Macro & FICC research

Week Ahead Friday, 21 February 2020

Sweden likely to have shown a small positive growth in Q4 Global outlook: Uncertainty over the effects of the coronavirus continues to drive markets. The unexpected decline in US PMI in February, for especially services, is a sign that the outbreak may be affecting sentiment also outside Asia, with Markit quoting weakened demand in travel and tourism, falling exports and supply chain disruptions. This went against the earlier surge in Empire and Philly Fed and a larger than expected increase in Euro Area manufacturing PMI:s in February. ESI and German Ifo will be key in the Euro Area in the coming week. While the rise in the PMI sends a positive signal for underlying developments in the beginning of the year, risks for a renewed virus related setback in coming months remain. In the US, we will get consumer confidence, durable goods orders and core PCE, the Fed’s favoured inflation measure. Core PCE is expected to rise from 1.6% to 1.7% in February due to basis effects from low readings in the beginning of last year. Underlying price developments remain muted, however.

Nordic outlook: Sweden faces a data packed week with the NIER business tendency survey, trade balance, retail sales, PPI and household lending, all on Thursday, followed by Q4 GDP on Friday. The NIER measure likely exaggerates manufacturing activity compared to the PMI, but even with a small set-back in February sentiment is expected to remain at levels close to the historical average. Indicators for GDP are more mixed than normal, but firm consumption and a large positive contribution from net trade imply that GDP continued to growth in Q4 and our y/y estimate of 0.8% is in line with the Riksbank’s. Riksbank minutes confirmed that it will take large deviations from forecasts to trigger new policy changes. The majority also seems to favour QE before new rate cuts and to expect fiscal policy to contribute in the case of weakness in the real economy. This should limit the impact from real data on monetary policy. Our forecast that CPIF inflation ex energy will fall below 1.5% this summer still means markets should continue to price a probability for a new cut even if our main scenario is that policy will be on hold for the coming years. Household data will be in focus in Norway next week. Goods consumption should start the year on a strong note with a rebound from the hefty fall in December, while unemployment data is expected to show a still-tight labour market. Norges Bank will announce the amount of daily NOK purchases for March, but the expected 500mn per day is unlikely to be decisive for the NOK, which is currently driven by risk sentiment and oil prices.

SEB Macro & FICC Research Editor: Elisabet Kopelman Economist, US & Fed Phone: +46-70 655 3017 elisabet.kopelman@seb.se

US: Basis effects will push up the Fed’s favoured inflation metric

Swe: Slowing but still positive GDP growth

Macro & FICC research: Week Ahead Friday, 21 February 2020 2

Key Economic Indicators & Events: 24 Feb – 1 Mar, 2020 Due to US government shutdown many US calender events are cancelled. If the shutdown ends. US indicators not included in this calender could be presented.

Date CEST Country Event Period SEB forecast* Consensus* Last*

Mon 24 Speeches: BOE chief economist Haldane to speak in London (19:30), Fed’s Mester to speak at NABE conference (21:00).

10:00 GER IFO business climate | expectations | curr. assessment Feb 96.0 | 95.1 | 95.9 95.3 | 92.1 | 98.6 95.9 | 92.9 | 99.1 14:30 US Chicago Fed nat. activity index Jan -0.16 -0.35 16:30 US Dallas Fed manf. activity Feb 0 -0.2 Tue 25 Govt. Auctions: UK to sell 9y bonds (11:30), US to sell 2y notes (19:00). Speeches: Riksbank’s Jansson to give speech in London (10:30), World Bank’s Malpass

to speak in Washington (14:00), Fed’s Clarida to speak in Washington (21:15). Reports: Millicom, Jyske Bank, Home Depot. Other: CPB world trade monitor (15:00), Germany: GDP SA qoq | NSA yoy (final).

08:00 GER Private consump. qoq | gov. spending | cap. investment Q4 0.2 | 0.3 | -0.2 0.4 | 0.8 | -0.1 15:00 US House price purchase index qoq Q4 --- 1.1 15:00 US FHFA house price index mom Dec 0.4 0.2 15:00 US S&P Corelogic CS house price index, 20-city Dec 0.45 0.48 16:00 US Conf. board consumer conf. | board exp. | present sit. Feb --- 132.1 | --- | --- 131.6 | 102.5 | 175.3 16:00 US Richmond Fed manufact. Index Feb 13.0 20.0 Wed 26 Govt. Auctions: Sweden to sell SGB 1058, 2025 (11:00), Noway sells bonds (11.00), Germany to sell 5y bonds (11:30), U.S. to sell 5y notes (19:00).

