Editor: Lina Fransson The Week Ahead Key Events 30 Oct 5 Nov, 2017
Monday 30, 08.00 NOR: Retail sales (Sep) % mm/yy change SEB Cons. Prev. Retail sales excl. autos (volume) 0.4/3.1 0.5/--- -0.6/2.6 Retail sales posted a downside surprise in August, correcting from strong gains in the preceding month. The broader indicator of goods consumption, which feeds directly into the GDP numbers held up better, only declining marginally on the month. Despite modest monthly declines in July and August, goods consumption is set to contribute positively to private consumption in Q3 as the index rose strongly toward the end of Q2. Overall, private consumption has been strong so far this year. A continued recovery for employment, real disposable income growth and consumer confidence back at normal levels suggest spending should grow further in the period ahead. Lower house prices may have the opposite effect. We forecast retail sales to rebound in September, increasing 0.4% m/m. A similar gain is expected for the index of goods consumption. However, do note that the indices have shown large volatility in recent months.
Monday 30, 11.00 EMU: ESI (Oct) SEB Cons. Prev. Economic confidence 113.0 113.3 113.3 Business climate indicator 1.38 1.41 1.34 Industrial confidence 6.8 7.0 6.6 Service confidence 15.0 15.0 15.3 Confidence continue to be strong in EMU. Composite PMI fell somewhat in Oct but the manufacturing index rose to level only beaten on a couple of occasions in the last 20 years. ESI was in Sep at a high level and all 4 major economies are now showing similar strength after an uptick in recent months in Italy that was earlier lagging the others. Looking at sectors, there is a broad based improvement in the EMU. Production expectations for the months ahead are high in industry and companies are also happy with their order books.
Monday 30, 14.00 Germany: CPI (Oct, prelim.) % mm / % yy SEB Cons. Prev. CPI Unch./1.6 +0.1/1.7 +0.1/1.8 HICP Unch./1.6 +0.1/1.7 Unch./1.8 German preliminary CPI data provide a last-minute indication for Eurozone inflation the flash estimate for which will 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 is marginally negative in Oct. Base effects should reduce the annual rate by 0.2 pp. fuel prices were mixed (gasoline -0.9%, heating oil +5.2% m/m), presumably exerting slight upward pressure on the CPI, whereas prices for package tours should have declined in line with their seasonal pattern. CPI inflation (percent y-o-y) weight (percent) Sep 17 Aug 17 Jul 17 Jun 17 Baden Wurttemberg 20 1,9 1,9 1,7 1,6 Bavaria 24 1,8 1,8 1,6 1,4 Brandenburg 5 1,6 1,8 1,4 1,5 Hesse 12 2,1 1,8 1,9 1,9 NRW 33 1,9 1,9 1,8 1,6 Saxony 8 2,0 1,9 1,7 1,7 Germany 100 1,8 1,8 1,7 1,6
Tuesday 31, 10.00 NOR: Norges Bank daily FX purchases (Nov) SEB Cons. Prev. Daily FX purchases (NOK mn) -650-650 -650 Against our expectations NB reduced daily NOK purchases to NOK 650mn from 850mn. 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. According to the budget projection for 2018 the non-oil budget deficit this year didn t grow as much as previously expected. It is now projected to roughly NOK 220bn this year. (NOK 208bn in 2016). However, next year it is expected to grow to NOK 255bn as government expenditures increase. Nevertheless, our estimates suggest that daily NOK-purchases will remain roughly the same in 2018 as this year (NOK 750mn). Non-oil budget deficit, NOK bn 300 250 200 150 100 50 0 NOK bn
Tuesday 31, 11.00 EMU: HICP, flash (Oct) %, yoy SEB Cons. Prev. Headline 1.4 1.4 1.5 Core 1.1 1.1 1.1 The inflation rate is predicted to edge lower in October, driven by base effects from petrol prices. Headline inflation is also expected to continue to trend lower over the next 3-4 months driven by base effects on energy and to some extent food. After increasing slightly during the spring, core inflation has remained stable or even fallen back slightly. We expect this sideways trend to continue over the next 12 months. Some tentative signs of higher wages and higher inflation in the GIIPS countries imply that risks have shifted slightly to the upside.
