Editor: Thomas Nilsson The Week Ahead Key Events 31 Jul 6 Aug, 2017
European Sovereign Rating Reviews Recent rating reviews Friday, 21 July 2017 Agency previous new action Greece S&P B- / Stable B- / Positive outlook raised Upcoming rating reviews Friday, 28 July 2017 Agency Rating / Outlook last change Change? Austria Fitch AA- / Stable 08/24/2011 no Cyprus Moody's Aaa / Stable 05/24/2006 no Slovakia S&P AAA / Stable 12/18/2007 no Friday, 04 Aug 2017 EFSF DBRS Aaa / Stable 05/24/2006 no ESM DBRS AAA / Stable 12/18/2007 no Slovakia Fitch AAA / Stable 06/16/2011 no Sweden Fitch B- / Stable 01/22/2016 no Sweden Moody's B- / Stable 01/22/2016 no Source: Bloomberg
Monday 31, 10.00 NOR: Norges Bank daily FX purchases (Aug) SEB Cons. Prev. Daily FX purchases (NOK mn) -850 --- -850 In March NB unexpectedly decided to reduce daily purchases to NOK 850mn from 1bn in Feb. The revised budget revealed why: The government expected higher petroleum tax revenues (paid in NOK) than originally projected, while gov. spending will be slightly lower. Essentially NB tends to hold purchases as stable as possible over time, which suggests that daily purchases will be NOK 850mn for the reminder of this year. Then total purchases this year would amount to NOK 215bn. 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.
Monday 31, 11.00 EMU: Unemployment (Jun) % SEB Cons. Prev. Unemployment rate 9.2 9.2 9.3 The positive trend with rising employment and falling unemployment continues. In April, the jobless rate reached its lowest level since March 2009. Unemployment has for the last years fallen by 0.1pp every 1-2 months strong sentiment indicators and employment plans point to a continuing decline of unemployment in line with recent history despite unemployment falling since May 2013 the level is still above NAIRU (8.8%). So far, wage pressure remains limited - even in countries where unemployment is at historically low levels (e.g. Germany). Insofar as this is a structural phenomenon it creates a dilemma for monetary policy.
Monday 31, 11.00 EMU: HICP, flash (Jul) %, yoy SEB Cons. Prev. Headline 1.3 1.3 1.3 Core 1.1 1.1 1.1 The inflation rate is predicted to continue to be stable in July, after trending lower since February this year mainly due to base affects and new price declines on energy. Food prices will partly offset the downward pressure. Core inflation is still slightly elevated compared to the underlying trend, due to slightly elevated prices on travels. Travel prices continued to be high in July in Germany. Underlying prices pressures continue to be very subdued and we predict an only marginal upturn for core inflation in 2018 driven mainly by higher international prices. The inflation rate in Germany, Spain and France was largely stable according to preliminary estimates.
Tuesday 1, 08.30 SWE: PMI manufacturing (Jul) Index SEB Cons. Prev. PMI 62.0 61.6 62.4 Manufacturing PMI has declined slightly from a peak in March. Slightly lower German PMI is expected to be reflected in Sweden this month. Confidence in manufacturing according to the NIER tendency survey increased in July, but the current condition sentiment, which resembles the questions in PMI, were unchanged. Both PMI and the NIER survey implies that industry will grow significantly above trend in 2017. This upturn is to an increasing extent also reflected in stronger goods exports and industrial production.
Tuesday 1, 09.00 NOR: Manufacturing PMI (Jul) Index SEB Cons. Prev. PMI --- 55.0 55.1 Manufacturing PMI has improved steadily since December last year and is currently at the highest level since March 2012. The index rose by 0.9 index points in June, and very high levels for the new orders, production and employment subindices indicate that a small downward correction may soon be due. This is also supported by German Flash PMI, which disappointed slightly relative to the market expectation in June (although correlation is not perfect). However, the cyclical turnaround which is taking hold among Norway s trading partners and increased investment activity within petroleum suggest that PMI will remain and stabilize above the 50-mark. Note that Norwegian PMI can show high volatility on a month-to-month basis (and it is highly sensitive to changes in the response rate). Hence, we tend to overlook large monthly surprises.
Tuesday 1, 10.30 UK: PMI manufacturing (Jul) SEB Cons. Prev. Manufact. PMI 55.2 54.5 54.3 In June PMI in the manufacturing sector declined much more than anticipated to 54.3 vs the median forecast of a small declined to 56.3. This is still a fairly high level normally indicating growth around trend. Although growth in the UK has slowed significantly compared to last year (0.3% q/q in Q2) this is probably mostly related to 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, which usually limits the downside risk for PMI in the UK as well. Most likely PMI will stay around the current level this month or even recover a little. Our simple model suggests that PMI should increase to 55.2.
Tuesday 1, 11.00 EMU: GDP (Q2, a) GDP SEB Cons. Prev. % qoq 0.5 0.6 0.6 % yoy 2.1 2.1 1.9 Sentiment indicators are currently at multi-year highs, indicating a significant uptick in growth hard data is improving but not fully in line with indicators the labour market is improving at a steady pace but wage growth is weak and the inflation uptick erodes real income. Industry and export is improving but the recovery also fuels import with the result that net export only give small contributions to growth given the high levels of sentiment indicators, risks are tilted towards a stronger-thanexpected outcome.
Tuesday 1, 16.00 US: ISM manufacturing (Jul) SEB Cons. Prev. ISM manuf. 56.7 56.4 57.8 The American industry powered up in June as the ISM manufacturing index surprisingly increased to the highest level in nearly three years. New orders increased to 63.5 in June from 59.5 which is a three-month high. The production index picked up while the employment index rose to the second-highest level since 2011. Important regional manufacturing indexes such as the Empire and Philadelphia Fed were lower than expected in July. In combination with the strong new orders component, our forecasting model is indicating a robust 56.7 reading in July which is our above-consensus forecast.
