Editor: Felix Ewert The Week Ahead Key Events 12 18 Mar 2018
Monday 12, 08.00 SWE: Unemployment, registered (Feb) SEB Cons. Prev. Open 3.9 --- 4.0 Open, seas. adj. 3.8 --- 3.8 Total seas. adj. 7.1 --- 7.2 Registered unemployment (incl. labour market measures) is starting to decline very gradually again after having been stable during the first half of this year. Weekly unemployment numbers imply that the decline continued in February. Unemployment is trending lower both according to the Unemployment offices statistics and the more important measure from SCB. We predict unemployment to continue to decline in the first half of this year, but there are also signs that employment indicators are easing suggesting that the currently very strong labour market is cooling.
Monday 12, 08.00 DEN: CPI (Feb) % mom/yoy SEB Cons. Prev. CPI 0.8/0.7 0.7/0.6-0.3/0.7 CPI is expected to be stable in February as lower inflation on food and energy are expected to be offset by slightly higher core inflation. Danish core inflation has been volatile over the last 2 years with large swings in especially service prices. The swings makes the underlying trend difficult to assess and it is highly uncertain to what extent the strong upturn for services prices last summer will be repeated this year. Still, there is strong reason to believe that underlying prices pressures will continue to be subdued. Wage inflation reached a trough in early 2014, but the upturn has been very gradual with the wage rate in 2017 continuing to be far below the historical average. Also a strong exchange rate is exerting downward pressure on goods prices which have been falling persistently over the last two years. We predict core inflation to trend sideways this year and increase slightly in 2019. Downside risks dominate.
Tuesday 13, 14.30 US: CPI (Feb) % mom/yoy SEB Cons. Prev. Headline 0.1/2.2 0.2/2.2 0.5/2.1 Core 0.2/1.8 0.2/1.8 0.3/1.8 After being lower than expected most of last year core inflation recovered at the end of last year and was very strong in January this year. The increase for core CPI in January was the strongest since 2006 according to the current seasonally adjusted time series, but since revised seasonal components are presented every year similar outliers according to the first estimates presented in recent years have been revised. Apart from a strong upturn in rents, inflation pressures remain subdued. Wage inflation seems to be picking up but the rate is still moderate and compared to historical upturns in inflation international prices are still relatively subdued. The year-on-year change will rise during the spring due to base effects from declining prices for telecom services last spring. The recent decline in the oil prices means that the upturn in headline inflation will be smaller than implied by earlier forecasts.
Wednesday 14, 09.00 SWE: Home prices, Valueguard (Feb) % mom/yoy SEB Cons. Prev. HOX 0.7/-2.7 --- 3.4/-2.2 Home prices according to Valueguard recovered more than expected in January, but prices are still down by 6% since the peak in August last year. Parts of the both the decline in the second half of last year and the recovery in January are explained by seasonality. However, seasonally adjusted prices in January were also 6% lower than in August. Average prices according to websites imply that prices continued to improve slightly in February, but this is explained by seasonality and seasonally adjusted prices are expected to have been largely unchanged. SCB house prices (which do not include apartments) remained high in February. The lag by approximately 3-4 months for SCB statistics is starting to look stretched and the probability that the decline for Valueguard prices exaggerate the underlying weakness has 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 February. Indicators for home prices (like SEB house price indicator) suggest largely stable prices in the near term. Speculative purchases of newly built flats, most notably in the center of Stockholm, indicate that prices on flats will continue to decline in the first half of this year.
Wednesday 14, 09.30 SWE: CPI (Feb) % mom/yoy SEB Cons. Riksbank Prev. Headline 0.7/1.6 0.7/1.6 1.7-0.8/1.6 CPIF 0.7/1.7 0.7/1.7 1.9-0.9/1.7 CPIF ex. energy 1.5 --- 1.7 1.5 The inflation rate is expected to remain stable in February with the spread to the Riksbank s forecast expected to remain unchanged. CPIF ex energy slowed to 1.5% y/y in January, 0.25%-points below the Riksbank s estimate. Temporarily low travel prices (both domestic and international) are likely to be reversed going forward and the recent weakening of the Krona is predicted to gradually exert upward pressure on inflation in 2018. Service inflation has declined significantly in the last 3-4 months and base effects from bank services and to some extent health care are predicted to lower service inflation further in Q2. Also food inflation is expected to continue to ease after a larger than expected decline in January. Energy prices are expected to exert upward pressure on inflation most of this year and the forecast for electricity prices has been revised higher in February and March. Our forecast for headline CPIF is close to the Riksbank s estimate. There is still some uncertainty about the underlying trend for service inflation and we have revised our forecast slightly higher due to the recent krona weakness. Still, the lower than expected January reading increases the probability that CPIF ex energy will undershoot the Riksbanks forecast.