Tuesday 31, 11.00 EMU: GDP (Q3, a) GDP SEB Cons. Prev. % qoq 0.6 0.5 0.6 % yoy 2.5 2.4 2.3 Sentiment indicators are currently at high levels, some at levels that we have only seen on a few occasions in the last 10-20 years. Hard data has also been strong and data has overall continued to surprise on the upside. The labour market is improving at a steady pace and despite low wage increases retail sales is holding up well. Industry and export are improving but the recovery also fuels import. Growth in Q2 y/y was the strongest since Q1 2011 and in Q3 we expect another uptick to 2.5%.
Tuesday 31, 11.00 EMU: Unemployment (Sep) % SEB Cons. Prev. Unemployment 9.0 9.0 9.1 Unemployment has fallen by almost 1pp in the last year and the positive trend with rising employment and falling unemployment continues. Unemployment has in the last years fallen by 0.1pp every1-2 months but has been stable at 9.1% over the summer. We expect that it fell again in Sep. Growth and labour market indicators are strong supporting a continued positive labour market trend. Wage pressure is still low but is expected to rise gradually ahead especially in countries where resource utilization is high
Tuesday 31, 15.00 US: Conf. Board Consumer Confidence (Oct) SEB Cons. Prev. Headline 122.4 121.0 119.8 The Conference Board index weakened slightly in September but remains close to the 16-year March high. The fall was driven by a drop in consumers evaluation of the present situation, likely due to the impact from hurricanes Harvey and Irma as the present situation indices fell sharply in Texas and Florida. The national expectations index improved slightly. The effects of weaker sentiment in hurricane-affected areas and a rise in gasoline prices are temporary, suggesting that confidence should recover as these effects fade. Also, the labour market continues to tighten. The University of Michigan consumer sentiment survey rose sharply in October and this indicator is normally highly correlated with the Conference Board survey. Our forecast is that the Conference Board index rose to 122.4 in October.
Wednesday 1, 08.30 SWE: PMI Manufacturing (Oct) Index SEB Cons. Prev. PMI 63.5-63.7 Manufacturing PMI recovered strongly in September after being temporarily weak during the summer. NIER manufacturing sentiment declined slightly in October, but continues to be close to record highs. German PMI remained close to the multi-year high and Euro-zone PMI continued to rise to a level in parity with the all-time high in October. Furthermore, ISM increased to the highest level since 2011 in September, highlighting that the upturn in global growth now is the most synchronised since the recovery after the financial crisis. We predict PMI to remain high in October. The strong PMI is increasingly being reflected in accelerating industrial production and exports.
Wednesday 1, 09.00 NOR: Manufacturing PMI (Sep) Index SEB Cons. Prev. PMI 54.0 54.0 52.5 Manufacturing PMI posted its second consecutive downside surprise in August. The index declined by 2.4 points. The drops observed for both new orders and production expectations seem exaggerated to us. Both the PMI index and the more reliable Business Tendency Survey suggest actual production will continue to recover in H2 2017. Sentiment among business leaders has steadily improved since end-2016. Sentiment among Norway s main trading partners is still strong. The EMU Flash PMI increased further in October. German PMI fell marginally, but beat consensus and continues to rest at historic highs. Overall, this suggests an uptick in Norwegian manufacturing PMI. Note that Norwegian PMI is very volatility on a month-tomonth basis, as it is highly sensitive to changes in the response rate. Hence, we tend to overlook large monthly surprises. We expect manufacturing PMI to rebound to 54.0.
Wednesday 1, 10.30 UK: PMI manufacturing (Oct) SEB Cons. Prev. Manufact. PMI 57.0 55.8 55.9 PMI in the manufacturing sector remains at historically high levels probably supported by a weak currency and strong demand from the euro zone. Although growth in the UK has slowed significantly compared to last year (prel. 0.4% q/q in Q3) this is mostly related to weak household spending. A weak GBP should continue to bolster overseas demand for manufactured goods. Moreover PMIs in Germany and France remain at multi years high and improved in Aug, which usually is supportive for UK PMI. Most likely PMI will recover again this month after falling in September. Our simple model suggests that PMI should increase to 57.0, mostly due to strong sentiment in the euro zone.
Wednesday 1, 15.00 US: ISM manufacturing (Oct) SEB Cons. Prev. ISM man. 60.2 59.1 60.8 The ISM manufacturing index continued to rise in September and hit the highest level since May 2004. The employment component rose slightly after the sharp increase in August and at 60.3 suggests that the manufacturing sector should make a substantial contribution to employment. The forward-looking new orders index rose to 64.6. The manufacturing sector is supported by the weaker dollar and strong global demand and there is little evidence that the hurricanes have had a major impact on activity. The Fed s regional manufacturing surveys suggest that activity in the manufacturing sector picked up in October. Our prediction model indicates a slight fall for the ISM manufacturing index. We forecast that the ISM manufacturing index weakened slightly to 60.2 in October.
