Editor: Felix Ewert The Week Ahead Key Events 16 22 Oct, 2017
Tuesday 17, 11.00 ZEW Survey (Oct), Germany and EMU Germany SEB Cons. Previous Current Situation 89.5 88.5 87.9 Growth expectations 20.0 20.0 17.0 EZ Growth expectations 36.0 --- 31.7 The ifo index in Sept dropped for a second month below its July record high, contradicting (stronger) ZEW survey expectations once again. German Sept PMIs posted significant improvements. German Aug industry orders dropped, production rose more than expected vs. July. The margin of positive EZ macro data surprises improved in Sep/Oct(c.f. lower chart) EUR-USD came off its Sept highs, easing ECB concerns. German equities (Dax30) rose to new all-time highs. The margin of US data surprises turned positive in (c.f. lower chart). The all-important labour market report (wage growth) surprised to the upside Geopolitical risk (US vs. N.-Korea, Iran) increased
Tuesday 17, 15.15 US: Industrial production, capacity utilization (Sep) %mom SEB Cons. Prev. Industrial production -0.1 0.3-0.9 Capacity utilization 75.9 76.2 76.1 Manufacturing prod. -0.2 0.1-0.3 Industrial production surprised by declining 0.9% m/m in August, compared to expectations for a 0.1% increase. However, July was revised from 0.2% to 0.4%. Manufacturing production decreased by 0.3%. Capacity utilization fell to 76.1%. Most of the August weakness can be attributed to Harvey, about 0.75 percentage points according to the Fed. Milder temperatures diminished demand for utilities. The hurricanes have also impacted the September data negatively. However, the ISM production sub-index continued to rise in September, suggesting manufacturing output will rebound. Our forecast is that industrial production fell by 0.1% m/m in September and that production in the manufacturing sector decreased by 0.2% m/m. Going forward, the manufacturing sector will be supported by the weaker dollar and the large number of vehicles destroyed by the hurricanes.
Wednesday 18, 10.30 UK: Average weekly earnings (Aug) Average weekly earnings 3M/YoY Weekly earnings (ex bonuses, 3M/YoY) SEB Cons Prev --- 2.1% 2.1% --- 2.0% 2.1% Wage growth 3m/yoy has been stable at 2.1% during the last two months. However, as strong release in May is the main reason and growth has been slower in recent months. Despite low unemployment, which historically has supported stronger wage growth, wages continue to rise very modestly. It appears the improvement in May was perhaps just temporary and that wage growth doesn t react to tighter conditions in the labour market. The BOE has suggested that one reason for weak wage growth could be subdued productivity growth and productivity has not improved lately. Moreover, low wage growth could be related to uncertainty from the Brexit process.
Wednesday 18, 10.30 UK: Unemployment/Employment (Aug) Cons Prev ILO Unempl. rate 4.3% 4.3% Employment change (3m/3m) 150k 181k Unemployment: Employment growth has improved in recent months lowering the unemployment rate to 4.3%, which is the lowest since the beginning of the 70 s. Job creation. Employment growth started to improve in March after being weak in the beginning of the year. Just as in May it was very strong in July. The employment component according to the composite PMI improved in August as well, which suggest that employment growth probably remained firm in August. However, correlation between employment according to surveys and actual employment growth have been weak historically.
Wednesday 18, 14.30 US: Housing Starts, Building Permits (Sep) SEB Cons. Prev. Housing starts 1160k 1180k 1180k m/m% -1.7% 0.0% -0.8% Building permits 1230k 1230k 1272k m/m% -3.3% -2.9% 3.4% Housing starts decreased in August and have been trending downward in 2017 after reaching a 10-year high in October last year. Forward-looking building permits rose by 3.4%. Hurricane Harvey likely impaired construction activity in August and the impact will probably be larger for the September data. Rebuilding efforts should support housing starts in the fourth quarter, however. Labour market tightening and low mortgage rates still support demand for housing. The NAHB housing market index has trended downward in 2017 but is still at a high level. We forecast that housing starts decreased to 1160k in September.
