Daily Macro Brief. Friday 18 August 2017 Martin Vikenes & Marit Øwre-Johnsen, DNB Markets

Daily Macro Brief Friday 18 August 2017 Martin Vikenes & Marit Øwre-Johnsen, DNB Markets

Overview Key events today USA: Preliminary figures for the University of Michigan Sentiment index is published. The total index is expected to edge up to 94 in August from previous month s 93.4, mostly driven by the expectations sub-index. See the attached calendar for details Back to index Daily Macro Brief page 2

Overview Key events since last report USA: Industrial production saw a decent growth in July, despite a slight decline in manufacturing output. Initial jobless claims were lower last week underpinning a solid US labour market. EMU: ECB s account of monetary policy revealed concerns of euro overshoot. For details on market developments, see here See the attached calendar for other key figures Back to index Daily Macro Brief page 3

USA: Industrial output rose in July Industrial output increased by 0.2% m/m in July, 0.1pp lower than expected. Manufacturing output, which is less volatile, declined by 0.1% m/m (expected up 0.2%) Capacity utilisation unchanged at 76.7% (June revised up 0.1pp to 76.7%) Assessment: Decent production growth, continuing Q2 s solid growth. If monthly growth continues, Q3 growth will be 1.7%. All in all, the numbers confirm that the weak growth in Q1 was temporary, but momentum remain weak and fragile. 1.5 1.0 0.5 0.0-0.5 USA: Industrial production Seasonally adjusted volume change, m/m % -1.0 Jul-14 Jul-15 Jul-16 Jul-17 Total Manufacturing Source: Thomson Datastream/DNB Markets 15 10 5 0-5 -10-15 US: Manufacturing 90 85 80 75 70-20 65 Jul-82 Jul-89 Jul-96 Jul-03 Jul-10 Jul-17 Manufacturing prod y/y Capacity utilisation (rha) Source: Thomson Datastream/DNB Markets Back to index Daily Macro Brief page 4

US: Industrial production, details Industrial production Volume change m/m, s.a., % Volume change y/y % Apr-17 May-17 Jun-17 Jul-17 May-17 Jun-17 Jul-17 Total 0.9 0.0 0.4 0.2 2.1 2.1 2.2 Manufacturing 1.2-0.6 0.2-0.1 1.5 1.4 1.3 Durables 2.5-1.6-0.1-1.9 2.9 0.6-1.5 Cars 5.9-3.7-2.5-5.6 2.5-6.2-11.3 Non-durables 1.0 1.3-0.9 0.8 1.0-0.1 0.8 Cons um ption goods 1.3 0.1-0.2 0.2 0.9 0.1 0.3 Interm ediates 0.6-0.6 0.5 1.2 2.5 Capacity utilis ation 76.5 76.5 76.7 76.7 0.9 0.8 0.8 Source: Thom s on Datas tream/dnb Markets 107 106 105 104 103 102 101 100 99 US: Production indices Seasonally adjusted 98 Jul-11 Jul-14 Jul-17 Intermediates Source: Thomson Datastream/DNB Markets Consumption goods 125 120 115 110 105 100 95 US: Production indices Seasonally adjusted 90 Jul-11 Jul-14 Jul-17 Durables Non-durables Source: Thomson Datastream/DNB Markets Back to index Daily Macro Brief page 5

US: Industrial output and GPD 12 10 8 6 4 2 0-2 -4-6 USA: Industrial output and GDP q/q in % (saar) Q3 2002 Q3 2007 Q3 2012 Q3 2017 GDP Ind. output (rha) 18 15 12 9 6 3 0-3 -6-9 Source: Thomson Datastream/DNB Markets Back to index Daily Macro Brief page 6

USA: Initial jobless claims lower last week Initial jobless claims declined by 12k to 232k last week. This was lower than expected (240k). The four-week average unchanged at 241k. Assessment: The level for initial claims remains very low. This points to a continued high employment growth. Week, 1000 USA: Initial claims 26-Jul 2-Aug 9-Aug 16-Aug Initial claims 245 241 244 232 -change w/w 11-4 3-12 -4-week average 244 242 241 241 Continued claims 1967 1956 1953 -% of labour force 1.4 1.4 1.4 Source: Thomson Datastream/DNB Markets 8 7 6 5 4 3 2 1 USA: Cont. claims & unemployment Per cent 0 3 Jul-67 Jul-77 Jul-87 Jul-97 Jul-07 Jul-17 Cont.claims Source: Thomson Datastream/DNB Markets Unemployed (rha) 11 10 9 8 7 6 5 4 310 300 290 280 270 260 250 240 USA: Initial Jobless Claims Seasonally adjusted. 1000 230 220 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Actual Source: Thomson Datastream/DNB Markets 4 week average Back to index Daily Macro Brief page 7

