Weekly Focus - Deflation grabs the headlines again
Transcription
Weekly Focus - Deflation grabs the headlines again
Investment Research 9 January 2015 Weekly Focus Deflation grabs the headlines again Market movers ahead The risk of deflation will again be in focus in the coming week, as inflation figures are scheduled for release in the US, Sweden and Denmark. Contents US inflation in December 2014 looks set to hit a five-year low at 0.8% y/y. Market movers ..................................................... 2 Headline inflation in Sweden is already negative and we look for price growth in December of -0.6% y/y, which is below the Riksbank’s forecast and supportive of further monetary policy easing in the coming months. Global Macro and Market Themes .......... 5 Denmark also skirted with deflation in December – we expect inflation of 0.2 % y/y European eyes will be looking slightly further ahead to the week after next, when an ECB meeting and a general election in Greece are on the schedule. Scandi Update....................................................... 9 Latest research from Danske Bank Markets .................................................................11 Macroeconomic forecast ...........................12 Financial forecast ............................................13 Calendar ................................................................14 Global macro and market themes We focus on European deflation and conclude it is not ‘dangerous’. We expect growth in Europe to pick up despite deflation. US growth is slowing, but the economy remains strong and we expect higher yields despite the prospect of even lower inflation. Financial markets have started 2015 on a nervous footing, but we nevertheless remain optimistic. Financial views Major indices 09-Jan 3M 12M 10yr EUR swap 0.77 0.85 1.05 EUR/USD 118 114 117 51 70 84 09-Jan 6M 12-24M 2062 0-5% 5-8% ICE Brent oil S&P500 Focus Source: Danske Bank Nordic Outlook, 8 January Flash Comment: negative euro inflation in December, 7 January US inflation tumbling Inflation below Riksbank forecast Editors Allan von Mehren +45 4512 8055 [email protected] Source: Macrobond Source: Macrobond Important disclosures and certifications are contained from page 16 of this report. Steen Bocian +45 45 12 85 31 [email protected] www.danskeresearch.com Weekly Focus Market movers Global After a lot of interesting numbers for the US over the Christmas period, we are due to get the last figures for CPI and retail sales for 2014, while we are also set to receive the first indicator of how the American consumer feels in the new year – the preliminary University of Michigan consumer sentiment preliminary. CPI to drop to lowest level since 2009 The consumer price index (CPI) continues to fall and we expect it to fall 0.3% m/m and be 0.8% y/y in December. The yearly inflation has not been this low since October 2009, when it was negative at -0.2% y/y following the major oil price fall in 2008. It is mainly lower energy prices that are affecting the headline index, while we expect core CPI to stay at positive 0.1% m/m and 1.7% y/y. US consumption is getting a lift from the fall in energy prices, as lower prices free up income that can be spent on other items. This was evident in November retail sales and our models suggest decent core sales in December as well. Thus, we expect core retail sales (excluding cars, gasoline and building materials) to post an increase of 0.4% m/m. We expect total retail sales to post a decline of 0.2% m/m in December but this is due primarily to lower gasoline prices dragging down nominal gasoline sales. Source: Macrobond Financial University of Michigan consumer confidence is due to be released on Friday and will give the first indication of consumer sentiment in 2015. The index ended on a strong note last year, reaching the highest level since January 2007. The consensus expectation is a further increase to 94.1 but we forecast a smaller increase to 93.7 from 93.6. Furthermore, the calendar includes several Fed speeches. The rotation in voting rights at the upcoming January meeting means that the only voting member scheduled to speak is Dennis P. Lockhart (neutral). Three non-voting members will give comments as well (Charles Plosser [hawk], Narayana Kocherlakota [dove] and Bullard [hawk]). On top of this, the Fed’s Beige book is scheduled for release on Wednesday and the LMCI is due on Monday. In the euro area, focus will remain on the ECB, where expectations are increasing that we will see a QE announcement at the upcoming meeting on 22 January. Next week, an advocate general of the EU Court of Justice will give a non-binding opinion on the legality of the ECB’s OMT programme. Although the opinion is non-binding, it is likely to have impact on the current QE expectations. However, in our view, we cannot compare the OMT programme directly to a new broad-based QE programme, which the ECB would justify with the need to combat risks to price stability. At the latest ECB meeting, Mario Draghi’s argument was that it would be illegal not to pursue