Editor: Felix Ewert The Week Ahead Key Events 25 Sep 1 Oct, 2017
Sunday 24, 08.00 German general election: What outcome to expect? The balance of votes will shift towards conservative (CDU/CSU) and populist parties (AfD, Left Party) the next government will be led by Merkel s CDU/CSU ( Union ) according to opinion polls, the current Grand Coalition (Union and SPD) retains the strongest parliamentary majority. However, the Social Democrats (SPD) may refuse to maintain their role as Merkel s junior partner in this case, the second-most likely option would be a Jamaica coalition of Conservatives, Liberals and Greens - spanning a wide political spectrum all other potential three-party coalitions will fail an absolute majority a stronger representation of the small parties and a more diverse political spectrum in German parliament will complicate the decision-making process, in particular in contested policy areas e.g. immigration and European policies voter turnout will likely decline below the 2013 level (71.5%) as the status quo of Merkel s mainstream policies is considered to be safe and polls show insufficient support for potential political alternatives
Monday 25, 10.00 GER: IFO business climate (Sep) SEB Cons. Prev. Business climate 116.0 116.0 115.9 Current assessment 125.0 124.7 124.6 Business expectations 107.5 107.9 107.9 The ifo business climate stayed close to its all-time-high in Aug. The lofty level of business sentiment still calls for a downside correction: its current level implies a strong acceleration of GDP growth to ~1% q/q in Q3 (see lower graph) which is far beyond consensus expectations (Q3: 0.5%, Q4: 0.4%) However, Tuesday s ZEW survey for September showed an improvement both in the current assessment and business expectations, thus narrowing the gap vs. ifo to the upside. Also the German Compositive PMI improved in Sept, with industry sentiment boosted by strong export orders growth - defying the 15% ytd euro appreciation. Given the recent consolidation of the euro, the only potential trigger for a downward correction in Sept could be rising geopolitical tensions (North Korea).
Tuesday 26, 09.30 SWE: PPI (Aug) % mom/yoy SEB Cons. Prev. Headline -1.0/3.6 --- 0.6/5.7 Consumer goods -1.2/2.3 --- 0.3/4.2 Depreciating krona and higher international prices have pushed PPI inflation to historically high levels. Both these forces are now turning over and the PPI inflation rate is expected to decline fast. The exchange rate strengthened by more than 3% in August and is expected to exert strong downward pressure on export and import prices. Higher commodity and energy prices are expected to offset part of the downward pressure on headline PPI. A combination of base effects and slightly stronger krona are predicted to exert further downward pressure on PPI towards the end of the year.
Tuesday 26, 16.00 US: New homes sales (Aug) SEB Cons. Prev. New home sales 600k 590k 571k MoM% 5.1% 3.3% -9.4% New home sales disappointed in July and fell by more than 9% compared to June, meaning sales are off to a slow start in Q3. Sales have been on a modest upward trajectory since 2011 but limited inventories and rising prices are now holding back sales. The NAHB housing market index is at a high level, however, suggesting that housing market momentum continues. Mortgage rates have trended downward in 2017 and the tightening labour market should support housing demand. We forecast that new home sales recovered to 600k in August. Going forward, a limited supply of existing homes should support housing starts and new home sales.
Tuesday 26, 16.00 US: Conference Board Consumer Confidence (Sep) SEB Cons. Prev. Headline 116.8 120.0 122.9 The Conference Board index again beat expectations in August and rose to 122.9, the highest level since December 2000. The rise was driven by consumers evaluation of the present situation. The survey period ended on August 16, before the impact of hurricane Harvey. A strengthening labor market, low gasoline prices and rising equity and housing prices continue to support consumer confidence. However, experience from hurricanes Katrina and Sandy suggests that there was a negative impact on confidence in September caused by Harvey. The University of Michigan consumer sentiment survey weakened in September and is normally highly correlated to the Conference Board survey. Our forecast is that the Conference Board index weakened to 116.8 in September.
