The Week Ahead Key Events 16 22 Apr, 2018
Monday 16, 08.00/13.00 Sweden: Government spring budget Government finances in surplus for the last 3 years, debt falling. Central government debt at the lowest level since the late 1970ies, below 30% of GDP (General government debt approximately 10pp higher). Continuous positive fiscal surprises in the last years as growth has been driven by hightaxed areas such as construction and consumption. Also, rising property and equity prices have pushed up capital gains tax at the same time as employment has increased at a fast pace. As growth edges down and industry/exports become more of a driving factor, tax revenue growth will also be at a slower pace. Revised fiscal policy rule from 2019: 1/3% of GDP government surplus over the cycle and a debt anchor at 35% of GDP. As debt is heading towards the anchor the issue of what to adjust might up for discussion earlier than expected. KRONA-FOR-KRONA REPLACED BY LATE CYCLE SPENDING SPREE Strong business cycle and government finances in good shape has created room for an expansionary election budget The krona-for-krona principle has been replaced by a late cycle spending spree. Fiscal policy was largely neutral in 2015-2017, turned expansionary in 2018. Like Trumps US tax cuts, timing is not optimal. Fiscal stance will be an issue in the election campaign but still difficult to criticise government as the Riksbank continues with expansionary policy We expect a spring budget with only minor new proposals. Normally the Spring Budget is the starting point for the budget preparations for the next year where the government presents major areas of reform, with details to come in the autumn Budget Bill. As we are in an election year, the government will not show its full hands. Parties election programmes are usually presented in pieces during summer/early autumn. 2
Monday 16, 09.00 SWE: Home prices, Valueguard (Mar) % mom/yoy SEB Cons. Prev. HOX -0.2/-4.6 --- -0.4/-3.7 After declining markedly home prices have stabilised in the beginning of this year with the HOX index being 6-7% lower than the peak from August last year in Jan/Feb. Prices are predicted to have declined marginally in March, although the drop is slightly larger adjusted for seasonality (-0.5%). SEB housing price indicator has improved 3 months in a row and the level indicates stable or even slightly increasing prices during the spring. According to websites, prices have been largely stable in the first half of April. SCB house prices (which do not include apartments) remained high in March. The lag by approximately 3-4 months for SCB statistics is starting to look even more stretched and the probability that the decline for Valueguard prices exaggerate the underlying weakness have increased. House prices were significantly stronger than implied by websites in January (while flats were in line with expectations) and the continued strong SCB prices are an upside risk for house prices in March.. 3
Monday 16, 14.30 US: Retail Sales (Mar, a) % mom SEB Cons. Prev. Advance 0.5 0.4-0.1 Less autos 0.4 0.2 0.2 Ex auto & gas 0.5 0.4 0.3 Retail control group 0.4 0.3 0.1 Headline retail sales disappointed in February and declined 0.1% m/m. Sales in most retail sectors cooled, including gasoline stations and motor vehicle dealers. Auto sales fell for the second consecutive month. January retail sales were revised from -0.3% m/m to -0.1%, however. Underlying sales were also subdued in February. Control group sales, used to calculate GDP, disappointed and rose a below-forecast 0.1%. All-in-all, retail sales continued to disappoint in February, providing further evidence that real consumption growth is set to slow down in Q1. One explanation for the weak retail sales is delayed payment of some personal tax refunds. However, going forward, retail sales and consumption should be supported by low unemployment, consumer optimism and tax cuts. Auto sales rose in March and will contribute to headline sales. Gasoline prices were little changed in March, suggesting flat station sales. Our forecast is that headline retail sales rose 0.5% and control group sales rose by 0.4% in March. 4
Monday 16, 16.00 US: Housing Market Index, NAHB (Apr) SEB Cons. Prev. NAHB s HMI 70 70 70 The NAHB housing market index fell slightly to 70 in March but remains above historical averages. Consumer demand for housing continues to grow but builders are facing bottleneck problems that limit their ability to meet the increase in demand. This demand-supply imbalance will continue to push housing prices higher. Housing starts and building permits fell in March but continue to trend higher. However, a meaningful pickup in 2018 will be limited by a lack of construction workers and new tax legislation that has curbed deductions for mortgage interest and property taxes. Existing and new home sales have also trended higher but the destruction caused by the storms during the autumn has resulted in volatility in the data. Our forecast is that the Housing Market Index remained close to the level in March. 5