the mandate of maintaining inflation rates below but close to 2% over the medium term. ECB president Mario Draghi and German chancellor Angela Merkel are also speaking at a conference organised by the German newspaper Die Welt and comments about QE in particular will be followed closely ahead of the ECB meeting. Attention will also be on comments about a potential Greek euro exit ahead of the Greek election on 25 January, although Merkel has this week dismissed suggestions of a Greek euro exit. 2| 9 January 2015 Euro deflation for the first time since the financial crisis in 2009 Source: Macrobond Financial www.danskeresearch.com Weekly Focus The most interesting data release is German GDP for 2014, which will indirectly give the first estimate of the Q4 growth rate. Our estimate is that the German economy expanded 0.5% q/q in Q4, implying a yearly growth rate in 2014 of 1.5%. The higher growth in Q4 compared with Q3, when the economy expanded only 0.1% q/q, is driven mainly by higher private consumption. However, as German business sentiment improved at the end of 2014, we also expect less headwind from declining investments and reduction of inventories. In Q3, fixed investments declined 0.9% q/q and there was a negative contribution to quarterly GDP growth from changes in inventories of 0.5pp. Looking further ahead, demand from private consumption and fading uncertainty should result in growth in business investments. Additionally, the considerable fall in the effective exchange rate supports competitiveness and thus exports and the continued fall in oil prices boosts consumption through higher real wage growth. In light of this, we expect the German economy to perform better in 2015 than it has done in 2014. Rebound in German growth in Q4 14 Source: Macrobond Financial We expect Euro area industrial production for November to increase at 0.1% m/m after a small increase in October. In China, the most important releases next week will be the foreign trade data for December and money supply and credit data for December. Foreign trade data are very volatile and both export and import growth was subdued in November. Hence, we expect to see some rebound in both export and import growth in December. We estimate export growth improved to 10.9% y/y in December from 4.7% y/y in November and import growth rebounded to 1.0% y/y in December after contracting 6.7% y/y in November. We expect the trade balance surplus to decline to USD46.4bn in December, from USD54.5bn in November. However, the overall trend remains that the Chinese trade balance surplus is again increasing substantially due mainly to subdued import growth on the back of lower import prices. Credit growth has stabilised in recent months, although year-on-year growth has continued to edge lower. We estimate growth in the broad credit measure total social finance (which also includes shadow finance) eased only slightly to 14.3% y/y in December, from 14.4% y/y in November. In Japan, we have a relatively quiet week ahead of us, with only minor releases scheduled. We estimate machinery orders rebounded in November after declining in October. Domestic machinery orders are the best indicator for private business investment. So far, domestic machinery orders suggest that private business investments have recovered substantially in the wake of the slump following the consumption tax hike in April. The Economic Watcher Survey (a business survey) for December and the current account for November are also due to be released next week. China’s trade balance surplus is again increasing Source: Macrobond Financila, Danske Bank Markets In Japan, machinery orders have rebounded following tax hike in April Source: Macrobond Financial, Danske Bank Markets 3| 9 January 2015 www.danskeresearch.com Weekly Focus Scandi In Denmark, we estimate inflation fell to -0.3% m/m and 0.2% y/y in December, from -0.2% m/m and 0.5% y/y in November. This should be seen in the light of falling petrol prices on the back of lower oil prices. On average, petrol was DKK0.85/litre cheaper in December than in November. We also expect prices for books and clothing to exert a slight downward effect, as they were extraordinarily high in November. There is still a real chance of the annual rate of inflation dipping below 0.0% in January thanks to the combined effects of tax changes and oil prices. Inflation expected to fall in December We estimate December inflation in Sweden a tenth below the Riksbank estimate, both for CPI and CPIF, possibly with a slight downside risk. This will continue to add pressure on the Riksbank to deliver unconventional measures, perhaps not in February but later in the spring. The reason is that we see inflation increasingly undershooting the Riksbank’s inflation forecast (again). Source: Statistics Denmark The December budget borrowing requirement may be quite interesting. The Norwegian Debt Office (NDO) kept the borrowing requirement almost unchanged at SEK61bn for 2014 in its new forecast, while lifting it sharply (by SEK40bn to SEK51bn) for 2015, the latter because of the