Wednesday 27, 08.00 NOR: LFS unemployment (Jul) % of labour force SEB Cons. Prev. Unemployment rate 4.2 4.2 4.3 The unemployment rate was unchanged in May-July (officially reported as June), in line with estimates. In its most recent MPR, Norges Bank cited rising capacity utilization over the forecast period as being one reason for shifting to the hawkish stance. We will thus keep a close eye on labour market data in the period ahead. The labour force is expected to continue growing along with the upturn in the economic cycle. The Regional Network report indicated that contacts hiring plans signal a further recovery for employment growth ahead. We and Norges Bank expect the unemployment rate to fall to 4.2% June-August (officially reported as July).
Wednesday 27, 09.00 SWE: Consumer confidence (Sep) SEB Cons. Prev. CCI 102.0 102.0 100.3 Inflation expectations 2.1 --- 2.1 Consumer confidence has edged lower during the first half of this year after a relatively large improvement in the end of 2016. Sentiment regarding the general economic situation is still at moderate levels, considering the strong Swedish growth and labour market. We continue to predict that sentiment will improve. The strong labour market implies that consumer confidence will recover in the second half of this year. Despite strong fundamentals households continue to be cautious, which is reflected also in consumer spending that is growing at a moderate pace, especially if the strong population growth is taken into account.
Wednesday 27, 09.00 SWE: Business confidence (Sep) SEB Cons. Prev. Manufacturing 116.0 115.0 117.3 Business sector 110.0 --- 109.2 Tendency indicator 111.5 111.3 110.7 We expect business sentiment in manufacturing to continue to edge lower. The level is still very high also after the decline in August. The drop in manufacturing PMI in August is an uncertain factor, but is assessed to mainly have been driven by an irregular seasonal pattern during the summer. Continued high PMI:s in Germany and the Euro-zone supports this conclusion. Business sector employment plans improved significantly during the summer and continued high levels during the autumn would imply relatively large upside risks to our labour market forecast. Sentiment in services in the retail sector are predicted to improve slightly from moderately high levels.
Wednesday 27, 09.30 SWE: Trade balance (Aug) SEK bn SEB Cons. Prev. Actual -6.0 --- -0.5 The trade balance is trending lower driven by a strong upturn for imports. This is likely to continue this year, but faster export growth suggests that the downward trend will slow. Total trade including services is still showing considerable surpluses (4.5% of GDP) as strong service exports to a large extent is offsetting weakness in goods. Trade balance in August is predicted to be very low, mainly due to seasonality.
Wednesday 27, 09.30 SWE: Household lending (Aug) % yoy SEB Cons. Prev. Household lending 7.1 --- 7.0 Non financial corporations --- --- 5.0 Household lending slowed slightly after the new amortisation regulation was proposed in June, but now the year-on-year change has stabilised over the last 3-4 months. This is partly explained by weaker comparison months in 2016. Renewed upward pressure on house prices and strong growth in residential investments imply that household lending could accelerate slightly towards the end of this year. Higher amortisation by households is a downside risk.
Wednesday 27, 10.00 EMU: Money supply M3 (Aug) Germany SEB Cons. Previous M3, % y/y sa 4.3 4.7 4.5 credit to EZ residents 3.9 --- 4.1 credit to private sector 2.0 --- 2.3 Growth of money supply M3 has fluctuated in a range between 4.5 and 5.3% y/y for 26 months. Having traded in the upper part of this range for the last four months, it dropped to the lower bound in July aggregate loan dynamics ( credit to EZ citizens ) continue to trace M3 growth (July: 4.1%) - driven yet again by strong (albeit decelerating) growth of Credit to General Government. The slowdown of this component to 7.7% in July (22m low) reflects the re-calibration of the PSPP to 60bn/month in April and is expected to have continued in Aug private sector loan growth accelerated to 2.3% in July. Although it continues to lag M3 growth (the credit channel is still partially blocked as banks struggle with NPL reduction and/or sluggish credit demand), the gap narrowed to 2.2 pp (5y low) in July.