USA: 4w average lowest since July 1973 750 Initial Jobless Claims Seasonally adjusted. 1000 650 550 450 350 250 150 Oct-65 Oct-75 Oct-85 Oct-95 Oct-05 Oct-15 Actual 4 week average Source: Kilde: Thomson Thomson Datastream/DnBNOR Datastream/DNB Markets Markets Back to index Daily Macro Brief page 8

Accounts from ECB monetary policy meeting 20 July EMU: Potential euro overshooting a concern A stronger euro reflects improved fundamentals, but At the same time, concerns were expressed about a possible overshooting in the repricing by financial markets, notably the foreign exchange markets, in the future. It was underlined that the still favourable financing conditions could not be taken for granted and relied to a considerable extent on a continued high degree of monetary policy accommodation Loose policy still important: Members generally agreed that the ECB s monetary policy measures had contributed significantly to the ongoing economic expansion and that a sustained momentum in economic growth was still contingent on continued favourable financing conditions. Yet, a remark was also made that the expansion was increasingly self-sustaining and hence had become less dependent on the current degree of monetary policy accommodation. Not yet convinced about inflation upturn: convincing evidence of a sustained convergence towards levels compatible with the ECB s inflation aim was still seen to be lacking. Overall, while members considered that the ongoing economic expansion gave reason for confidence that inflation dynamics would strengthen over time, they emphasised that patience, persistence and prudence were needed, as this process was expected to take time and remained contingent on a very substantial degree of monetary policy accommodation. Back to index Daily Macro Brief page 9

Accounts from ECB monetary policy meeting 20 July EMU: Paramount to avoid volatile markets Suggestion of tweak in forward guidance turned down: A suggestion was made that some consideration be given to an incremental adjustment in the language on forward guidance, because postponing an adjustment for too long could give rise to a misalignment between the Governing Council s communication and its assessment of the state of the economy, which could trigger more pronounced volatility in financial markets when communication eventually had to shift. However, it was generally judged paramount at this stage to avoid sending signals that could be prone to over-interpretation and might prove premature. Accordingly, there was agreement among all members to retain all elements of forward guidance ECB to strike fine balance : In the light of the heightened sensitivity of financial markets to news, a steady approach to communication was seen as key. The Governing Council needed to strike a fine balance between, on the one hand, expressing justified confidence in the economic expansion and, on the other hand, underlining the need for monetary policy to remain persistent and patient.( ) The view was widely shared that prudence was warranted with regard to the Governing Council s communication on the possible timing of its deliberations on the future course of its monetary policy. Overall, members agreed that communication on the timing of the decision should refer to the autumn. Back to index Daily Macro Brief page 10

OSEBX OMX DAX Stoxx 600 FTSE 250 Dow Jones NASDAQ S&P 500 Nikkei 225 Hang Seng Shanghai USA Germany EURUSD EURGBP France Japan Norway Sweden EURCHF EURSEK USDGBP USDJPY USDSEK USDCNY EURNOK USDNOK SEKNOK CHFNOK JPYNOK Italy Spain Markets: Overview Risk-off with stronger JPY and equities down NOK weakened despite the oil price gaining 1% on lower US inventory data. The euro depreciated after the account of ECB s monetary policy revealed members concerned with euro overshoot. CHF and JPY strengthened, while stock markets took a downturn and demand for bonds pushed long-term bond yields slightly down. This indicates increased risk aversion in most markets. US stock decline may be explained by more political turmoil around Trump and his ability to push through fiscal stimulus measures. 1.50 1.00 0.50 0.00-0.50-1.00-1.50 FX, change in percent since 17 August 06:21* 2.5 2.0 1.5 1.0 0.5 0.0-0.5-1.0-1.5-2.0-2.5 Equity indices 20 15 10 5 0-5 -10-15 -20 10 year sov. bond yield, change in bp since 17 August 06:21* EUR USD NOK** **Note that higher bars indicate weaker NOK % from previous to last close % since last close **Norway, Sweden, Italy, Spain: Change in bp from previous to last close Source: Thomson Datastream/DNB Markets Back to index Daily Macro Brief page 11