Wednesday 18, 20.00 US: Fed Beige Book The previous Beige Book (released September 6) was based on information collected on or before August 28, implying that most of it was collected before hurricane Harvey. However, some Districts received preliminary information regarding the impact of Harvey and this was compiled in a special paragraph. Economic activity expanded at a modest to moderate pace across all 12 Federal Reserve Districts. Employment growth slowed a bit but labour markets were still widely characterized as tight. The majority of Districts reported limited wage pressure. Prices rose modestly across the country. Harvey caused broad disruptions to activity in the Dallas and Atlanta Districts. Many firms closed due to flooding and there was a substantial negative impact on the production of oil and natural gas. The October version of the Beige Book will be all about the impact of the hurricanes. We already know that economic data have been distorted by the hurricanes. The September employment report showed a sharp negative effect on total gains but an acceleration in wage growth that to some extent was caused by a 105,000 decline in low paid restaurant jobs. The most interesting aspect of the Beige Book will therefore be any indications of to what extent the surprisingly strong wage growth in September was a hurricane effect. The Fed is hoping that a tighter labour market eventually will result in higher inflation through rising wage pressure, implying that the central bank will be focusing on information on wages and prices.
Thursday 19, 09.30 SWE: Unemployment (Sep) % SEB Cons. Prev. Seas. adj. 6.5 6.6 6.6 Actual 5.9 6.0 6.0 Employment 1000s/% yoy 121/2.5 --- 148/3.0 Employment indicators have continued to strengthen with employment plans in the business sector falling back only marginally after a strong increase during the summer. Actual employment is also gaining momentum with the y/y change in August increasing to 3.0% y/y, the highest rate since early 2011. The strong reading supports our above consensus forecast for employment, although it is partly explained by a weak comparison month in 2016. The underlying trend for unemployment is difficult to assess, but the high reading in July was almost completely reversed in August. We think that unemployment is trending lower and signs of renewed downward pressure on registered unemployment according to the Unemployment offices over the last 2 months provides more support for this conclusion.
Thursday 19, 10.30 UK: Retail sales (Sep) % mom/yoy Cons. Prev. Ex Auto Fuel -0.4/2.1 1.0/2.8 With Auto Fuel -0.2/2.0 1.0/2.4 Monthly volatility in retail sales is substantial. Since Dec. last year retail sales has slowed and a recovery in Feb turned out to be short-lived. In July the outcome was better than expected and since then growth has been stronger. Consumer confidence has not been able to match the strong business sentiment in recent months. It may indicate that households are concerned for Brexit consequences or feel the impact of rising inflation. Considering the strength of the labour market (unemployment rate fell to 4.3% in Jul) household spending and retail sales should improve. That being said, wage growth is still muted and savings are low which limits spending.
Friday 20, 08.00 NOR: Business Tendency Survey (Q3) Net balance SEB Cons. Prev. Manufacturing sentiment SA 4.5 --- 3.8 The quarterly manufacturing sentiment rose further in Q2, building on the Q1 increase. Sentiment has been depressed since oil prices started falling in 2014, but it is now back at normal levels. The recovery seen in 2017 is primarily driven by a less pessimistic outlook for the petroleum-focused capital goods sector, as industrial output is recovering from the effects of the oil-price slump. Survey responses in Q2 indicate that new orders and production expectations should rise well above the 50- mark in Q3. Although manufacturing PMI has fallen over the previous two months, PMI rose marginally on the quarter relative to Q2. We forecast a modest increase in the quarterly manufacturing sentiment index. Sentiment is supported by solid external demand.
Friday 20, 16.00 US: Existing home sales (Sep) SEB Cons. Prev. Existing home sales 5.25M 5.30M 5.35M m/m% -1.9% -0.9% -1.7% Existing home sales disappointed again in August and fell to a one-year low. Hurricane Harvey depressed sales in August. In Houston sales fell 25% y/y, enough to affect nationwide sales. However, the number of sales has declined for three consecutive months as home price growth has exceed wage gains, pushing down housing affordability. The NAHB housing market index has trended downward in 2017 but is still at a high level suggesting that housing market momentum continues. Pending home sales rose slightly in August. Sales in September were also affected by the hurricanes and we forecast that existing home sales decreased to 5.25M. Housing data will probably be volatile for several months although the destruction caused by the hurricanes should eventually support demand.