Wednesday 27, 14.30 US: Durable goods orders (Aug, P) % SEB Cons. Prev. Total 0.7 1.0-6.8 Excl. transportation -- 0.2 0.6 Core capital goods -- 0.3 1.0 Core shipments -- 0.5 1.2 Total durable goods orders fell sharply in July, decreasing 6.8% compared to June. This is not a big worry since this was entirely due to the volatile aircraft category. Excluding transportation, orders actually rose by 0.6%. Core shipments (excludes aircraft and military hardware and is used to calculate GDP) rose by a strong 1.2%. We know that aircraft orders recovered somewhat in August (Boeing received 33 orders compared to 22 in July), implying that total durable goods orders also recovered. According to the ISM, the new orders sub index edged down in August and the new export orders index fell from 57.5 to 55.5. We forecast that total durable goods orders increased by 0.7% in August.
Thursday 28, 09.30 SWE: Retail sales (Aug) % mom/yoy SEB Cons. Prev. Retail sales -0.2/2.7-0.1/2.7 0.9/3.7 Retail sales were strong in August after being weak in the second quarter. Retail confidence has improved slightly but is at moderate levels compared to other sectors and well below the levels in 2016. We predict a small decline for retail sales in August on reversing parts of the strong July. The underlying trend is, however, that sales are improving slightly from a modest level. Other parts of household consumption are growing relatively faster than retail sales. Still, total consumption has continued to be on the weak side compared to our forecasts, trending sideways at approximately 2.5% y/y.
Thursday 28, 11.00 EMU: ESI (Sep) SEB Cons. Prev. Economic confidence 112.0 112.0 111.9 Business climate indicator 1.12 1.12 1.09 Industrial confidence 5.2 5.1 5.1 Service confidence 14.7 15.0 14.9 Confidence continue to be strong in EMU. The summer PMI-decline was reversed in Sep-data published last week to multi-year high levels. Especially manufacturing seems to enjoy a strong situation. All 4 major economies show strength after an uptick in Italian ESI in Aug. Looking at sectors, construction has shown the most significant upturn in recent months, probably due to housing construction and rising capacity utilisation translating into higher investments. Production expectations has strengthened in recent months but the order balance has weakened somewhat.
Thursday 28, 14.00 GER: CPI (Sep, P) % mom/yoy SEB Cons. Prev. CPI unch./1.7 +0.1/1.8 +0.1/1.8 HICP unch./1.7 +0.1/1.8 +0.2/1.8 German preliminary CPI data provide a last-minute indication for EZ inflation for which the flash estimate is published one day later six German Länder report CPI data from 9.00 am until midday. The pan-german inflation print is published at 2:00 pm as a population-weighted average of these six regional readings seasonality in September implies an unchanged German CPI in m/m terms, but base effects will reduce the yearover-year rate by 0.1 pp higher energy prices (gasoline +2.3%, heating oil +1% m/m) should have boosted headline CPI. Package tour prices presumably fell in line with their seasonal pattern, but this dampening effect should have been neutralized by seasonal increases of prices for hotels/restaurants. CPI inflation (percent y-o-y) weight (percent) Aug 17 Jul 17 Jun 17 Mai 17 Baden Wurttemberg 20 1,9 1,7 1,6 1,5 Bavaria 24 1,8 1,6 1,4 1,4 Brandenburg 5 1,8 1,4 1,5 1,4 Hesse 12 1,8 1,9 1,9 1,7 NRW 33 1,9 1,8 1,6 1,6 Saxony 8 1,9 1,7 1,7 1,6 Germany 100 1,8 1,7 1,6 1,5
Friday 29, 08.00 NOR: Retail sales (Aug) % mm/yy change SEB Cons. Prev. Retail sales excl. autos (volume) 0.2/3.4 0.0/-- 0.4/3.6 Following weak spending in June, retail sales rebounded in July in line with expectations. Retail sales increased by a healthy 1.7% in Q2. Consumption of goods, which feeds directly into GDP, also made a notable lift during spring. Overall, private consumption has been strong so far this year. A continued recovery for employment and real disposable income growth suggest it should grow further in the period ahead. Lower house prices may have the opposite effect. Moreover, the quarterly consumer confidence indicator has risen back to normal levels not observed since oil prices started falling in 2014. It has started to catch up with the monthly survey, which is at strong levels. We forecast retail sales to expand modestly in August.
