Editor: Felix Ewert The Week Ahead Key Events 29 Jan 4 Feb, 2018
Tuesday 30, 08.00 NOR: Retail sales (Dec) % mom/yoy SEB Cons. Prev. Retail sales exc. autos -0.5/4.5-0.7/--- 2.1/3.5 Retail sales surged last month, correcting from weak spending in October. The long-term trend continues to be positive despite a few downside surprises this fall. Consumer confidence has reached normal levels, and the monthly indicator signals further upside potential. Rising consumer confidence, combined with real disposable income growth and employment gains, suggest that the home price decline should have a negligible impact on consumer spending. We forecast retail sales to correct lower in December from very strong spending last month. The broader indicator of goods consumption (feeds into the GDP numbers) is also forecasted to correct lower, by -0.2% m/m. Goods consumption is nonetheless likely to expand modestly in Q4, due to a very strong monthly gain in November.
Tuesday 30, 11.00 EMU: ESI (Jan) SEB Cons. Prev. Economic confidence 116.3 116.2 116.0 Business climate indicator 1.70 1.68 1.66 Industrial confidence 9.0 8.9 9.1 Service confidence 18.7 18.5 18.4 Confidence continue to be strong. Composite PMI rose in Jan to the highest level since 2000 and has only on a few occasions been at such a high level. ESI was in Nov already at post-crises high and the scope for further improvement is limited. BBG estimates range from 115 to 117. A broad based recovery and above trend growth is expected to keep sentiment high but changes will be small. Looking at sectors, there upturn for ESI is getting more broad based and sectors that have been lagging, such as construction, is now more in line with the others. Overall, production expectations for the months ahead are high in industry and companies are also happy with their order books.
Tuesday 30, 11.00 EMU: GDP (Q4, a) GDP SEB Cons. Prev. % qoq 0.6 0.6 0.6 % yoy 2.7 2.7 2.6 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 Q3 y/y was the strongest since Q1 2011 and in Q4 we expect another uptick to 0.6/2.7%. BBG forecast range is 0.5 to 0.8% q/q. Before the EMU-number, French (7.30) and Spanish (09.00) data are published.
Tuesday 30, 14.00 GER: CPI (Jan, P) % mom/yoy SEB Cons. Prev. CPI -0.6/1.7-0.6/1.7 +0.6/1.7 HICP -0.8/1.6-0.7/1.6 +0.8/1.6 German preliminary CPI data provide a last-minute indication for EZ inflation (for which the flash estimate is published one day later). Six German Länder report their 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 strongly negative in Jan, but base effects should keep the y/y rate stable at 1.7%. oil prices (Brent, ) rose 4.6% m/m during Jan. Prices for gasoline were up 0.7% and for heating oil +2.7% m/m. Further upward (downward) pressure on the CPI should result from food (package holiday) prices provided these developed in line with their respective seasonal pattern. Consumer Prices (percent y-o-y) weight (percent) Dez 17 Nov 17 Okt 17 Sep 17 Baden Wurttemberg 20 1,8 1,8 1,5 1,9 Bavaria 24 1,7 1,8 1,5 1,8 Brandenburg 5 1,5 1,6 1,3 1,6 Hesse 12 1,7 2,0 1,6 2,1 NRW 33 1,5 1,8 1,6 1,9 Saxony 8 1,7 2,0 1,8 2,0 Germany 100 1,7 1,8 1,6 1,8
Tuesday 30, 16.00 US: Conference Board Consumer Conf. (Jan) SEB Cons. Prev. Headline 123.5 123.0 122.1 The Conference Board index dropped more than six points in December from a 17-year high. The weakening in consumer confidence was entirely driven by the future expectations sub index; the present situation index continued to improve. The decline in December put an end to five consecutive months of improving confidence but the index is still elevated by historical standards. The net share of respondents who say jobs are hard to get fell to the lowest level since mid-2001, indicating that the labour market improvement continues. Consumer confidence is supported by the tightening labour market, rising equity indices and low gasoline prices. The University of Michigan consumer sentiment survey weakened a bit in January and this indicator is normally highly correlated with the Conference Board survey. We expect that the Conference Board index remained close to the level in December and forecast 123.5. Strong consumer confidence suggests that consumption should continue to grow at a healthy pace over the coming quarters.
