Editor: Felix Ewert The Week Ahead Key Events 2 8 Oct, 2017
Monday 2, 08.30 SWE: PMI Manufacturing (Sep) Index SEB Cons. Prev. PMI 60.5 -- 54.7 Manufacturing PMI showed an unexpectedly large fall in August. Rather than signalling an imminent slowdown in manufacturing we believe that this was caused by an irregular seasonal pattern during the summer. We expect the PMI to revert back in September to the above 60 levels that have prevailed for most of this year and to continue to signal a strong expansion in industry during the second half of the year. NIER manufacturing sentiment reached a new record high for the series in September, which means that the gap between the two series is unusually large. Questions in the NIER survey most closely resembling the PMI indicate possibility of an even stronger upturn for the PMI. Also, German manufacturing PMI increased further in September from already elevated levels.
Monday 2, 09.00 NOR: PMI Manufacturing (Sep) Index SEB Cons. Prev. PMI 57.0 56.2 55.7 Manufacturing PMI retreated by 1.8 points in August, but is still at a solid level. Thus, actual output should continue to expand in the H2-2017. Industrial sentiment has steadily improved since end- 2016. Both the new orders and production sub-indices corrected lower in August, but remain at pre-financial crisis levels. Solid growth prospects and increased investment activity supports Norwegian PMI, which should stabilise in proximity of current levels. Sentiment among Norway s main trading partners is still strong. Flash PMIs for Germany and the EMU as a whole have continued to surprise positively. This suggests an uptick in Norwegian manufacturing PMI for September. Both the PMI index and the more reliable Business Tendency Survey suggest actual production will continue to recover. Note that Norwegian PMI can show high volatility on a month-tomonth basis (and it is highly sensitive to changes in the response rate). Hence, we tend to overlook large monthly surprises.
Monday 2, 11.00 EMU: Unemployment (Aug) % SEB Cons. Prev. Unemployment 9.0 9.0 9.1 Unemployment has fallen by almost 1pp in the last year and the positive trend with rising employment and falling unemployment continues. Unemployment was in June at the lowest level since Feb 2009 and the trend is for a 0.1pp decline every 1-2 months Unemployment was unchanged in Jul and we expect another 0.1pp drop in Aug Strong indicators overall and for employment plans indicate a continued decline ahead in line with recent history Wage pressure is still low but is expected to rise gradually ahead especially in countries where resource utilization is high
Monday 2, 16.00 US: ISM Manufacturing (Sep) SEB Cons. Prev. ISM man. 58.2 57.9 58.8 The ISM manufacturing index rose in August and hit a six-year high. The employment component rose sharply while the production index and the forward-looking new orders index remained above 60. The headline index is consistent with annualised GDP growth of more than 4% in Q3 but we expect growth to be closer to 2%. The Fed s regional manufacturing surveys suggest that activity in the manufacturing sector picked up in September. Our prediction model indicates a slight fall for the ISM manufacturing index. Based on experiences from Katrina/Sandy, the recent hurricanes should not have a major effect on the ISM. We forecast that the ISM manufacturing index weakened slightly to 58.2 in September.
Wednesday 4, 11.00 SWE: PMI Services (Sep) Index SEB Cons. Prev. PMI 57.0 -- 55.4 We expect service PMI to reverse higher in September following a large drop in August. Sentiment in the service sector according to the PMI improved strongly during 2016 but has turned lower again during this year. The PMI is now back within the range that was established in the beginning of 2014. The NIER service sentiment has improved slightly in the past few months. Sentiment declined in September, but the gap that has opened between this survey and the PMI still suggest scope for a pick-up also in the PMI. Service sector growth has remained firm during 2017, though slightly below historical peak levels.