Speeches: Norges Bank’s Matsen participates at conference (08.00), ECB governing council member Makhlouf to speak in Berlin (12:00). Reports: SAS, Booking Holdings. Kopparbergs Bryggeri. Other: Riksbank’s Ingves to visit Nasdaq to discuss payment market (09:00), DOE U.S. crude oil inventories (16:30)

08.00 NOR LFS unemployment rate Dec 4.0 4.0 4.0 13:00 US MBA mortgage applications --- -6.4 16:00 US New home sales | new home sales mom Jan 710k | 2.3 694k | -0.4 Thu 27 Speeches: BOE’s Cunliffe to speak on panel in London (11:30), Fed’s Evans to speak in Mexico City (17:30). Reports: Balder, K-fastigheter, Powercell, Zalando.

08.00 NOR Retail sales ex. autos Jan 1.2/-0.6 1.3/--- -2.0/-0.6 09:00 SWE Consumer confidence | manuf. sentiment I ec. sent. Feb 93.0 | 101.0 | 97.0 --- 92.6 | 101.8 | 97.1 09:30 SWE Trade balance Jan SEK 0.5bn --- SEK 0.3bn 09:30 SWE PPI Jan -2.0/-1.5 --- -0.5/1.3 09:30 SWE Household lending yoy Jan 5.0 --- 5.0 09:30 SWE Retail sales Jan -0.4/2.1 -0.2/--- 0.5/3.4 11:00 EA Economic confidence | indus. confidence Feb 102.0 | -7.0 102.5 | -7.5 102.8 | -7.3 11:00 EA Business climate indicator | services conf. | cons. conf Feb -0.2 | 10.7 | -7.0 -0.3 | 11.1 | --- -0.23 | 11 | -6.6 14:30 US GDP annualized qoq | GDP price index Q4 2nd 2.2 | 1.4 2.1 | 1.4 14:30 US Personal consumption | Core PCE qoq Q4 2nd 1.8 | --- 1.8 | 1.3 14:30 US Durable goods orders | ex. transport Jan P --- -1.5 | 0.2 2.4 | -0.1 14:30 US Cap goods orders nondef. ex. air | ship nondef. Jan P --- 0.2 | 0.1 -0.8| -0.3 14:30 US Initial jobless claims | continuing claims 211k | --- 210k | 1.7mn 16:00 US Pending home sales Jan 2.0/--- -4.9/6.8 17:00 US Kansas city Fed manufacturing activity Feb -1.0 -1.0 Fri 28 Speeches: Bundesbank President Weidmann to speak in Frankfurt (11:00), BOE chief economist to speak in Oxford (12:15), Fed’s Bullard to discuss the

economy and monetary policy (15:15). Riksbank’s Ingves to speak on economic situation in Sweden and Finland (Saturday, 10:00). Other: France: GDP qoq/yoy (final).