Wednesday 1, 19.00 US: Fed rate decision (Nov) The two-day meeting concludes Wednesday. There is no press conference or revised forecasts at this meeting. The Fed will maintain the target range for the Fed funds rate at 1.00-1.25%. Fed communication does not suggest that a rate hike is imminent. At the time of writing, only 1 out of 60 analysts included in the Bloomberg survey expect the FOMC to hike the policy rate. A hike would be a major surprise. The Fed continues to struggle with the combination of an increasingly tight labour market and softness in inflation. However, the statement from the last policy meeting suggests that a policy rate hike in December does not depend on inflation rebounding. No additional information about the reduction of the balance sheet is expected (i.e., a Fed estimate of the long-term size of the balance sheet). Since there are no expectations for a change in policy, the meeting will be overshadowed by the nomination for Fed Chair. President Donald Trump is expected to announce a nominee before November 3. We expect the Fed to hike in December and forecast three further rate increases in 2018 (June, September and December).
Thursday 2, 13.00 UK: BOE rate decision, Minutes & Inflation report Policy rate APF-target (GBP) SEB Cons Prev 0.50% 0.50% 0.25% 435bn 435bn 435bn Expected decision: The BOE left monetary policy unchanged at the last meeting in September. However, communication was hawkish and revealed that a majority within the MPC was prepared tog tighten policy at one of the upcoming meetings. With growth at 0.4% q/q in Q3, above the BOE forecast, and inflation above the BOE target a rate hike seems very likely at this meeting. We believe it is a one-off hike though, just to restore rates after the emergency cut in August 2016. Language may surprise on the soft side. Last meeting: In September the Bank of England MPC voted (7-2) to maintain the Bank Rate at 0.25%, the APF at 435bn and corporate bond purchases at 10bn. Two members (McCafferty and Saunders) argued for an immediate 25 bps rate hike as slack in the labour market would be absorbed faster than in the central projection. Overall several comments in minutes from the meeting sounded surprisingly hawkish and indicated that the BOE is prepared to hike rates at one of its upcoming meetings and potentially already this week. In particular the following line was noteworthy: A majority of MPC members judge that.some withdrawal of monetary stimulus is likely to be appropriate over the coming months in order to return inflation sustainably to target. Outlook for growth & inflation: The inflation (CPI) forecast was almost unchanged in August from the May report indicating that CPI will peak just below 3% at the end of this year before slowly moving lower. Inflation is expected to remain above the 2% target for the whole forecast period. The BOE revised the growth forecast lower compared to the May forecast. GDP growth is now expected to fall further in coming quarters before recovering towards 1.8% y/y by the end of next year. While the inflation forecast is likely to be retained we expect some upward revision of the near-term growth forecast. Market expectations: 85% of analysts expect the BOE to hike by 25 bps at the Nov 2 meeting. (Bloomberg). 15
Friday 3, 10.00 NOR: Registered unemployment (Oct) % SEB Cons. Prev. Registered jobless rate (unadjusted) 2.5 2.5 2.5 The unadjusted registered unemployment rate fell by 0.2%-point last month, correcting lower from a seasonal jump during summer. The seasonally adjusted jobless rate remained unchanged at 2.6%. The stable registered jobless rate (SA) has been in line with Norges Bank s expectations. In its September MPR, the central bank emphasised the importance of rising capacity utilization over the forecast horizon and we are, therefore, following developments in the labour market closely. The economic recovery, and particularly in the oildependent regions on the west coast, will support labour markets in the period ahead. We forecast both the unadjusted and the seasonally adjusted jobless rate to remain unchanged in October. Norges Bank also forecasts the seasonally adjusted rate to be stable at 2.6%.