Friday 29, 10.00 NOR: Registered unemployment (Sep) % SEB Cons. Prev. Registered jobless rate (unadjusted) 2.5 2.5 2.7 The unadjusted registered unemployment rate fell by 0.2%-point last month, following a seasonal upward correction in July. The seasonally adjusted jobless rate declined to 2.6% (- 0.1%-point) after having been stable at 2.7% for three months. In its most recent MPR, Norges Bank cited rising capacity utilization over the forecast period as being one reason for shifting to the hawkish stance. We will thus keep a close eye on registered unemployment data in the period ahead as the central bank favours this unemployment measure. A continued economic recovery, and particularly in the oil-dependent regions on the west coast, should support labour markets in the period ahead. Both we and Norges Bank forecast the registered jobless rate to be 2.6% in September (unadjusted time series).
Friday 29, 10.00 NOR: Norges Bank s daily FX purchases (Oct) NOK mn SEB Cons. Prev. Daily FX purchases -650-650 -650 Against our expectations NB announced last month that daily purchases were reduced to NOK 650mn from 850mn since March. When purchases were reduced in March the reason was increased petroleum tax revenues (paid in NOK) and slightly lower gov. spending. We believe the same reasons were behind the decision to lower purchases in September. Generally NB tends to hold purchases as stable as possible over time. This suggests that daily purchases will be NOK 650mn for the reminder of this year => total purchases this year amount to NOK 197bn. Government projections for the non-oil budget deficit this year show it will continue to grow to NOK 250bn (NOK 208bn in 2016). Just to be clear, the NOK-positive flow (NOK 250bn) is still in the market but more of it is simply handled by oil exporters instead of NB.
Friday 29, 11.00 EMU: HICP, flash (Sep) %, yoy SEB Cons. Prev. Headline 1.6 1.6 1.5 Core 1.1 1.2 1.2 The inflation rate is predicted to edge higher in September, driven by higher petrol prices due to the hurricanes in the US. Towards the end of the year and in the beginning of 2018 base effects from energy will exert downward pressure on headline CPI. Core inflation has been slightly higher than expected during the summer, due to higher service prices. This could signal that inflation could be turning slightly higher, but downward pressure from a stronger Euro will work in the opposite direction. We continue to expect the core inflation rate to trend sideways during most of next year.
European Sovereign Rating Reviews Recent rating reviews Friday, 15 Sep 2017 Agency previous new action Ireland Moody's A3 / Positive A2 / Stable 1 notch upgrade Portugal S&P BB+ u / Stable BBB- u / Stable 1 notch upgrade Upcoming rating reviews Friday, 22 Sep 2017 Agency Rating / Outlook last change Change? Croatia S&P BB / Stable 12/16/2016 no Czech Republic Moody's A1 / Stable 08/12/2008 no Latvia S&P A- / Stable 05/30/2014 no Luxembourg DBRS AAA / Stable 12/16/2016 no UK Moody's Aa1 / Negative 06/24/2016 no Friday, 29 Sep 2017 Agency Rating / Outlook last change Change? Bulgaria Moody's Baa2 /Stable 07/22/2011 no France DBRS AAA / Stable 04/29/2016 no Malta S&P A- / Stable 10/14/2016 outlook to Positive? Norway Fitch AAA / Stable 12/18/2007 no Spain S&P BBB+ / Positive 03/31/2017 no Switzerland Fitch AAA / Stable 06/11/2007 no Source: Bloomberg