Wednesday 14, 11.00 EMU: Industrial production (Jan) Industrial production SEB Cons. Prev. SA mom 0.0-0.4 0.4 WDA yoy 4.9 4.7 5.2 Indicators have taken a step back in the last two months but are still at a high level and in line with historical peaks. It is clear that the synchronised global recovery is increasingly benefitting also the manufacturing sector. Rising construction and investment will give a boost to the industrial sector looking ahead. Companies are increasingly happy with their order books and industrial production rose at the highest y/y pace in almost 6 years in Dec-17. Data published so far for Dec is a bit mixed but indicate that the y/y-rate slowed somewhat.
Wednesday 14, 13.30 US: Retail Sales (Feb, a) SEB Cons. Prev. Advance 0.4 0.3-0.3 Less autos 0.5 0.3 0.0 Ex auto & gas 0.5 0.3-0.2 Retail control group 0.6 0.4 0.0 Headline retail sales unexpectedly declined 0.3% m/m in January. December was revised lower. The decrease in January was broad based and likely caused by adverse weather at the start of the month. There was a marked 1.3% drop in auto sales but receipts at gasoline stations rose, reflecting higher fuel costs. Control group sales, used to calculate GDP, also disappointed and were unchanged in January following a 0.2% decrease in December. All-in-all, retail sales were a disappointment in January and indicates that real consumption growth is set to slow down in Q1 compared to Q4. However, going forward, retail sales will be supported by low unemployment, consumer optimism and the recently-enacted tax cuts. Auto sales fell slightly in February compared to January and will not contribute to headline sales. Gasoline prices declined a bit in February and will weigh on station sales. Our forecast is that headline retail sales rose 0.4% and control group sales rose by 0.6% in February.
Thursday 15, 08.00 SWE: Prospera inflation expectations (Mar) All (Money market) SEB Prev. 1y CPIF 1.8 (1.8) 1.9 (1.9) 2y CPIF 1.8 (1.9) 1.9 (1.9) 5y CPIF 2.0 (1.8) 2.0 (1.9) March is the broader quarterly survey including also labour market organisations and purchasing managers. After trending higher since early 2015 inflation expectations levelled out in the second half of last year and are even showing signs of declining slightly. Still, all expectations are close to the Riksbank s target. Over recent months actual inflation has eased and surprised slightly on the downside. Also break-even inflation rates have eased slightly and we predict inflation expectations to edge lower. Prospera shifted the main focus from headline CPI to CPIF at the end of 2017. Although expectations are affected only marginally, very low respondent rates for CPIF is a potential problem for the Riksbank. The problem is larger in the broader quarterly survey, with very low respondents rates for purchasing managers and labour market organizations. Our forecast is for CPIF, but the chart shows CPI expectations since the time series for CPIF are very short.
Thursday 15, 09.30 SWE: Unemployment (Feb) % SEB Cons. Prev. Seas. adj. 6.4 --- 6.5 Actual 6.8 --- 7.0 Empl. 1000s/% yoy 83/1.7 --- 86/1.7 Unemployment seems to be declining faster after declining very gradually since last summer. We predict the unemployment rate to continue to decline towards 6% in the middle of this year. The Riksbank predicts unemployment to stabilize at current levels. Unemployment according to the Unemployment office s measure, which is less important but also less volatile has started to decline slightly faster. There are, however, signs that the very strong labour market is cooling, with a marked decline for employment plans in the business sector according to the business survey from February. Less upbeat employment plans in the construction sector was the main driver. Employment plans continue to imply firm employment growth, but the drop supports our view that declining construction activity will weigh on growth going forward.