Friday 3, 10.30 UK: PMI services (Oct) SEB Cons. Prev. PMI services 54.0 53.2 53.6 PMI services has been more or less in line with expectations in recent months and almost completely unchanged since May. Forward looking sub indices like "incoming new business" and "business expectations" have continued a little lower since summer. Being more exposed towards the domestic economy a weaker GBP may be less supportive for the services sector than for manufacturing. Weak household demand may continue to weigh on confidence in the service sector going forward To us upside risks dominate this time and we expect it to increase slightly to 54.0. Analysts estimates range from 52.0 to 54.5
Friday 3, 11.00 SWE: PMI Services (Oct) Index SEB Cons. Prev. PMI 61.0 63.8 After being weak during the summer PMI increased to its highest level since early 2011 in September. Service sentiment according to the NIER survey was, however, largely unchanged suggesting that parts of the strong reading is explained by short term volatility. NIER sentiment suggest growth in the service sector will be firm, but well below historical peaks. This is reflected in the trend for service production. Service production has, however, been very strong during the first two months of Q3, suggesting upside risks to Q3 GDP.
Friday 3, 11.15 NOR: Existing home prices (Oct) %, m/m / y/y SEB Cons. Prev. Seasonally adjusted --- --- -0.5/1.5 Existing home prices accelerated throughout last year, and the annual rate of nationwide house prices rose by 8.4%. While the rise was broad-based, it was primarily driven by rapidly growing prices in Oslo (peaked at +24% y/y in Feb 2017). Last month s decline was broad-based among all the largest six cities. In Oslo, prices contracted by 1.0% m/m, while the annual growth rate fell further to 0.9%. The current downturn is led by surging supply, while resilient turnover suggests demand is holding up. Increased supply of new homes in coming years will also weigh on prices. We expect home prices to fall for another 6-9 months, as homes for sale should remain at high levels, but do not see a big risk of a price collapse. While risks are skewed to the downside relative to Norges Bank s home price forecasts (October: 0.0% m/m, 0.62% y/y), a modest price decline in line with our projection should not lead to a significant impact on monetary policy.
Friday 3, 13.30 US: Nonfarm payrolls (Oct) In September, total payrolls growth was affected by the hurricanes and the outcome was a weaker than expected -33k, compared to consensus expectations of 80k and our 110k forecast. The Bloomberg consensus is suggesting a 310k reading for October total payrolls at the time of writing. We forecast that total employment growth rebounded sharply to 330k in October. Similarly to September, the forecast range is huge (130k to 400k). Unemployment decreased to 4.2% in September where we forecast it remained in October. We forecast the level to continue its downward trend going forward, however. The broader underemployment rate, U6, fell to 8.3% in September and the participation rate rose to 63.1%. Only little slack remains in the labour market. For the Fed, wage growth is more important than employment. Average wages rose by 0.5% m/m in September pushing annual earnings growth to 2.9% but this will be reversed as low-paid workers return in October. A monthly gain of 0.3% would result in y/y earnings at 2.8%. We expect continuing labor market tightening to result in accelerating wage growth rather than employment gains. SEB Cons. Prev. Total 330k 310k -33k Private -- 285k -40k Manufacturing -- 18k -1k Unemp. rate 4.2% 4.2% 4.2% Hourly %m/m 0.3% 0.2% 0.5% Hourly %y/y 2.8% 2.7% 2.9% Change househ. employment Avg. weekly hours Participation rate -- -- 906k -- -- 34.4 -- 34.4 63.1%
Friday 3, 15.00 US: ISM non-manufacturing (Oct) SEB Cons. Prev. Total 58.6 58.5 59.8 The ISM non-manufacturing index surged in September and reached the highest level since August 2005. However, one explanation for the increase was a sharp increase in delivery times caused by the hurricanes and this effcect will be reversed. Nonetheless, other components such as business activity, employment and the forward-looking new orders component also contributed to the rise in September. Our forecasting model suggests a slight decrease in the index. Those of the Fed s regional service sector surveys for October which have already been released provide mixed evidence on activity. We forecast the ISM non-manufacturing index to decrease to 58.6 in October.
European Sovereign Rating Reviews Upcoming rating reviews Friday, 27 Oct 2017 Agency Rating / Outlook last change Change? EFSF S&P AA / Stable 10/25/2016 no Finland Moody's Aa1 / Stable 03/06/2016 no Germany S&P AAAu / Stable 01/13/2012 no Italy S&P BBB- u /Stable 12/05/2014 no Latvia Fitch A- / Stable 06/20/2014 no Netherlands Moody's Aaa / Stable 03/07/2014 no Netherlands Fitch AAA / Stable 07/11/2014 no UK S&P AA u / Negative 06/27/2016 no UK Fitch AA / Negative 06/27/2016 no 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 Source: Bloomberg