deteriorating economic outlook. Still, we are slightly confounded by monthly outcomes between June and November running well ahead of the forecast, in particular tax revenues, implying a bigger reduction in the 2014 total. The NDO’s most recent forecast for December was a BR of SEK77bn. Inflation again below Riksbank path There are no market movers in Norway in the coming week. Source: Macrobond Financial, Danske Bank Market movers ahead Global movers Event Mon 12-Jan Tue 13-Jan Wed Thurs Fri 14-Jan 15-Jan 16-Jan 9:00 CHF Centralbank - press briefing Period Danske 46.4 - CNY Trade balance USD bn Dec 10:30 GBP CPI m/m|y/y Dec 9:30 EUR Draghi and Merkel speaks at conference 9:30 EUR EU court gives advice on ECB's OMT 11:00 EUR Industrial production m/m|y/y Nov 14:30 USD Retail Sales m/m Dec 10:00 DEM GDP y/y 14:30 USD PPI m/m|y/y Dec 14:30 USD CPI m/m|y/y Dec 16:00 USD University of Michigan Confidence, preliminary Index Jan Scandi movers 12-Jan 9:00 DKK CPI Tue 13-Jan 8:00 SEK PES Unemployment 9:30 SEK Underlying inflation CPIF 49.0 54.5 -0.30%|1.00% 0.10%|.. 0.30%|.. 0.10%|0.70% -0.20% 0.10% 0.70% 1.50% 1.50% 0.10% -0.40%|1.00% -0.20%|1.40% -0.30%|0.80% -0.40%|0.70% -0.30%|1.30% 93.7 94.1 93.6 Period Danske Consensus Previous m/m|y/y Dec -0.30%|0.20% % Dec 4.00% m/m|y/y Dec -0.05%|0.20% % -0.20%|0.50% 4.10% 0.00%|0.30% Source: Bloomberg, Danske Bank Markets 4| 9 January 2015 Previous 0.20%|0.70% Event Mon Consensus www.danskeresearch.com 0.00%|0.60% Weekly Focus Global Macro and Market Themes Euro area to recover despite deflation As expected the euro area went into deflation in December as inflation fell to -0.2% y/y. It is likely to move even further into negative territory in coming months – we expect -0.5% in March. However, it is important to stress that this is not the dangerous kind of deflation. On the contrary it is currently giving a boost to growth. There are basically two kinds of deflation: Good deflation, which is driven by improving productivity, and bad deflation which is driven by weak demand. Fortunately it is mainly the good kind we are experiencing at the moment. The productivity gain inducing deflation stems from the improving technology in oil production which has led to the shale oil boom in US and other countries. This has led to a sharp increase in oil supply and since OPEC has refused to cut supply in response, oil prices have collapsed. Part of the decline is also due to weak demand, but it seems plausible that the main part comes from higher supply. Otherwise the oil price decline would be more gradual and not the big drop we have seen lately. Key points Euro deflation is of the good kind Risk assets get rocky start – but we are still positive More signs of euro area recovery US moves from 4.5% to 3% growth pace German yields go Japanese We look for lower EUR/USD The lower oil prices have translated into considerably cheaper gasoline and also underpinned the move lower in food inflation. Both factors free up purchasing power for consumers and are an important explanation of why euro area private consumption has been so resilient this year. Strong euro retail sales this week gave more evidence of this as they showed a decent rise of 0.6% m/m in November for the second month in a row, see Flash Comment: decent euro retail sales with more to come, 8 January 2015. An easy way to measure whether it is good or bad deflation is to look at real wage development. If deflation was due to weak demand it would be driven by declining real wages and thus nominal wages would also be falling. However, this is not the case. On the contrary, real wage growth is rising around 1½% which is about the fastest pace since 2009 at which time the euro area also saw oil-price induced deflation. Although nominal wage gains are moderate at the moment, at 1.3% they are still not in negative territory. The negative inflation does pose a clear risk of de-anchoring inflation expectations and the ECB has to react to this. It seems increasingly likely that the ECB will announce a QE programme in government bonds on 22 January. The ECB’s Coure said on Thursday that monetary policy must react to the inflation drop, and the Greek situation is not a reason to delay the ECB decision. The ECB president has sent similar signals lately. Rumours reported on newswires on Friday were that an ECB staff study was presented to policy makers on 7 January outlining a plan for QE with investment up to EUR500bn in investment grade government bonds. Euro inflation to get more negative... Source: Macrobond Financial ... as gasoline prices move lower still More evidence of euro recovery While inflation is turning negative we continue to see more signs that the euro area is slowly recovering following the slowdown in most of 2014. The euro sentix index for January again rose more strongly than expected and historically it has been a good leading indicator for the euro economy. It also points to a further rise in the German ifo 5| 9 January 2015 Source: Macrobond Financial www.danskeresearch.com Weekly Focus survey. Other German data