Thursday 15, 10.00 NOR: Norges Bank rate decision, MPR 1/18 Per cent SEB Cons. Prev. Key rate 0.50 0.50 0.50 Norges Bank made a hawkish confession in December by opening for a rate hike in 2018. Since then, developments have been mixed and again point to stronger growth and lower inflation. We believe the bank will stick to its growth-oriented strategy focusing on the faster-than-expected rise in capacity utilization since the Dec MPR. This implies that the output gap may close already this year. The lowering of the inflation target to 2.0% should not in itself affect the policy outlook much since the bank has used a lot of flexibility earlier to overlook subdued inflation. The current rate path is thus now better aligned with the inflation trajectory. We expect the bank to signal with a 100% certainty that a rate hike will occur in 2018 and we are tilted toward a September liftoff. Hence, we expect the bank to lift the short-end of the rate path slightly, to signal a first hike in September as the most likely outcome (60% September, 40% December).
Friday 16, 14.15 US: Industrial production, capacity util. (Feb) SEB Cons. Prev. Industrial production 0.4 0.3-0.1 Cap. utilization 77.9 77.7 77.5 Manufacturing production 0.3 0.3 0.0 Total industrial production eased 0.1% in January. Production was weighed down by a 1.0% decline in mining output but utilities output rose 0.6% after surging in the prior month due to unseasonably cold temperatures. Manufacturing production was unchanged in January for a second month. However, manufacturing rose at a healthy pace in Q4 and strong global growth and dollar weakening means that prospects remain bright. The decline in headline production resulted in the capacity utilisation easing slightly to 77.5%. This is below the 80% rate associated with a marked rise in capital spending. Other data indicates that manufacturing remains on solid ground. The ISM manufacturing index rose in February and reached the highest level since 2004. We forecast that industrial production increased by 0.4% and that manufacturing production rose by 0.3% m/m in February.
Friday 16, 15.00 US: U. of Michigan consumer conf. (Mar, P) SEB Cons. Prev. Preliminary 99.1 99.5 99.7 The Michigan consumer confidence index rose sharply in February, putting an end to three consecutive months of decline. Both the current conditions and expectations indices improved. The recently enacted tax cuts have likely contributed to improving sentiment while consumers appear to have brushed off stock market volatility. The rise pushed the Michigan index close to the highest level since 2004 and at face value the index is consistent with real consumption growth of around 5% annualised. Inflation expectations were unchanged in February. Households 12-month ahead expectations remained at 2.7% for the third consecutive month. Expected inflation in five years time was 2.5%. Fed worries about inflation expectations are fading. A tightening labour market and low gasoline prices continue to support consumer confidence. However, rising borrowing costs may affect sentiment going forward as the 30-year fixed mortgage rate has risen to the highest level since 2014. The Conference Board consumer confidence rose sharply in February but correlation to the Michigan index has weakened. We expect that the Michigan index remained close to the level in February and forecast 99.1.
European Sovereign Rating Reviews Recent rating reviews Friday, 02 March 2018 Agency previous new action Lithuania S&P A- / Positive A / Stable upgrade 1 notch Upcoming rating reviews Friday, 09 March 2018 Agency Rating / Outlook last change Change? Hungary Fitch BBB- / Positive 11/10/2017 no Luxembourg DBRS AAA / Stable 12/16/2016 no Slovakia Moody's A2 / Positive 04/07/2017 no Friday, 16 March 2018 Agency Rating / Outlook last change Change? Austria S&P AA+ / Stable 01/29/2013 no Cyprus S&P BB+ / Positive 09/15/2017 no Denmark S&P Aaa / Stable 09/26/2007 no Finland S&P AA+ / Stable 09/16/2016 no France DBRS AAA / Stable 04/29/2016 no Italy Moody's Baa2 / Negative 12/07/2016 no Italy Fitch BBB / Stable 04/21/2017 no Luxembourg S&P Aaa / Stable 01/14/2013 no Portugal S&P BBB- u / Stable 09/15/2017 no Source: Bloomberg