Wednesday 4, 11.00 NOR: Existing home prices (Aug) %, m/m / y/y SEB Cons. Prev. Seasonally adjusted --- --- -0.4/3.2 Existing home prices accelerated throughout last year, and the annual rate of nationwide house prices rose by 8.4%. While the rise was broad-based, it was primarily driven by rapidly growing prices in Oslo (peaked at +24% y/y in Feb 2017). The upturn is now slowing, but short-term momentum shows that the fall is no longer accelerating. Oslo has been driving the downturn in existing home prices, and the August recording showed another decline of 0.3% m/m. While demand is still holding up relatively fine, a surge in existing homes for sale is driving existing home prices lower. Increased supply of new homes in coming years will also weigh on prices. In its September MPR, Norges Bank expressed less concern over falling house prices and forecasts only a modest negative impact on demand. This, coupled with still-high household debt, were some of the reasons for a hawkish twist to the rate path. Norges Bank forecasts existing home prices to fall further in September (- 0.2, 2.0% y/y).
Wednesday 4, 11.00 EMU: Retail sales (Aug) Retail sales SEB Cons. Prev. MoM % 0.4 0.3-0.3 YoY % 2.7 2.6 2.6 Given household confidence, retail sales has been on the weak side so far 2017. One explanation could be inflation rising, eroding real income Already published car registration rose in Aug and retail sales data published so far indicate a slightly higher y/y increase for the region in Aug compared to Jul
Wednesday 4, 14.15 US: ADP employment change (Sep) SEB Cons. Prev. ADP 140k 150k 237k The ADP report beat expectations in August, indicating that businesses added 237k jobs compared to consensus expectations of 185k. The ADP report has a spotty track record as a predictor and failed to pick up the weaker than expected private payroll gains of 165k. Despite the ADP being a poor payrolls predictor it could still provide an indication of the potential impact of hurricanes Harvey and Irma. Hurricanes Katrina and Sandy had a negative impact on ADP employment. The negative impact from the hurricanes will be temporary and if the pace of hiring remains close to 200k per month this should push unemployment down and wages due to limited slack in the labour market. Our forecast is that ADP increased by 140k in September.
Wednesday 4, 16.00 US: ISM non-manufacturing (Sep) SEB Cons. Prev. Total 55.5 55.5 55.3 The ISM non-manufacturing index rose in August but only partly reversed the sharp fall in July. The rebound was fairly broad based but the index is still slightly below the average over the past 12 months. The forward-looking new orders component recovered more sharply than the headline index suggesting that headline has further room to improve. Our forecasting model suggests a slight increase in the index to 56.1. Fed s regional service sector surveys suggest activity expanded at about the same pace as previous month in September. We forecast the ISM non-manufacturing index to edge up to 55.5 in September, slightly above the consensus forecast.
Thursday 5, 09.30 SWE: Industrial production & orders (Aug) % mom/yoy SEB Cons. Prev. Production 0.2/11.6-0.8/--- -0.9/5.3 New orders --- --- 2.2/2.1 Stronger sentiment in the manufacturing sector has increasingly been reflected in an upturn for hard data. Strong orders support that production will continue to grow fast in the second half of this year. Strong output growth according to the NIER business tendency survey also suggest an acceleration during fall. The marked decline for PMI in August is a downside risk for this month. We expect a small increase in production in August. The y/y change will be boosted by a very weak outcome in August last year.
Thursday 5, 09.30 SWE: Service sector production (Aug) % mom/yoy SEB Cons. Prev. Service production -0.5/4.4 --- 1.5/4.1 Service sector production seems to have lost some momentum during the first half of the year, but increased strongly in July. We expect a slight payback from last month. Both the PMI and the NIER business tendency survey suggest that service sector growth could pick-up speed further during fall.
Friday 6, 08.00 NOR: Manufacturing production (Aug) % m/m / y/y (WDA) SEB Cons. Prev. Manufacturing production --- -0.7/ --- 1.9/1.4 Industrial production --- --- 0.7/0.5 Manufacturing production has improved in 2017 in line with stronger external demand from Norway s main trading partners. The July data revealed a large upside surprise. However, manufacturing production has often been volatile on a monthly basis and we treat such large surprises relative to the consensus with scepticism. We, therefore, expect manufacturing production to correct lower in August. However, the outlook for H2is positive as judged by various sentiment indicators. Both the quarterly manufacturing sentiment (BTS) and manufacturing PMI are at multi-year highs, supported by stronger sentiment among trading partners and a still weak currency in trade-weighted terms.
