for recession probabilities are starting to pick up (see lower figures), although from low levels While a recession is always hard to live through, many economists argue that a future US recession may be milder than the last as no obvious bubbles have built up, e.g. general overinvestment, frothy housing market, high lending growth or financial risk taking. Recession models for the United States 6 Sources: Deutsche Bank (left), Goldman Sachs (right) and Tryg Invest

7 Current topics Euro crisis 2.0? Europe is always able to give a bit of a scare to spectators when it comes to political risk and this quarter is no different. This time news is especially coming from Italy Let s spend some Euro s: Deputy premier minister Di Maio Italy elected a new parliament earlier this year, where the populist party 5 Star Movement and the centre-right coalition have formed a new government. This has led to a very noisy government, that only seems to agree on one thing: spend more money Earlier this year, the expected budget deficit was -0.8%. The new government was quick to indicate that the deficit would be closer to - 1.6%, but now expect it to land at -2.4%. This is a huge problem as Italian Government debt is already at a whooping 132% to GDP. Italy has received a lot of pushback from other EU countries and financial markets (see lower figure), who fear that this may end up as a new debt crisis like in Greece. The Italian government has responded that one solution to their debt problem could be to leave the Euro. This has done little to sooth fears Italian 10yr interest rate 3,5% Higher expected budget deficit Next chapter in this saga will be written in mid-october, when Italy is due to submit their budget to the European Commission for approval. Needless to say, a lot more noise will come out of this Besides that, during Q4 a number of important summits between the UK and EU will decide whether a hard or soft Brexit deal will be reached 3,0% 2,5% 2,0% Populist government formed 7 Sources: Presidenza della Repubblica (upper), Bloomberg and Tryg Invest 1,5% jan-17 maj-17 sep-17 jan-18 maj-18 sep-18

8 Current topics Bruised Emerging Markets President Trump s trade war has been tone setting this year and emerging markets countries have seen growth negatively affected as they tend to be very open economies So what is growth doing now? In short, this depends on where you look: Several countries are experiencing growth downturn such as Turkey, South Africa, Indonesia and South Korea. Russia and Brazil are seeing growth momentum softening and India is seeing good growth and momentum. Mexico and China are seeing their growth momentum improving But China (and other EM countries) are not out of the woods yet, as Trump has reached new trade deals with Canada and Mexico, and can now focus more heavily on waging his trade war here. Furthermore, many tariffs on Chinese export will increase from 10% to 25% on January 1st 2019 Growth momentum for selected EM countries* 1,00 Upturn (negative, but improving momentum) Expansion (high and improving momentum) Change in CLI 0,50 0,00-0,50 China Mexico South Africa Indonesia South Korea Russia India Brazil Turkey Downturn (negative and worsening momentum) Slowdown (high, but waning momentum) -1, Sources: OECD, Bloomberg and Tryg Invest *Using OECD CLI indicators and past 6M history CLI

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: 2018Q2-15% 2% Last Observation: 2018M8 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: 2018M9-2% -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 160 Conference Board UoM, Consumer Confidence UoM, Consumer Expectation Last Observation: 2018M Last Observation: 2018M9 0 IFO, Germany IFO Business Climate IFO Expectations IFO Current Assessment Last Observation: 2018M9 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 0.6 Change in CLI Last observation: July/2018 *OECD CLI measures the global growth momentum 6 month forward. A value above 100 indicates positive economic momentum Downturn -1.0 Slowdown CLI 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: August/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: 2018Q2-4% 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: 2018M8-1% 2% 1% Last Observation: 2018M8 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 80% 70,000 70% 60% 60,000 50% 50,000 40% 30% 40,000 20% 30,000 10% 0% 20,000-10% -20% -30% Denmark Norway Sweden 10,000 Last Observation: 2018M9 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: 2018M6-3% 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: 2018M9-100 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: 2018M8-5% 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: 2018M8 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 2.90% 2.50% 1.90% EU 2.01% 1.80% 1.70% Japan 1.10% 1.10% 0.60% France 1.70% 1.70% 1.60% Germany 1.90% 1.80% 1.55% United Kingdom 1.30% 1.50% 1.60% Spain 2.70% 2.30% 2.00% Italy 1.20% 1.10% 1.00% China 6.60% 6.30% 6.00% Brazil 1.45% 2.44% 2.50% Russia 1.80% 1.50% 1.70% India 7.40% 7.40% 7.50% Denmark 1.80% 2.00% 1.70% Norway 2.40% 2.20% 1.90% Sweden 2.70% 2.20% 2.00% Finland 2.60% 2.00% 1.60% 22 Table sources: Bloomberg Finance L.P. and Tryg