00:30 JAP CPI yoy | ex. fresh food | ex. fresh food energy Feb 0.5 | 0.6 | 0.8 0.6 | 0.7 | 0.9 00:30 JAP Jobless rate | job-to-applicant ratio Jan 2.2 | 1.57 2.2 | 1.57 00:50 JAP Industrial production Jan P 0.2/-3.1 1.2/-3.1 07:00 FIN GDP qoq/yoy Q4 --- 0.7/2.2 08.00 NOR Credit growth | households Jan --- --- 5.1 | 5.0 08:00 DEN GDP qoq/yoy Q4 0.3 0.4/2.3 08:00 GER Import price index Jan 0.2/0.4 0.2/-0.7 08:45 FRA CP | CPI EU harmonized Feb P 0.0/1.4 | 0.1/1.7 -0.4/1.5 | -0.5/1,7 09:30 SWE Wages non-manual workers yoy Dec --- 2.6 09:30 SWE GDP qoq/yoy Q4 0.2/0.8 0.2/0.8 0.3/1.6 09:55 GER Unemployment change (000's) | unemp. claims rate SA Feb 5k | 5.0 -2k | 5.0 10.00 NOR Registered unemployment | SA Feb 2.3 | 2.2 2.3 | --- 2.4 | 2.2 10.00 NOR Norges Bank’s daily FX purchases Mar NOK -600mn --- NOK -500mn 14:00 GER CPI | CPI EU harmonized Feb P 0.3/1.7 | 0.4/1.6 -0.6/1.7 | -0.8/1.6 14:30 US Advance goods trade balance Jan USD -69 bn USD S-68 bn 14:30 US Wholesale inventories mom | retail inventories mom Jan P --- -0.2 | 0.0 14:30 US Personal income | personal spending Jan 0.3 | 0.3 0.2 | 0.3 14:30 US PCE deflator | PCE core deflator Jan 0.1/1.8 | 0.2/1.7 0.3/1.6 | 0.2/1.6 14:30 CAN GDP Dec 0.1/1.6 0.1/1.5 15:45 US PMI Chicago MNI Feb 46.3 42.9 16:00 US U. of Mich. sentiment Feb F 100.6 100.9 UK Nationwide house PX Feb 0.4/2.3 0.5/1.9 29/2 02:00 CHI PMI composite | manufacturing | non manuf. Feb --- | 47.4 | 50 53 | 50 | 54.1 * % MoM/YoY unless otherwise stated. Lara Mohtadi, lara.mohtadi@seb.se

Macro & FICC research: Week Ahead Friday, 21 February 2020 3

GER: IFO (Feb) Monday 24, 10.00

% SEB Cons. Prev.

IFO Business Climate IFO Expectations IFO Current Assessment

96.0 93.5 99.5

95.3 92.1 98.6

95.9 92.9 99.1

• The past few months the German IFO has recovered as the

manufacturing sector leaves a deep trough behind it. • So far, domestic demand has held up quite nicely which was

also evident in Q4 German GDP. • The uncertainty surrounding the potential impact on the real

economy from the corona virus raises questions over both where sentiment will go, but also how one should interpret the near-term data. An ongoing recovery in IFO is still the best guess if corona-related effects could be relatively contained.

US: Conf. Board, Consumer confid. (Feb) Tuesday 25, 16.00

Index SEB Cons. Prev.

Consumer confidence --- 132.1 131.6 • The Conference Board Index (CCI) has been gradually rising

during the past few months, but remains below the earlier highs in fall-18 and mid-19.

• In general, consumers are confident according to both the CCI and the Michigan index, supported by a strong labour market, moderate real income growth and rising asset prices. As long as these trends persist, confidence is likely to remain at firm levels and we share consensus expectations of a further increase in the CCI in February.

• Current assessments of the labour market (jobs plentiful – jobs hard to get) remain at high levels, while expectations for jobs in 6 months time continues to moderate.

NOR: LFS unemployment rate (Dec) Wednesday 26, 08.00

% of labor force SEB Cons. Prev.

Unemployment rate, SA 4.0 4.0 4.0 • The LFS unemployment rate increased further in Q4 and signals

a notable deterioration in the labour market during H2 2019. However, there has been volatile swings in both employment and the labour force which may have exaggerated the rise in the jobless rate. According to the registered metric the unemployment rate has been stable at a low level during H2.

• Combined signals from the labour market suggest that employment growth is slowing and the unemployment rate has reached a trough, which is reasonable considering slower economic growth ahead.

• We expect a jobless rate of 4.0% in Nov-Jan (officially reported as December), which would imply a 0.1% increase from the previous 3-months period.

• Norges Bank prefers the registered unemployment data as “the LFS is a sample survey and there is considerable uncertainty associated with month-to-month changes”.

Macro & FICC research: Week Ahead Friday, 21 February 2020 4

NOR: Retail sales (Jan) Thursday 27, 08.00

%mm/yy SEB Cons. Prev.

Retail sales ex. autos (vol) 1.2/-0.6 1.3/--- -2.0/-0.6 • Retail sales ex. autos posted a hefty decline in December,

which was rather broad-based among sub-groups. Retail sales have been volatile on a monthly basis and a strong rebound is expected in January.