point in the same direction: a) unemployment during Q4 fell 67k which is the biggest decline over a quarter since 2011, b) the trend in factory orders and industrial production shows a bottoming in Q4 (despite a decline in December) and c) retail sales grew decently towards the end of the year - probably a response to lower oil prices. The improvement in Germany is interesting because it has been the euro economy that slowed the most during last year. On a euro area level real M1 growth and retail sales have also underpinned the expectation of recovery. Looking forward we expect the euro economy to gain some momentum during H1 in response to a sharp decline in gasoline prices, a substantial weakening of the euro and the fading effect of the Ukraine crisis. A new event risk has turned up with the upcoming Greek election on 25 January. While it is something that should be watched closely, we don’t believe it will ultimately result in a Greek exit from the euro as is currently the fear. While there has been a lot of noise, both European and Greek politicians favour Greece staying in the euro. It will probably continue to add volatility to markets, though, until a clearer picture has emerged. Euro sentix survey points to further rise in German ifo Source: Macrobond Financial Euro real M1 growth points to 2% growth in mid-2015 US economy robust despite fall in ISM, China The US data flow has been mixed over the past week but overall still supporting a picture of a robust economy, see Flash Comment: Charts on US data over the holiday season – consumer-driven growth amid low inflation, 5 January 2015. ISM fell back more than expected in December but it merely reflects a move in US growth from a 4.5% growth pace in Q2/Q3 last year to around 3% growth in Q4 14 and H1 15. As trend growth has likely fallen to around 2-2.5% in recent years, this still reflects a strong US economy. Consumer spending data were strong in Q4 and consumer confidence is moving higher still in response to the very sharp decline in gasoline prices (they now stand at USD2.17 per gallon, down around USD1.5 over six months). Unemployment is also falling and is expected to reach the Fed’s long-run estimate of 5.4% as early as Q2 15, six months ahead of the Fed’s own projection. What will be very interesting for the Fed equation too is the development in inflation. With the recent decline in gasoline prices we could be heading for inflation at -0.5% in mid-2015 down from the current level of 1.3%. However, it will rise back towards 2% towards the end of the year if we are right that oil prices move up towards USD75-80 per barrel at the end of the year. The Fed knows that the decline in inflation will only be temporary and will tend to look through this. Janet Yellen highlighted this at the recent press conference following the December Fed meeting. However, the Fed will watch the development in inflation expectations closely and also what happens to core inflation. If this should fall much below the current level of 1.5% it may start to impact the date of lift-off. Remember, though, that it has to be weighed against a faster than expected drop in unemployment. Source: Macrobond Financial German domestic orders bottoming Source: Macrobond Financial US ISM falls as GDP growth moves from 4.5% pace to 3% Source: Macrobond Financial 6| 9 January 2015 www.danskeresearch.com Weekly Focus Nervous start to 2015 Risk assets got off to a nervous start to the year, taking a hit from the focus on the Greek election and the further decline in oil prices. However, we continue to be constructive on risk assets for the coming quarters. The global economy is expected to gain strength during the first half of this year as the euro area recovers and US growth continues to grow strongly, not least supported by the decline in oil prices. China is also expected to recover somewhat from the current slowdown as policy is being eased slightly. We should expect continued high volatility, though, as the risks from Greece and oil will probably continue to pop up now and again. We do not think these risk factors are enough to derail the recovery, though, and thus look for more upside in risk assets. Core bond yields have continued the relentless decline driven by the very long end. 30-year government bond yields in Germany and the US have fallen to new lows of 1.25% (!) and 2.55%, respectively. Since the decline in yields is driven by the long end it suggests that some European pension funds with guarantees are struggling as liabilities go up when yields decline. Unless they are fully hedged it will reduce their reserves. The strong move suggests that some funds are being forced to hedge by buying long duration bonds or receiving in long swaps. Why else would you buy a 30-year bond at 1.25%? We look for a moderate rise in German yields in the medium term as the Fed starts hiking, pension flows ebb and the euro area recovers. The very negative inflation prints may keep yields at very low levels in the short term, but as inflation starts rising again in H2 we expect some upward