The Week Ahead Key Events 4 10 Jan, 2016

Transcription

1 Editor: Carl Hammer The Week Ahead Key Events 4 10 Jan, 2016 Editor: Benjamin Dousa

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3 Monday 4, SWE: PMI manufacturing (Dec) Index SEB Cons. Prev PMI Manufacturing confidence according to the NIER survey increased markedly in December and is at a significantly higher level than PMI. We think that the PMI currently gives a more correct picture of the manufacturing sector than NIER confidence. PMI in the Euro-zone continues to trend sideways at slightly expansionary levels. Hard data like industrial production and goods exports lagged during most of last year, but now seems to be catching up with sentiment.

4 Monday 4, ISM manufacturing (Dec) Cons. Prev. ISM has been a weak year for US manufacturing and ISM manufacturing index has more or less been a downward slope since the autumn of The stronger dollar and relatively weak demand abroad are driving forces. What is important, however, is that US domestic demand remains in good shape which the much more domestically-oriented ISM non-manufacturing index is reflecting. As such, our composite ISM indicator is still consistent with 3% real GDP growth which certainly isn t too bad. With respect to foreign demand, new export orders are actually turning around although the index is still below 50. It is our view that the effects of the dollar appreciation will gradually diminish and that the US manufacturing sector will fare better in In any event, it is good to know that statistical tests suggest that it is the service sector that leads the manufacturing sector rather than the other way around. With respect to near term, the forward-looking new orders component fell back to 48.6 in November from 52.9 in October. As such, we expect ISM manufacturing to remain depressed at 49.0 in Dec.

5 Tuesday 5, NOR: PMI manufacturing (Dec) Index SEB Cons. Prev. PMI manufacturing The manufacturing sector has long been the one taking the hardest hit from plunging capital spending within the petroleum sector. However, various surveys suggest that the rate of contraction in the sector might start to ease somewhat soon. The PMI production component was 50.1 in November and the turn on a trend-basis has been even better for the new orders component. We expect manufacturing PMI to improve a tad in December to Note that uncertainty is large due to an unusually early cut-off date and the risk of a low response rate.

6 Tuesday 5, EMU: HICP, flash (Dec) %, yy SEB Cons. Prev. Headline Core Despite continued declines for energy prices, the headline inflation rate is expected to increase over the next couple of months due to strong base effects from oil price falls last year. Core CPI declined in November after being slightly higher than expected since summer. After the recent renewed downward pressure on crude oil we have lowered our 2016 forecast to 0.6%. This is 0.4%-points below ECB s projection, which is in line with the consensus estimate.

7 Thursday 7, SWE: PMI, services (Dec) Index SEB Cons. Prev. PMI Service sector PMI has recovered after a temporary dip during the summer, but the trend continues to be sideways. Service sector confidence according to the NIER improved slightly in November and is on the high side of the range seen since mid According to the NIER survey demand could be starting to increase faster, although this will need to be confirmed over the next 2-3 months. Retail sector confidence in December increased to the highest levels since the current time series started in the mid 1990.

8 Wednesday 6, ADP employment change (Dec) Cons. Prev. ADP 198K 217K According to the ADP report, businesses added a betterthan-expected 217k workers in November which also was bang in line with the growth in private payrolls too. As such, the healthy employment report for November likely removed the last remaining data hurdle ahead of the Fed s December 16 th policy meeting. Over the past year, small-sized businesses (50 to 499 employees) have expanded payrolls the most. The 4-week moving average of initial jobless claims is still at levels that historically would suggest payroll growth above 250k. But since the labor market is getting tighter and the unemployment rate is already sitting at the NAIRU, generating such employment growth month-in, month-out is getting harder too. The employment indices in the ISM reports are still at relatively healthy levels. Our forecast is that ADP increased 210k in December.

9 Wednesday 6, US Trade Balance (Nov) Cons. Prev. Trade balance -44.0b b The trade balance deteriorated in October as the decline in exports outpaced the decline in imports. When both imports and exports decline, that is not a signal of strength; it is safe to say that it would have been better if the trade balance weakens because of import growth outpacing export growth. Total import growth is down 5.2% year-on-year while total export growth is down 6.9% year-on-year. Clearly the stronger dollar is a headwinds for US exporters while relatively weak demand overseas may well be at play too. While the ISM new export orders component, which has decent leading power of real exports, suggest ongoing weakness in the near term; come next spring we could well see a turnaround.

10 Wednesday 6, ISM non-manufacturing (Dec) Cons. Prev. total The ISM non-manufacturing fell back from lofty levels in November and the 55.9 print was well below the consensus forecast of 58 and a six-month low. On the other hand, its current level is still above the historical average of 55.3 thus suggesting that the domestic economy remain in fine shape. For context, the ISM non manufacturing index is consistent with real GDP growth closer to 4% and our ISM composite indicator is basically suggesting 3% real GDP growth. Our forecast is that the ISM non-manufacturing index should increase somewhat to 56.5.