Wednesday 31, 10.00 NOR: Norges Bank daily FX purchases (Feb) (NOK mn) SEB Cons. Prev. Daily FX purchases -900-900 -900 After a surprise hike to NOK -900mn (from -650) in the final month of last year daily purchases were unchanged in January. Generally NB tends to hold purchases as stable as possible over time. This suggests that daily purchases will remain close - 900mn in February. According to the budget projection for 2018 the non-oil budget deficit is expected to grow to NOK 255bn as government expenditures increase. Our estimates suggest that daily NOK-purchases will remain roughly the same this year as the last two years and we expect NOK 900mn in February. A higher oil price is one uncertainty as it might increase government tax revenues more than expected, which would reduce NB daily NOK purchases. Just to be clear, the NOK-positive flow (NOK 255bn) is still in the market but more of it is simply handled by oil exporters instead of NB. Non-oil budget deficit, NOK bn 300 250 200 150 100 50 0 NOK bn
Wednesday 31, 11.00 EMU: HICP, flash (Jan) %, yoy SEB Cons. Prev. Headline 1.2 1.3 1.4 Core 0.9 1.0 0.9 The small tendencies for higher inflation during the summer have been reversed over the last 3-4 months with core back in the sideways trend that was established in the beginning of 2015. Despite stronger growth we see a high probability that the sideways trend will continue also next year. Wage inflation is showing signs of picking up slightly from low levels, but a stronger exchange rate is predicted to offset slightly higher service inflation over the next 12 months. Headline inflation is predicted to fall back in January driven by base effects from higher energy and food prices in January last year. Lower prices on food commodities is a downside risk for headline CPI in 2018.
Wednesday 31, 11.00 EMU: Unemployment (Dec) % SEB Cons. Prev. Unemployment 8.6 8.7 8.7 Unemployment has fallen by more than 1pp in the last year and the positive trend with rising employment and falling unemployment continues. The decline has for the last years been 0.1pp almost every month and the trend is expected to continue tin the near term. Growth and labour market indicators are strong supporting a continued positive labour market trend. Employment is rising at a steady pace. Wage pressure is still low but is expected to rise gradually ahead especially in countries where resource utilization is high
Wednesday 31, 20.00 US: Fed rate decision (Jan) The two-day meeting concludes Wednesday. The meeting will not be followed by a press conference or revised economic projections. This will be the last FOMC meeting chaired by Janet Yellen. FOMC membership changes at this meeting (rotation of regional Fed presidents) and the following members will be voting: Yellen, Powell, Dudley, Brainard, Quarles, Mester, Bostic, Williams, and Barkin. The Fed will maintain the target range for the Fed funds rate at 1.25-1.50%. Fed communication does not suggest that a rate hike is imminent. At the time of writing, all of the analysts included in the Bloomberg survey expect the FOMC to maintain the target range at 1.25-1.50%. A rate hike would be a major surprise. The most interesting aspect of the statement will concern the extent to which the Fed has taken the recent rise in inflation pressure and inflation expectations into account. We do not expect any additional information about the reduction of the balance sheet and there will be some time before the Fed determines the long-term size of its balance sheet. We stick to our forecast that the Fed will hike three times in 2018 but the case for more aggressive tightening is growing stronger.
Thursday 1, 08.30 SWE: PMI Manufacturing (Jan) Index SEB Cons. Prev. PMI 60.0 61.0 60.4 PMI fell back slightly at the end of last year and manufacturing sentiment according to the NIER survey has declined from record levels. The NIER survey continued to decline in January and German and Euro-zone manufacturing PMI has also declined from high levels in January. We predict Swedish PMI to continue to decline slightly in January, but the level continues to signal strong growth. The strong PMI is increasingly being reflected in accelerating industrial production and exports.
Thursday 1, 09.00 NOR: Manufacturing PMI (Jan) Index SEB Cons. Prev. PMI 56.5 56.7 57.8 Manufacturing PMI increased by 0.4 units in December, building on gains during the September-November. The indicator is at a cyclical high having reached levels not seen since before the global financial crisis. Manufacturing sentiment is boosted by the upswing in the global industrial cycle and the recovery of the petroleum sector. Both the PMI index and the more reliable Business Tendency Survey suggest actual production will continue to recover in coming quarters. Sentiment among business leaders has improved since end-2016. Large monthly volatility and downside surprises for Flash PMIs in both Germany and the Eurozone suggest that Norwegian manufacturing PMI will decline slightly in January.
Thursday 1, 10.30 UK: PMI manufacturing (Jan) SEB Cons. Prev. Manufacturing PMI 56.8 56.5 56.3 Against expectations the manufacturing PMI fell in Dec. though the index remains at a pretty decent level. Growth in the UK slowed significantly in the beginning of last year but recovered in H2 (0.5% q/q in Q4). Weakness is, however, mostly related to household demand amid falling real disp. Income. A weak GBP and strong growth in the EZ should continue to bolster overseas demand for manufactured goods keeping the sentiment in the manufacturing sector at a high level. PMIs in Germany and France remain at multi years high although those declined in Jan, which is a negative sign for the UK PMI. Nevertheless we expect it to take back some of the decline in Dec. and to rise to 56.8, which is a notch higher than the average forecast.