• Households domestic consumption of goods, which feeds directly into GDP, corrected even more by falling 2.3% m/m in Dec. Goods consumption has been surprisingly weak in recent years and the 0.1% annual increase in 2019 was the weakest since 2009. This is surprising given strong employment growth and solid gains in household real disposable income growth. Spending on services has held up at a trend-like pace.

• We expect a solid increase in retail sales to result in a solid monthly increase in goods consumption in January.

• Still-solid household fundamentals and a rebound in auto sales should support consumption in 2020. Norges Bank forecasts a 1.6% increase in household consumption this year.

SWE: Consumer confidence (Feb) Thursday 27, 09.00

Index SEB Cons. Prev.

Consumer confidence 93.0 --- 92.6

• Consumer confidence has been subdued over the past 12 months and despite a small recovery in the past few months confidence is close to the lowest level since late 2012. Sentiment regarding households’ own situation (micro index) is at ok levels, while sentiment regarding the Swedish economy has declined to the lows seen after the financial crisis. Rising unemployment and weak growth indicators is a downside risk for the macro index, but we predict the micro index to recover after declining slightly in January.

SWE: NIER business survey (Feb) Thursday 27, 09.00

Index SEB Cons. Prev.

Manufacturing sentiment 101.0 --- 101.8 Economic tendency indicator 97.0 --- 97.1 • Manufacturing sentiment took a large step higher in January

increasing above the historical average to the highest level since early 2019.

• Even-though manufacturing PMI also improved in January we think the NIER survey exaggerates the underlying trend and predict a small setback this month.

• Service sector sentiment has also trended lower since the beginning of last year, reaching the lowest level since 2013. Service sentiment is showing signs of approaching a trough and a marked increase for service sector PMI implies that service sentiment will rise slightly in February.

• Sentiment in construction is above the historical average and trended gradually higher over the last 12 months. We predict this trend to continue.

Retail sentiment has increased to cyclical highs over the last 12 months. Despite expecting retail sector to continue to do relatively well, risks are that sentiment will fall back.

Macro & FICC research: Week Ahead Friday, 21 February 2020 5

SWE: Trade balance (Jan) Thursday 27, 09.30 SEK bn SEB Cons. Prev.

Trade balance 0.5bn --- 0.3bn • After trending lower since the financial crisis the trade balance

has recovered strongly. Exports turned weaker in October and November last year after remaining firm most of last year despite slowing global growth.

• Weak imports are the most important reason for the recovery in the trade balance.

• Weak exports growth will weigh on Q4 GDP, but even larger declines for imports mean that net trade will continue to give a large positive contribution to growth. The trade balance metrics are for this reason sending somewhat mixed signals about Q4 growth.

• SCB will present exports and imports at constant prices in Q4, which could give some clues about Q4 GDP (presented 28 February).

SWE: PPI (Jan) Thursday 27, 09.30 % mom/yoy SEB Cons. Prev.

PPI -2.0/-1.5 --- -0.5/1.3 PPI, consumer goods -1.2/2.9 --- 0.8/4.3 • PPI prices are predicted to continue to decline sharply in

January driven by a stronger SEK and sharply lower electricity prices.

• The exchange rate weakened slightly in February, but electricity prices continued to decline markedly suggesting that PPI will continue to decline in the near term.

• PPI on food is turning lower indicating that the price spike caused by the dry summer weather in 2018 is abating. Potential spill over effects from the swine fever in China is an upside risk for PPI on food over the next 3-6 months.

• PPI on consumer goods are still rising fast highlighting near term upward pressure on CPI. The exchange rate is predicted to lower PPI on consumer goods in January and base effects will exert more downward pressure during the spring.

SWE: Retail sales (Jan) Thursday 27, 09.30 % mom/yoy SEB Cons. Prev.

Retail sales -0.4/2.1 -0.2/--- 0.5/3.4 • After being weak during the spring retail sales recovered

during the second half of last year. • The outlook for retail trade according to sentiment indicators

has improved. Confidence among retailers increased significantly at the end of last year and is far above the historical average. Household sentiment (CCI) declined in 2019 to the lowest level since 2012 but recovered slightly towards the end of the year.

• We expect the upward trend to continue but think that the warm and snowless winter weather may have caused sales of sports equipment and to some extent clothes to decline. We predict retail sales in January to have declined slightly.