11 Thursday 7, EMU: Unemployment, Nov % SEB Cons. Prev. Unemployment Unemployment has fallen marginally faster than expected during the fall and was in October 0.7pp lower than end of last year. The trend will continue and the improvement is broad based among countries with both unemployment falling and employment increasing in all major 4 (Germany, France, Italy and Spain) economies.. Employment expectations according to both the EUcommission- and Markit continue to improve and indicators are improving.. Labour market participation has been relatively stable lately for the region as a whole, but in Spain and France the decline in unemployment is supported by people leaving the labour force.

12 Friday 8, SWE: Riksbank Minutes Minutes from Dec 15 decision: Rate, rate path and QE-program unchanged. The inflation forecast was lowered over the next few months, but the Riksbank continues to predict a quick return to the inflation target with CPIF projected to rise above 2% y/y towards the end of next year. The Riksbank presented optimistic growth and inflation forecasts in the December report. Stronger growth and lower unemployment has most likely made the board members more tolerant towards low inflation, but risks for a stronger krona means that many board members are likely to continue to signal they stand ready to ease policy further. Several board members are also likely to signal that currency interventions remains on the agenda if the krona threatens to strengthen significantly Riksbank repo rate (%) 12/15 02/16 04/16 06/16 08/16 10/16 12/16 02/17 04/17 06/17 08/17 10/17 12/17 02/18 04/18 06/18 08/18 10/18 12/18 Riksbank (Dec) SEB f/c Market pricing

13 Friday 8, SWE: Industrial production and orders (Nov) %, mm/yy SEB Cons. Prev. Production -0.5/ /4.0 New orders 0.0/ /3.5 The outlook for industry is mixed, but hard data has since summer improved and is now more in line with sentiment indicators. Behind the monthly volatility driven by aeroplanes, new orders seem to be increasing at a decent pace. Orders normally lead production by around one quarter. Production fell back in October after being strong September. The fall is expected to continue in November, despite an improving underlying trend.

14 Friday 8, SWE: Service sector production (Nov) SEB Cons. Prev % mm/yy 0.2/ /3.0 Service production declined slightly in October but was strong during the preceding 3-month period. We predict a small increase in November. Sentiment indicators suggest that service production could be accelerating slightly with strong growth predicted especially in the retail sector. There are some signs that service production may be accelerating although high monthly volatility makes the underlying trend difficult to assess.

15 Friday 8, NOR: Manufacturing production (Nov) % mm/yy change SEB Cons. Prev. Manufacturing prod /-8.4 Industrial production /-3.0 Modest recovery in Norwegian manufacturing. Norwegian manufacturing production was extremely weak in October, contrasting the message from various surveys which has improved recently. The sharp decline was rather broadly based among subsectors though led by outsized drops among the most petroleum-related industries (note: the intermediate goods sector also includes support activities for petroleum and natural gas extraction). Assuming a very modest recovery in November, the sequential decline in Q4 might still be less steep than the 2.4% drop in Q3 although plunging y/y rate will accelerate as output posted modest growth in the final quarter of 2014.

16 Friday 8, Nonfarm payrolls (Dec) Cons. Prev. Total 200K 211K Private 200K 197K U rate 5.0% 5.0% hourly %MoM 0.2% 0.2% hourly %YoY 2.8% 2.3% Change household emp K Avg. weekly hours Participation rate % While other indicators have been mixed, the US jobs market is holding firm and payrolls beat expectations in November. Revisions were to the upside too while the Household survey ratified the Establishment survey with a robust 244k advance. While the unemployment rate held steady at 5% in November, the broadest measure of underemployment actually rose to 9.9% from 9.8% in October amid an expanding workforce. The labor force expanded 273k in November after jumping 313k in October which pushed the labor force participation rate up to 62.5%. The bigger picture is that the participation rate is under ongoing demographic pressure, however, and it is our view that most of its decline in recent years are because of structural factors this is important since it suggests that the unemployment rate is a good barometer of labor market slack. That is also why we look for higher wage growth in 2016 and beyond. In November, wage growth rose 0.2% over the month and by 2.3% year-on-year; lower than in October due to unfavorable base effects. Depending on the productivity growth assumption one is willing to make is the supply side suggesting 2-2.5% real GDP growth in the forth quarter. With respect to the December report, we forecast 210k payroll growth and for the unemployment rate to edge lower to 4.9%. Average hourly earnings, meanwhile, probably rose 0.2% over the month; these 0.2%-0.3% advances will probably be the norm in 2016.