Thursday 1, 16.00 US: ISM manufacturing (Jan) SEB Cons. Prev. ISM man. 59.3 59.0 59.7 The ISM manufacturing index rose in December and is close to a 13-year high. The improvement was broad-based and the forward-looking new orders index reached the highest level since 2004 and suggests that the headline index may have some more upside potential in the near term. The manufacturing sector recovered strongly in 2017 supported by the weaker trade-weighted dollar and strong global demand. Prospects remain bright. The current level of the ISM index has historically been consistent with GDP growth of more than 4%. The Fed s regional manufacturing surveys suggest that activity in the manufacturing sector held up well in January. Our prediction model indicates that the ISM manufacturing index remained close to the level in December. We forecast that the ISM manufacturing index weakened a bit to 59.3 in January.
Friday 2, 10.00 NOR: Registered unemployment (Jan) % (unadjusted) SEB Cons. Prev. Registered jobless rate 2.7 2.7 2.4 The unadjusted unemployment rate inched higher in December, in line with Norges Bank s forecast. The seasonally adjusted unemployment rate remained unchanged at 2.5% for the third consecutive month. However, the number of unemployed people declined, adding to a strong year for labour markets in Norway. In 12 months, the number of unemployed has declined by around 30% in Rogaland, the county hosting the oil city Stavanger. The trend of lower unemployment in the oil-counties is likely to continue this year as investment in the petroleum sector is set to pick up further. In the December MPR, Norges Bank highlighted that it prefers the registered unemployment measure, as it regards the Labour Force Survey to be shrouded with uncertainty. The non-adjusted rate is forecasted to increase in January due to a seasonal jump in unemployment, while the adjusted rate is projected to remain unchanged. Norges Bank forecasts a rate of 2.4% in January (SA).
Friday 2, 14.30 US: Nonfarm payrolls (Jan) In December, total payrolls growth was 148k, falling short of consensus expectations of a 190k gain and our 195k forecast. The Bloomberg consensus is suggesting a 188k reading for January total payrolls at the time of writing. We forecast that total employment growth was 195k in January. The unemployment rate was unchanged at 4.1% in December but we estimate that it edged down to 4.0% in January. We predict unemployment to decrease further in 2018. The broader underemployment rate, U6, edged up to 8.1% in December but is still close to where it bottomed out at the eve of the financial crisis. The participation rate held steady at 62.7 for the third consecutive month. Hourly wage growth was 0.3% m/m in December. We expect another gain of 0.3% to push the annual growth rate to 2.7%. Labour market indicators suggest that very little slack remains and we expect continuing labor market tightening to result in accelerating wage growth. The Fed will mainly be watching for signs of accelerating wage growth. The central bank hiked the policy rate at the Dec 12-13 meeting and we expect three more hikes in 2018. This time the BLS will incorporate the annual adjustments to the population estimates meaning there is more uncertainty than normal surrounding the January report. SEB Cons. Prev. Total 195k 183k 148k Private --- 185k 146k Manufacturing --- 21k 25k Unemp. rate 4.0% 4.1% 4.1% Underemployment rate (U6) --- --- 8.1% Hourly %m/m 0.3% 0.3% 0.3% Hourly %y/y 2.7% 2.6% 2.5% Change househ. employment Average weekly hours --- --- 104k --- 34.5 34.5 Participation rate --- --- 62.7%
European Sovereign Rating Reviews Recent rating reviews Friday, 19 January 2018 Agency previous new action Greece S&P B- / Positive B / Positive upgrade 1 notch Spain Fitch BBB+ / Positive A- / Stable upgrade 1 notch Upcoming rating reviews Friday, 26 January 2018 Agency Rating / Outlook last change change? Austria Fitch AA+ / Stable 02/13/2015 no Estonia Moody's A1 / Stable 03/31/2010 no France Fitch AA / Stable 12/12/2014 no Slovakia S&P A+ / Stable 07/31/2015 no Friday, 02 February 2018 Agency Rating / Outlook last change Change? Cyprus Moody's Ba3 / Positive 07/28/2017 no EFSF DBRS AAA / Stable 07/27/2012 no ESM DBRS AAA / Stable 07/27/2013 no Finland DBRS AAH / Stable 09/09/2016 no Netherlands Moody's Aaa / Stable 03/07/2014 no Slovakia Fitch A+ / Stable 07/08/2008 no Sweden Fitch AAA / Stable 12/18/2007 no Source: Bloomberg