Thursday 6, 09.30 SWE: Central government borrowing (Sep) SEK bn NDO Prev. Month (NDO estimate) 8-39.1 Last 12 months -16-52.1 The borrowing requirement over the last 3 months has been SEK 18bn lower than the NDO s June forecast. Tax revenues have been SEK 16bn stronger. Our 2017 borrowing forecast is almost SEK 50bn lower than the debt office s estimate. ESV (government agency) sees even lower borrowing. We predict the NDO to lower nominal bond issuance to SEK 2bn (from SEK 2.5bn) / bi-weekly auctions. If borrowing in September is lower than expected the reduction could be larger. The delayed decision regarding the size of the Riksbank s currency reserve means that outstanding amounts of FX bonds will increase by SEK 200-250bn, which means the NDO can reduce its own FX lending. This will create some room (around SEK 20bn) for the NDO for SEK debt. In its proposal for Guidelines for debt management presented last week the national debt office wants an extension of the maturity of the nominal SEK debt by 0.3 years (to an interval between 4.3 and 5.5y). 2016 2017 2018 NDO (Jun) -85 17-124 (-20) SEB -85-30 -40 NIER -85-30 -25 ESV -85-38 -33
Friday 6, 14.30 US: Nonfarm payrolls (Sep) In August, total payrolls growth was a weaker than expected 156k, compared to consensus expectations of 180k and our 190k forecast. The Bloomberg consensus is suggesting a 75k reading for September total payrolls at the time of writing. However, the forecast range is huge (-45k to 209k) due to the difficulties of estimating the impact of the hurricanes. We forecast that total employment growth was 110k in September. Unemployment edged up to 4.4% in August where we expect it to remain in September. However, we forecast the level to decrease to around 4% by the end of 2017. The broader underemployment rate, U6, remained at 8.6% and the participation rate was also unchanged at 62.9%. Only little slack remains in the labour market. From the Fed s perspective, wage growth is more important than employment. The August report saw annual earnings growth at 2.5%. A monthly gain of 0.3% should push y/y earnings to 2.6%. We expect continuing labor market tightening to result in accelerating wage growth rather than employment gains. With a lot of uncertainty surrounding the impact of the hurricanes, the employment report should be taken with a grain of salt. The Fed will probably not put much emphasis on this report and neither should markets. SEB Cons. Prev. Total 110k 88k 156k Private -- 53k 165k Manufacturing -- 8k 36k Unemp. rate 4.4% 4.4% 4.4% Hourly %m/m 0.3% 0.3% 0.1% Hourly %y/y 2.6% 2.6% 2.5% Change househ. employment Avg. weekly hours Participation rate -- -- -74k -- -- 34.4 -- 34.4 62.9%
European Sovereign Rating Reviews Recent rating reviews Friday, 22 Sep 2017 Agency previous new action Croatia S&P BB / Stable BB / Positive outlook raised Latvia S&P A- / Stable A- / Positive outlook raised UK Moody's Aa1 / Negative Aa2 / Stable 1 notch downgrade Upcoming rating reviews Friday, 29 Sep 2017 Agency Rating / Outlook last change Change? Bulgaria Moody's Baa2 /Stable 07/22/2011 no France DBRS AAA / Stable 04/29/2016 no Malta S&P A- / Stable 10/14/2016 outlook to Positive? Norway Fitch AAA / Stable 12/18/2007 no Spain S&P BBB+ / Positive 03/31/2017 no Switzerland Fitch AAA / Stable 06/11/2007 no Friday, 06 Oct 2017 Agency Rating / Outlook last change Change? Austria DBRS AAA / Stable 06/21/2011 no France S&P AA u / Stable 10/21/2016 no Italy Moody's Baa2 / Negative 12/07/2016 no Luxembourg Moody's Aaa / Stable 02/28/2014 no Romania S&P BBB- / Stable 05/16/2014 no Spain DBRS A L / Stable 04/08/2016 no Source: Bloomberg