Thursday 3, 08.30 SWE: PMI services (Jul) Index SEB Cons. Prev. PMI 58.0 58.0 57.3 Service sector PMI has declined in May and June, but is still slightly higher than the stable level established in the beginning of 2014. NIER service sentiment improved slightly in July and we predict PMI to edge higher this month. Service production has gradually accelerated over the last 2 years. Output growth during the first half of this year has been firm, but slightly below historical peak levels.
Thursday 3, 11.00 EMU: Retail sales (Jun) Retail sales SEB Cons. Prev. % mom 0.1 0.1 0.4 % yoy 2.5 2.5 2.6 Despite the high level of EZ consumer confidence (July: -1.7) retail sales growth has been relatively weak so far in 2017. One explanation could the rise of inflation which erodes real disposable incomes EMU car registrations were weak in June (2.1% y/y) and should have pushed down headline retail sales growth excluding autos, retail sales are expected to have risen in line with previous months.
Thursday 3, 11.15 NOR: Existing home prices (Jul) %, mom/yoy SEB Cons. Prev. Seasonally adjusted --- --- -0.7/6.4 Existing home prices accelerated throughout last year, and nationwide house prices rose to as much as 13% on a annual basis. While the rise was broad-based, it was primarily driven by a rapidly growing prices in Oslo (+24% y/y in Feb.). The upturn is now slowing and short-term momentum turned negative last month. However, prices are still up 6% on a year-on-year basis. The June recording for the capital city showed a 3.1% m/m contraction in prices, a very significant monthly setback. Oslo seems to be driving much of the current slowdown in housing prices. While demand is still holding up relatively fine, stricter mortgage regulation is having a dampening effect. Stronger economic growth and low unemployment is having the opposite effect. The inventory-to-sales ratio suggests that home price gains should slow further this year. Norges Bank forecasts prices to average 5.0% y/y in Q3 and that prices will stabilize around 2% y/y by year-end.
Thursday 3, 13.00 UK: BOE rate decision & Inflation report Policy rate APF-target (GBP) SEB Cons. Prev. 0.25% 435bn 0.25% 435bn 0.25% 435bn Expected decision: The BOE left monetary policy unchanged at the last meeting in June. However, in contrast to May when one member voted to increase the Bank rate by 25bps two more members now had joined the hawkish camp. The main reason was that slack in the labour market had diminished more than expected while the economy did ok. One of those members is now replaced and with growth at 0.3% q/q in Q2 we doubt that further members have changed their minds. Policy will be left unchanged at this meeting. Last meeting: In June the Bank of England Monetary Policy Committee (MPC) voted (5-3) to maintain the Bank Rate at 0.25%, the APF at 435bn and corporate bond purchases at 10bn. Three members (Forbes, McCafferty and Saunders) argued for an immediate 25 bps rate hike as slack in the labour market appeared to have diminished and demand for labour remained strong. The majority, however, were more worried for the slowdown in household consumption and GDP observed since the beginning of the year and thought it was too early to judge how large and persistent this slowdown would be. Outlook for growth & inflation: In May changes to the BOE inflation and growth forecasts were small after a significant upward revision of the growth forecast in Feb. Inflation is likely to briefly peak above 3% although it seems to happen a little earlier than forecasted by the BOE in May. Growth disappointed in Q1 and was weaker than projected by the BOE in Q2 as well (1.7% y/y vs BOE fc 2.1% y/y). The growth forecast is therefore likely to be revised lower to reflect weaker growth in the UK now and onwards. Market expectations: 44 out of 47 analysts expect the BOE leave policy unchanged at the Aug 3 meeting. (Bloomberg).
Thursday 3, 16.00 US: ISM non-manufacturing (Jun) SEB Cons. Prev. Total 57.8 56.9 57.4 The US service sector shows ongoing strength as the ISM non-manufacturing index rose to 57.4 in June from 56.9 in May. In combination with the strong ISM manufacturing index, the indicators are clearly suggesting a rebound in economic growth in Q2 and beyond. New orders, which are forward-looking, increased strongly to 60.5 in July vs 57.7 in May. As such our forecasting model suggests yet another advance to 57.8 in July which is our forecast. The consensus, meanwhile, is a little bit more conservative at 56.8.
Friday 4, 14.30 US: Nonfarm payrolls (Jul) In June, hiring picked up in a major way while wage gains disappointed a mix that is familiar by now but nevertheless puzzling as the unemployment rate is below most (all?) estimates of the NAIRU. With respect to the July numbers we forecast a 200k advance with respect to the headline, 190k for private payrolls and a 4.3% unemployment rate since such strong job growth likely will put downward pressure on the jobless rate. Wage growth was probably firmed too since calendar effects are at play (fewer working days during the payroll survey period). As such we forecast a 0.3% advance in hourly earnings. Compared to a year ago, however, hourly earnings probably nevertheless declined to 2.4% due to base effects. Initial jobless claims have increased some in recent weeks but remain very low. Regional employment indexes have generally been positive too in July. SEB Cons. Prev. Total 200k 180k 222k Private 190k 180k 187k Manuf. 5k 5k 1k Unempl. Rate 4.3% 4.3% 4.4% Hourly mom 0.3 0.3 0.2 Hourly yoy 2.4 2.4 2.5 Change household employment --- --- -233k Av. weekly earn 34.5 34.5 34.5 Participation rate --- --- 62.8