23 Bloomberg consensus table Unemployment Consensus expectations Unemployment rate US 3.90% 3.60% 3.80% EU 8.30% 7.90% 7.60% Japan 2.40% 2.35% 2.27% France 9.10% 8.60% 8.00% Germany 5.20% 4.90% 4.80% United Kingdom 4.10% 4.10% 4.10% Spain 15.40% 14.00% 13.30% Italy 10.80% 10.40% 10.35% China 4.00% 4.00% 4.00% Brazil 12.19% 11.20% 10.90% Russia 4.80% 4.90% 5.00% India Denmark 4.80% 4.30%... Norway 3.70% 3.40% 3.40% Sweden 6.20% 6.10% 6.00% Finland 7.80% 7.45% 7.20% 23 Table sources: Bloomberg Finance L.P. and Tryg

24 Bloomberg consensus table - Inflation Consensus expectations Inflation (CPI) US 2.50% 2.30% 2.30% EU 1.70% 1.70% 1.70% Japan 1.00% 1.10% 1.50% France 2.10% 1.70% 1.60% Germany 1.80% 1.80% 1.80% United Kingdom 2.40% 2.10% 2.00% Spain 1.70% 1.70% 1.70% Italy 1.30% 1.40% 1.40% China 2.10% 2.30% 2.40% Brazil 3.70% 4.23% 4.10% Russia 2.90% 4.35% 4.00% India 5.00% 4.70% 4.77% Denmark 1.00% 1.45% 1.60% Norway 2.45% 2.00% 1.85% Sweden 1.90% 2.15% 2.05% Finland 1.10% 1.40% 1.60% 24 Table sources: Bloomberg Finance L.P. and Tryg

25 Disclosure & disclaimer Origin of the publication This publication originates from Tryg Invest A/S Content of the publication or report This publication has been prepared solely by Tryg Invest A/S. Validity of the publication All opinions and estimates in this publication or report are, regardless of source, given in good faith, and may only be valid as of the stated date of this publication and are subject to change without notice. No individual investment or tax advice The publication is intended only to provide general and preliminary information to customers and shall not be construed as the basis for any investment decision. This publication has been prepared by Tryg Invest A/S as general information for private use of customers to whom the publication has been distributed. Before acting on any information in this publication, it is recommendable to consult one s financial advisor. This publication may be based on or contain information, such as opinions, recommendations, estimates and valuations which emanate from: Tryg Invest A/S analysts or representatives, Publicly available information, or Other named sources. To the extent this publication is based on or contain information emanating from other sources ( Other Sources ) than Tryg Invest A/S ( External Information ), Tryg Invest A/S has deemed the Other Sources to be reliable but neither Tryg Invest A/S, others associated or affiliated with Tryg Invest A/S nor any other person, do guarantee the accuracy, adequacy or completeness of the External Information. Limitation of liability Tryg Invest A/S assume no liability as regards to any investment, divestment or retention decision taken by the customer on the basis of this publication. In no event will Tryg Invest A/S be liable for direct, indirect or incidental, special or consequential damages resulting from the information in this publication. Distribution restriction Recipients of this publication should inform themselves about and observe all applicable legal requirements in their jurisdictions. The securities referred to in this publication of report may not be eligible for sale in some jurisdictions. This publication is not intended for, and must not be distributed to customers in the US. This publication or report may not be mechanically duplicated, photocopied or otherwise reproduced, in full or in part, under applicable copyright laws. This publication or any information made available in connection with it may not be disclosed or otherwise made available to any third party without the express written consent of Tryg Invest A/S. 25