Markets Equities 738 736 734 732 730 728 726 724 722 720 Aug-11 17:55 Aug-14 13:20 Aug-14 17:55 Aug-15 13:20 Europe Aug-15 17:55 Aug-16 13:20 Aug-16 17:55 13:20 3100 3090 3080 3070 3060 3050 3040 3030 3020 3010 3000 17:55 2480 2470 2460 2450 2440 2430 2420 2410 2400 Aug-15 14:15 Aug-15 21:15 Aug-16 14:50 USA Aug-16 21:50 15:40 22200 22100 22000 21900 21800 21700 21600 21500 22:25 Oslo Stock Exchange EURO STOXX 50 (rha) S&P 500 Dow Jones (rha) 27600 27500 27400 27300 27200 27100 27000 26900 26800 26700 Aug-14 07:05 Aug-15 02:55 Aug-15 06:55 Aug-16 02:45 Hang Seng Asia Aug-16 06:45 02:35 06:35 Nikkei 225 (rha) Aug-18 02:25 19900 19800 19700 19600 19500 19400 19300 19200 Aug-18 06:25 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Aug-15 14:15 Aug-15 21:15 Aug-16 14:50 VIX Aug-16 21:50 15:40 22:25 Back to index Daily Macro Brief page 12

Markets FX 1.185 1.180 1.175 1.170 1.165 1.160 1.155 Aug-14 06:30 EURUSD and USDJPY Aug-15 06:30 Aug-16 06:30 06:30 108.5 109.0 109.5 110.0 110.5 111.0 111.5 Aug-18 06:30 1.150 1.145 1.140 1.135 1.130 1.125 1.120 1.115 Aug-14 06:30 Aug-15 06:30 EURCHF and EURGBP Aug-16 06:30 06:30 0.916 0.914 0.912 0.910 0.908 0.906 0.904 0.902 0.900 Aug-18 06:30 EURUSD USDJPY (inv,rha) EURCHF EURGBP (rha) EURNOK and USDNOK EURSEK and SEKNOK 9.40 9.38 9.36 9.34 9.32 9.30 9.28 9.26 9.24 Aug-14 06:30 Aug-15 06:30 Aug-16 06:30 06:30 8.02 8.00 7.98 7.96 7.94 7.92 7.90 7.88 7.86 7.84 Aug-18 06:30 9.65 9.60 9.55 9.50 9.45 9.40 Aug-14 06:30 Aug-15 06:30 Aug-16 06:30 06:30 0.968 0.970 0.972 0.974 0.976 0.978 0.980 0.982 0.984 0.986 0.988 Aug-18 06:30 EURNOK USDNOK (rha) EURSEK SEKNOK (inv,rha) Back to index Daily Macro Brief page 13

Change in bp since 17 August Sep Dec Mar Jun Sep Dec Mar Jun Markets Fixed income 2.25 2.24 2.23 2.22 2.21 2.20 2.19 2.18 2.17 2.16 2.15 08:30 12:00 10 sovereign bond yields USA 15:30 19:00 Germany (rha) 22:30 0.45 0.45 0.44 0.44 0.43 0.43 0.42 0.42 0.41 0.41 0.40 Aug-18 06:20 2.05 2.05 2.04 2.04 2.03 2.03 2.02 2.02 2.01 2.01 2.00 08:30 12:00 10 sovereign bond yields Italy 15:30 19:00 Spain (rha) 22:30 1.47 1.46 1.45 1.44 1.43 1.42 1.41 1.40 Aug-18 06:20 14 12 10 8 6 4-2 02-4 FRA: NOK and EUR Change in bp left axis 2017 2018 2019 NOK, change in bp NOK 18-Aug EUR, change in bp EUR 18-Aug 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0-0.2-0.4-0.6 % 3m Nibor 0.92 0.90 0.88 0.86 0.84 0.82 0.80 0.78 0.76 0.74 0.72 18-May 18-Jun 18-Jul 18-Aug Back to index Daily Macro Brief page 14