Tuesday 17, 10.30 UK: Average weekly earnings (Feb) % 3M/YoY SEB Cons Prev Average weekly earnings --- 3.0 2.8 Weekly earnings ex. Bonuses 2.8 2.8 2.6 Wage growth (3m/yoy) continued to accelerate in Jan. to 2.8%, which was above the average forecast. Despite low unemployment, historically tied to stronger wage growth, wages have increased modestly in recent years. However in the last few months wage growth has accelerated to the fastest pace since 2015. It has seen as if wage growth doesn t react on tighter labour market conditions, but perhaps this is about to change now. BOE has argued there are tentative signs of an upward pressure in wage growth, which is one reason why they intend to hike rates at the May meeting. Analyst estimates range from 2.7-2.8%. 6
Tuesday 17, 10.30 UK: Unemployment/Employment (Feb) Cons. Prev ILO Unempl. rate 4.3% 4.3% Employment change (3m/3m) 55k 168k Unemployment: Strong employment growth has lowered the unemployment rate to 4.3% after a temporary increase to 4.4% in December. Further job gains are likely to maintain unemployment at this level in Feb. Job creation. After a disappointing outcome in December job growth accelerated to 168k in Jan. However, the employment components in services and manufacturing PMIs turned around again in Feb. after increasing in December. It suggests we perhaps should expect slower employment growth this month. Analyst expectations on employment range from 80k to 250k. 7
Tuesday 17, 11.00 GER & EMU: ZEW Survey (Apr) Germany SEB Cons. Previous Current Situation 86.0 88.0 90.7 Growth expectations 0.0-1.0 5.1 EZ Current Situation 51.0 --- 56.2 Growth expectations 1.0 --- 13.4 The ZEW survey is the first of German and EZ sentiment indicators to be published for April - well ahead of the ifo (Apr 24) and PMI data (Apr 23) German hard data were mixed. While Feb factory orders rose, both industrial production and retail sales dropped vs. Jan levels; EZ industrial output posted its third consecutive drop (-0.8% m/m) the margin of EZ data surprises dropped further into negative territory in Mar/Apr to a 6y low. US macro data continued to surprise positively EUR-USD continued sideways in its 1.22-1.25 range. Market volatility eased further after its Feb spike. European stocks recovered a bit more lost ground but remain ~6% below their Jan 23 high geopolitical risk (Syria) and fears of disruptive US trade policies rose 8
Tuesday 17, 15.15 US: Industrial production, cap. util. (Mar) SEB Cons. Prev. Industrial production (% mom) 0.4 0.3 0.9 Capacity utilization 78.2% 77.9% 77.7% Manufacturing prod. (% mom) 0.2 0.1 1.2 Total industrial production rebounded solidly in February, increasing 0.9% compared to January and beating consensus expectations. The solid increase was actually even more impressive when considering it included a weather-related plunge in utility output. Manufacturing output rose 1.2% in February as motor vehicle production increased by close to 4%. The strong outcome fits with the high level of the ISM manufacturing index and prospects remain bright driven by strong global growth and dollar weakening. The healthy increase in headline production resulted in the capacity utilisation rising from 77.0% to 77.7%. This is the highest level since April 2015 but still some way below the 80% rate associated with a marked rise in capital spending. We forecast that industrial production increased by 0.4% and that manufacturing production rose by 0.2% m/m in March. 9
Wednesday 18, 10.30 UK: CPI (Mar) % mom/yoy SEB Cons. Prev. Headline 0.4/2.7 0.3/2.7 0.4/2.7 Core --/2.5 --/2.5 --/2.4 RPI 0.4/3.6 0.3/3.5 0.8/3.6 Core CPI has been stable since the beginning of last year but is now showing increasingly strong signs of declining. Base effects from exchange rate driven price hikes on goods last year will be strong during the next 2-3 months and we predict that core inflation will ease. We forecast core that inflation will decline below the BoE target towards the end of this year, although risks are skewed towards a slightly more gradual decline due to delayed impact from earlier exchange rate weakness. Wage inflation has accelerated slightly, but it is too soon to judge if the sideway trend from the last 2-3 years has been broken. Food inflation is currently elevated driven by high commodity prices and earlier exchange rate weakness. Food inflation is predicted to ease gradually in 2018. 10