Macro & FICC research: Week Ahead Friday, 21 February 2020 6

SWE: Household lending (Jan) Thursday 27, 09.30 % yoy SEB Cons. Prev.

to households 5.0 --- 5.0 to non-financial corporations --- --- 4.4 • Household lending has trended lower since the beginning of

2018 but has been stable since the middle of last year. • A slowdown in the number of completions of new homes and

higher amortizations are expected to contribute to a slight further moderation in lending going forward. Lending to non-financial corporations has also gradually slowed since the beginning of 2018. Declining investments imply that the slowdown will continue over the next 6-12 months.

Euro area: Consumer Confidence (Feb ) Thursday 27, 11.00

% mm/yy SEB Cons. Prev.

Consumer confidence -7.0 -- -6.6 • Domestic demand and consumer confidence has remained firm

during the manufacturing slump in 2019. A short term decline on the back of the protests in France is likely to turn in the opposite direction.

• The key theme in the next months will be the corona virus and the potential economic impact that will have. In our view, the manufacturing sentiment and production is the one which will take the first brunt of impact. Although consumers might feel a worry of travelling, confidence doesn’t necessarily have to be affected at this moment.

Euro area: ESI (Feb) Thursday 27, 11.00

% mm/yy SEB Cons. Prev.

Economic confidence 102.0 102.5 102.8 Industrial confidence -7.0 -7.5 -7.3 Business climate indicator -0.20 -0.3 -0.23 Sevices confidence 11.0 11.1 11.0 • The flash PMI for the euro area surprised on the upside in

particular driven by a continued rise in manufacturing sentiment in Germany. Service sector was a mixed picture but domestic demand should still be perceived as resilient vs the past years manufacturing slump. A similair movement is the best guess for the ESI survey.

• One should interprete current sentiment with some cautioun as its still unclear how and to what extent a shutdown of parts of the Chinese production chain will have on the rest of the global economy. Although the surveys have been undertaken during the outbreak sentiment should at least in the near term be negatively affected.

Macro & FICC research: Week Ahead Friday, 21 February 2020 7

US: Durable goods orders (Jan, prel.) Thursday 27, 14.30

% mm SEB Cons. Prev.

Durable goods orders --- -1.5 2.4 Ex transport --- 0.2 -0.1 Core, cap. goods. non-def., ex. air --- --- -0.8 • Defense orders, especially aircrafts, boosted orders in

December and can be expected to reverse in January. • Disregarding monthly volatility from defence and transports,

orders are stabilising. Trade concerns are fading, while there are signs of improving sentiment in the Euro Area. The rebound in the manufacturing ISM order component in January and rising new orders in early regional manufacturing indices for February (Empire and Philly Fed) suggest a pick-up in orders.

• Boeing will remain a drag. Boeing reported no orders in January, after only 3 in December.

• Stabilising core capital goods orders is a positive sign for business investments after several quarters of declines.

• Disturbances from the coronavirus outbreak in China is a downside risk.

US: GDP Q4 (2nd) Thursday 27, 14.30

% SEB Cons. Prev.

GDP annualised q/q --- 2.2 2.1 Personal consumption --- 1.8 1.8 • Growth has been stable around 2% in recent quarters, despite

weakening sentiment indicators (especially manufacturing ISM). Underlying growth in Q4 was weaker than suggested by the headline, however. Personal spending growth decelerated further and was below expectations (consensus +2.3% q/q AR) while investments remained weak, with rising residential investments offset by declining business investments. The main driver was instead a 1.5%-points contribution from net trade, due to falling imports and only partly offset lower inventories.

• Going forward, reduced trade and external risks increases the probability of a soft landing in the US, with growth remaining close to trend during 2020-2021. Boeing production pause will weigh on Q1 and corona is a downside risk.

NOR: Credit growth (Jan) Friday 28, 08.00

% yy SEB Cons. Prev.

Credit growth | households --- | --- --- | --- 5.1 | 5.0 • Household credit growth has gradually eased over the past

years. Although a change in the period for conversion of student loans to grants added to the slowing in H2 2019, the underlying trend was nonetheless clear.

• The introduction of the new credit register in July 2019, which includes ”live data” on households secured and unsecured debt, may have contributed to the slowing.

• Home price inflation is expected to remain moderate in the coming year as the housing market seemingly is balanced. This is likely to contribute to keeping household credit growth at historically low levels.