Markets Miscellaneous Japan: 10 year sovereign bond yield 0.12 0.10 0.08 0.06 0.04 0.02 0.00 18-May 18-Jun 18-Jul 18-Aug EURUSD 3m basis swap 0-5 -10-15 -20-25 -30-35 -40 18-May 18-Jun 18-Jul 18-Aug 250 200 150 100 50 Spread over Bunds 10y, basis points 0 18-Sep 18-Dec 18-Mar 18-Jun 18-Sep 18-Dec 18-Mar 18-Jun France Italy Spain 52.5 Crude oil and gold 52.0 51.5 51.0 50.5 50.0 49.5 49.0 48.5 Aug-14 05:30 Aug-15 05:40 Aug-16 05:50 06:05 Crude, $/barrel Gold, $/ounce (rha) 1295 1290 1285 1280 1275 1270 1265 1260 1255 Aug-18 06:15 Back to index Daily Macro Brief page 15

Markets Spot rates and forecasts Spot rates and forecasts FX 0700 Last Today % In 1m Oct-17 Jan-18 Jul-18 FX 0700 USD NOK USD/JPY 109.91 109.37-0.5 112 113 114 115 AUD 0.790 6.300 EUR/USD 1.1781 1.1735-0.4 1.12 1.10 1.08 1.06 CAD 1.266 6.300 EUR/GBP 0.9127 0.9104-0.3 0.88 0.89 0.90 0.92 CHF 0.962 8.292 EUR/DKK 7.4378 7.4365 0.0 7.44 7.44 7.45 7.46 CNY 6.678 119.430 EUR/SEK 9.5060 9.5389 0.3 9.50 9.50 9.30 9.20 CZK 22.235 0.359 EUR/CHF 1.1362 1.1286-0.7 1.08 1.07 1.06 1.05 GBP 1.289 10.277 EUR/NOK 9.3202 9.3546 0.4 9.30 9.20 8.90 8.80 HKD 7.824 1.019 USD/NOK 7.9118 7.9731 0.8 8.30 8.36 8.24 8.30 KRW 1142.1 0.070 JPY/NOK 7.20 7.29 1.2 7.41 7.40 7.23 7.22 BRL 3.175 2.511 SEK/NOK 98.10 98.12 0.0 97.9 96.8 95.7 95.7 NZD 0.729 0.091 DKK/NOK 125.32 125.82 0.4 125.0 123.7 119.5 118.0 RUB 59.269 13.450 GBP/NOK 10.213 10.277 0.6 10.57 10.34 9.89 9.57 SEK 8.130 98.120 CHF/NOK 8.206 8.292 1.0 8.61 8.60 8.40 8.38 SGD 1.365 5.842 Back to index Daily Macro Brief page 16

Markets Interest rates Interest rates NOK Prior Last SEK Prior Last USD Prior Last EUR Prior Last 1m 0.70 0.68 1m -0.48-0.48 1m 1.23 1.23 1m -0.40-0.40 3m 0.82 0.81 3m -0.41-0.41 3m 1.32 1.32 3m -0.38-0.38 6m 0.93 0.93 6m -0.35-0.35 6m 1.46 1.46 6m -0.30-0.30 2y -0.20-0.20 12m 1.74 1.73 12m -0.20-0.20 3y 1.26 1.25 3y 0.03 0.03 3y 1.66 1.64 3y -0.06-0.08 5y 1.51 1.49 5y 0.45 0.45 5y 1.83 1.80 5y 0.22 0.18 7y 1.74 1.71 7y 0.82 0.81 7y 1.97 1.96 7y 0.49 0.46 10y 1.98 1.95 10y 1.20 1.20 10y 2.14 2.11 10y 0.85 0.82 Governm ent bonds Norw ay Prior Last SEK Prior Last US Prior Last Germany Prior Last NST479 101.01 101.15 10y 103.10 103.10 10y 100.13 100.42 10y 100.66 100.80 10y yld 1.60 1.62 10y yld 0.65 0.65 10y yld 2.23 2.20 10y yld 0.43 0.42 US sprea -0.63-0.58 US sprea -1.58-1.55 30y yld 2.81 2.79 US spread -1.80-1.78 Norw ay 3m nibor Interest rate forecasts 10y sw ap Sw eden 3m libor 10y USA 3m libor sw ap 10y sw ap Germany 3m euribor 10y sw ap Oct-17 0.90 2.00 Oct-17-0.45 1.50 Oct-17 1.55 2.50 Oct-17-0.30 1.00 Jan-18 0.90 2.00 Jan-18-0.45 1.50 Jan-18 1.65 2.75 Jan-18-0.30 1.00 Jul-18 0.90 2.00 Jul-18-0.40 1.50 Jul-18 1.90 2.75 Jul-18-0.30 1.00 Back to index Daily Macro Brief page 17