Wednesday 18, 16.00 Canada: BOC Rate Decision (Apr) SEB Cons. Prev. Policy rate 1.25% 1.25% 1.25% The BOC began the year with another hike to 1.25% as demand was proving far more robust than it had projected while labour market slack was being absorbed more rapidly than anticipated. Uncertainty related to ongoing Nafta negotiations is probably the key reason why it is wise to leave rates unchanged for the time being. The output gap is probably closed and the labour market is tight and indeed wage growth has accelerated to around 3%, which could feed into higher inflation rate going forward and suggest more hikes to come. The housing market is still creating some uncertainty as prices of homes in several regions have begun to correct lower, a development that might adversely affect household demand if it continues. This time the bank will stay on hold just as it did in March We believe in 3 more rate hikes this year to 2.0% by year-end, but the BOC will remain on hold until the July meeting. 3 out of 16 analysts expect a 25bps hike at the April meeting. Key sentence in March statement: While the economic outlook is expected to warrant higher interest rates over time, some continued monetary policy accommodation will likely be needed to keep the economy operating close to potential and inflation on target. 11
monthly change, EUR bn (nsa) monthly change, EUR bn Thursday 19, 10.00 EMU: Current account (Feb) % mom/yoy SEB Cons. Prev. 40 EZ & German current account (nsa) r = 0.71 40 Current account, nsa ( bn) 23.0 --- 12.8 Current account, sa ( bn) 27.0 --- 37.6 On Apr 9 Germany reported its Feb current account surplus (nsa) at 20.7bn - almost unchanged vs. Jan ( 20.3.8n). Germany in 2017 delivered 66% of the EZ annual trade surplus. Monthly changes of GER and EZ current account balances are highly correlated (r=0.71). 20 0-20 -40 20 0-20 -40 monthly change, EUR bn France on April 6 reported its current account balance (sa) at -2.0bn, unchanged vs. Jan -60 2014 2015 2016 2017-60 on Apr 13, Eurostat reported a trade surplus of 18.9bn (nsa) for the Eurozone in Jan, up 15.4bn vs. Dec ( 3.3bn). The correlation with monthly changes of the EZ current account balance is 0.82 seasonality for the EZ current account is positive in Feb - the 5y average monthly change is + 10bn 40 20 0-20 -40 EZ, lhs Germany, rhs EZ c/acc: driven by trade balance 40 20 0-20 -40 monthly change, EUR bn (nsa) 12 r = 0.82-60 2014 2015 2016 2017 2018 EZ current acc., lhs EZ trade bal., rhs -60
Thursday 19, 10.30 UK: Retail sales (Mar) % mm/yy Cons. Prev. Ex Auto Fuel -0.5/1.4 0.6/1.1 With Auto Fuel -0.5/1.9 0.8/1.5 Since Dec. last year growth in retail sales has slowed and it was a lot weaker than expected in January, but then recovered more than anticipated in February. Consumer confidence has not been able to match the strong business sentiment but in recent months there are signs of a recovery. The strong labour market (unemployment rate at 4.3%) and accelerating wage growth should support retail sales. Still record low household savings rate make it difficult for households to spend money on consumer goods. Analyst forecast range from -0.7% to 0.2%, which is a wider range than normally After a couple of months with weaker outcomes it is time for pick up in March. Otherwise weakness could reflect an ongoing change in household behaviour. 13
Friday 20, 08.00 NOR: Business Tendency Survey (Q4) Net balance SEB Cons. Prev. Manufacturing sentiment (S.A.) 7.5 7.1 6.4 The quarterly manufacturing sentiment (Business Tendency Survey) increased in Q4, following a slight decline in Q3. Following a period with depressed sentiment as a result of the petroleum decline, the indicator has risen above its average level. Optimism among Norwegian manufacturers is driven by rebounding sentiment in the oil-focused capital goods sector. Moreover, stronger external demand and a weak NOK have boosted sentiment in the export-orientated intermediate goods sector. Although global PMIs recently have come down slightly, the average level of manufacturing PMI in Norway increased in Q1 relative to the Q4 level. Moreover, we think that the recovery in the petroleum industry should continue supporting sentiment in the capital goods sector. US-China trade tensions represent a downside risk to the optimistic outlook. We forecast the BTS indicator to rise to 7.5. The indicator continues to signal that actual output should increase in the period ahead. 14
Friday 20 European Sovereign Rating Reviews Recent rating reviews Upcoming rating reviews Friday, 13 April 2018 Agency Rating / Outlook last change Change? Ireland Moody's A2 / Stable 06/05/2015 no Luxembourg Fitch AAA / Stable 05/02/2008 no Poland S&P A- / Stable 12/02/2016 outlook to Positive? Slovakia DBRS AH / Stable 04/22/2016 no Spain Moody's Baa2 / Stable 02/19/2016 rating upgrade 1 notch? USA Moody's Aaa / Stable 07/18/2013 no Friday, 20 April 2018 Agency Rating / Outlook last change Change? Cyprus Fitch BB / Positive 10/20/2017 rating upgrade 1 notch? Source: Bloomberg