• Household credit growth was 5.0% in December, which was below Norges Bank’s 5.2% y/y forecast. The bank forecasts credit growth at 5.1% y/y in Jan-Feb and 5.0% y/y in March.

• As household credit growth is in line with growth in disposable income, the debt-to-income ratio has stabilised.

Macro & FICC research: Week Ahead Friday, 21 February 2020 8

SWE: GDP (Q4) Friday 28, 09.30 % qq/yy SEB Cons Riksbank. Prev.

GDP 0.2/0.8 0.2/0.8 0.8 0.3/1.6

• Indicators for GDP are more mixed than normal, but firm consumption growth and a large positive contribution from net trade imply that GDP continued to grow in Q4.

• PMI:s below 50 for both manufacturing and services are downside risks.

• Also, the positive net trade is driven by a large decline for goods import, which implies declining fixed investments. Production data indicate unchanged GDP q/q in Q4.

• There are also upside risks to growth with OLS-estimates indicating growth close to 2% y/y, i.e. suggesting q/q growth well above 1%. The firm consumption and relatively high employment growth are the main drivers of the high model estimates.

NOR: Registered unemployment (Feb) Friday 28, 10.00

% of labor force SEB Cons. Prev.

Registered unemployment, NSA 2.3 2.3 2.4 SA | incl. labour market measures 2.2 | 2.7 --- | --- 2.2 | 2.7 • The unadjusted jobless rate jumped 0.2%-points in January.

Such an increase is normal for this month of the year and we expect part of the increase to be reversed in February.

• In seasonally-adjusted terms the unemployment rate has stabilized at a low level, also when including people on various employment schemes. Norges Bank forecasts the registered unemployment rate to remain stable at 2.2% throughout 2020.

• The LFS jobless rate trended higher during the second half of 2019. Though the data is volatile, it adds to the picture that unemployment is bottoming out.

• Norges Bank prefers the registered unemployment data rather than the survey-based LFS data. This will be the final print ahead of the March MPR.

NOR: Norges Bank FX purchases (Mar) Friday 28, 10.00

SEB Cons. Prev.

Daily FX purchases (NOK mn) -600 --- -500 • According to the 2020 budget the non-oil budget deficit is

projected to grow to NOK 240bn from around NOK 230bn in 2019.

• In 2019 NOK-purchases were much more stable than the year before averaging around NOK -600mn per day.

• In January purchases were reduced to NOK -500mn per day. • The oil price assumption always creates uncertainty as higher

oil prices tend to increase government tax revenues in NOK and consequently reduce purchases, while a lower oil prices tend to increase NOK purchases.

• An oil price of around $60/bbl suggest that NOK-purchases should remain roughly the same this year as last year.

• Current pace of NOK-500mn/day seems to be on the low side and we expect the NB to increase daily purchases slightly to NOK -600mn, which is in line with our average estimate for 2020.

GDP, % y/y

2019Q4p 2019Q3

Private consumption 2.6 1.6

Public consumption 0.0 0.7

Fixed investments -3.0 0.0

Exports 0.5 6.8

Goods -1.5 4.0

Services 5.0 13.2

Imports -1.2 4.3

Goods -4.0 3.0

Services 5.0 6.9

Inventories, contribution, pp -0.3 -0.2

GDP 0.8 2.0

GDP, working day adjusted 0.8 1.6

Employment (LFS) 0.8 0.5

Macro & FICC research: Week Ahead Friday, 21 February 2020 9

US: PCE core deflator (Jan) Friday 28, 14.30 % mm/yy SEB Cons. Prev.

PCE deflator --- 0.1/1.8 0.3/1.6 PCE core deflator 0.2/1.7 0.2/1.7 0.3/1.6 • Core PCE inflation is expected to accelerate in January mainly

due to base effects from weak readings in the beginning of last year.

• Core CPI is increasing at a relatively high rate (2.3% y/y), which partly is explained by rising health care costs. Health care costs according to PCE have remained muted.

• In recent years the spread between core CPI and core PCE has tended to be larger than normal, which is explained by rents. . Continued high rents inflation means that the spread between CPI and PCE is expected to remain wider than usual.

We see slight upside risks to PCE inflation in January.

Macro & FICC research: Week Ahead Friday, 21 February 2020 10

Disclaimer

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