Markets Miscellaneous Miscellaneous NOK sov. Prior Last Change Maturity year rem. NOK-index TWI Prior NST 37 0.42 0.42 0 20.12.2017 0.34 Last 111.48 110.96 NST 38 0.42 0.42 0 21.03.2018 0.59 Oil price: (Ldn,cl) 1m NST 39 0.42 0.42 0 20.06.2018 0.84 SPOT 50.68 50.99 NST473 0.60 0.59-1 22.05.2019 1.76 Gold price 17.08.2017 PM NST474 0.90 0.91 1 25.05.2021 3.77 AM: 1272.8 1285.2 NST479 1.60 1.62 2 17.02.2027 9.51 Equities Today 0700 % last NST479 1.60 1.62 2 17.02.2027 9.51 S&P 500 2430.01-1.2% NST479 1.60 1.62 2 17.02.2027 9.51 Dow Jones 21750.73-1.5% NOK FRA 3 mnd 6 mnd NOK NIBOR FTSE250 7387.87-0.6% Sep 0.85 1.00 1m 0.68 Stoxx600 376.87-0.6% Dec 0.95 1.03 3m 0.81 DAX 12203.46-0.5% Mar 0.93 1.04 6m 0.93 Nikkei 225 19476.50-1.1% Jun 0.97 1.09 OSEBX 726.71-1.3% Sources to all tables and graphics: Thomson Reuters, Thomson Datastream and DNB Markets Back to index Daily Macro Brief page 18

Calendar Thursday Friday Importance GMT+2 Country Event Period Unit Last Cons. DNB Actual Thursday 17 August 01:50 Japan Exports Jul y/y % 9.7 13.6 13.4 01:50 Japan Imports Jul y/y % 15.5 17.0 16.3 01:50 Japan Trade Balance Jul JPY bn 440 392 419 10:30 UK Retail Sales Ex-Fuel Jul m/m % 0.9 0.2 0.5 10:30 UK Retail Sales Jul m/m % 0.6 0.2 0.3 11:00 EMU Core CPI, Final Jul y/y % 1.2 1.2 1.3 11:00 EMU CPI, Final Jul y/y % 1.3 1.3 1.3 13:30 EMU ECB account of monetary policy meeting 14:30 USA Initial Jobless Claims w/e 1000 244 240 232 14:30 USA Philly Fed Business Aug Index 19.5 18.5 18.9 15:15 USA Capacity Utilization Jul m/m % 76.6 76.7 76.7 15:15 USA Industrial Production Jul m/m % 0.4 0.3 0.2 15:15 USA Manufacturing Output Jul m/m % 0.2 0.2-0.1 USA Fed's Kaplan (voting) speaks Friday 18 August 03:30 China China House Prices Jul y/y % 10.2 9.7 09:30 Sweden Capacity Utilization Q2 q/q % 0.4 16:00 USA U. of Mich. Sentiment (Prelim) Aug Index 93.4 94.0 USA Fed's Kaplan (voting) speaks Back to index Daily Macro Brief page 19

DNB Markets Macro Research Contact details Kjersti Haugland Chief Economist, Euro area +47 24 16 90 01 / +47 917 23 756 kjersti.haugland@dnb.no Jeanette Strøm Fjære Economist, Norway and Sweden +47 24 16 90 03 / +47 920 37 011 jeanette.strom.fjare@dnb.no Ole A. Kjennerud Economist, China and Japan +47 24 16 90 07 / +47 477 57 482 ole.kjennerud@dnb.no Knut A. Magnussen Senior Economist, USA, UK and Brazil +47 24 16 90 04 / +47 476 04 046 knut.magnussen@dnb.no Magne Østnor FX Strategist +47 24 16 90 01 / +47 907 47 902 magne.ostnor@dnb.no Marit Øwre-Johnsen FX Analyst +47 24 16 90 08 / +47 970 42 190 marit.owre-johnsen@dnb.no Kyrre Aamdal Senior Economist, Norway, Sweden, interest rates +47 24 16 90 02 / +47 906 61 112 kyrre.aamdal@dnb.no Back to index Daily Macro Brief page 20

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