pressure on yields from the historically low levels. Stocks starting new year in volatile fashion Source: Macrobond Financial Germany goes Japanese Source: Macrobond Financial With the sharp decline in yields the German yield curve is looking very similar to its Japanese counterpart. The very low yields in these two countries are also pulling US yields lower, even though the 2-year yield in the US has increased as the first Fed hike is coming closer. The 2-10 curve has thus flattened enormously recently. It has been one of our core views that the US yield curve would flatten. Over the coming year we could see more flattening as 2-year yields are expected to go higher in response to the Fed lift-off. But in the short term the risk-reward is not as favourable anymore. Peripheral bond yields had a rocky start to the year in a risk-off move stemming from Greek contagion. However, fears over a Greek exit are overblown in our view and the upcoming QE programme from the ECB will give support to periphery bonds. We thus still look for tighter peripheral spreads. However, given the low levels of spreads currently we should expect higher volatility, as profit-taking on long periphery positions comes faster following a rally. With higher volatility and lower spread the risk-reward is obviously reduced, but in a very low-yield environment investors will continue to hunt for yield and drive spreads lower. US 2-year and 10-year yields moving in opposite directions Source: Macrobond Financial More US-Germany spread widening supporting lower EUR/USD EUR/USD to continue lower We have been calling for a lower EUR/USD for a long time but it has moved faster than we had expected. The collapse in oil prices, political uncertainty and ECB QE expectations have weighed more on the EUR than we expected. Near term, we expect EUR/USD to fall further ahead of an ECB QE announcement on 22 January and the Greek election on 25 January. Medium term, rebounding euro area growth and monetary repricing should support the EUR. We revise our EUR/USD forecast profile lower. We now forecast EUR/USD at 1.16 in 1M and 1.14 (previously 1.22) in 3M but we maintain the view that EUR/USD will eventually bounce back, bottoming around 1.12 (1.20) in 6M and grinding towards 1.17 (1.23) on a 12M horizon. 7| 9 January 2015 Source: Macrobond Financial www.danskeresearch.com Weekly Focus Global market views Asset class Main factors Equities P o sitive o n 3M ho rizo n, mo derately po sitive o n 12M ho rizo n Stro ng US o utlo o k, mo derate Chinese gro wth, a sharp dro p in the o il price, QE fro m ECB and B o J and stimulus fro m P B o C are suppo rtive o f equities. In additio n equities are still attractive versus bo nds Bond market M edium-term mo derate rise Strenthening G3 gro wth and Fed hikes getting clo ser. ECB QE suppo rting EGB markets. US-Euro spread: Wider 2-5y, stable lo nger maturities P o licy divergence drives sho rt-end spread wider, lo nger-end spread stable as clo se to histo rical highs P eripheral spreads to co ntinue gradual tightening Neg. po licy rate, QE expectatio ns and impro ving fundamentals suppo rt search fo r yield Credit spread to remain stable, but with bo uts o f vo latility A dded liquidity fro m ECB , stable fundamentals and search fo r yield FX EUR/USD - Lo wer sho rt and medium term Lo wer o n 0-6 mo nths o f diverging gro wth and mo netary po licy USD/JP Y - Higher B o J easing, Fed hikes and pensio n refo rms EUR/SEK - Near-term risk tilted to the upside Near-term risk tilted to the upside, lo wer medium term o n valuatio n and relative mo netary po licy EUR/NOK - To edge higher sho rt term o n o il, lo wer during 2015 Oil prices lo wer sho rt term, higher medium term Commodities Oil prices - weakness near term, reco very during the year Oil glut and glo bal gro wth co ncerns to weigh near term. Limited risk o f supply disruptio ns M etal prices sideways befo re trending up during the year Chinese gro wth co ncerns a near-term negative facto r, supply side risks. Go ld prices to co rrect lo wer still Trending do wn as first Fed hike draws clo ser. Geo po litical co ncerns a suppo rtive facto r A gricultural risks remain o n the upside Trending up again, extreme weather is key upside risk Source: Danske Bank Markets 8| 9 January 2015 www.danskeresearch.com Weekly Focus Scandi Update Denmark – new forecast: low oil prices boost Danish economy We published an updated forecast for the Danish economy during the week. We believe that the economy is on the right track, as reflected in five successive months of positive growth and will gain further momentum in the coming years. The slide in oil prices since the summer is expected, in isolation, to boost domestic growth by 0.3-0.4pp both this year and next, and we now forecast GDP growth of 1.6% in 2015 (revised up from 1.3%) and 2.0% in 2016. The main driver behind the increase is private consumption, buoyed by growth in real wages and improvements in the housing market (see Nordic Outlook – January 2015, 8 January 2015). The past week has also brought a variety of economic data, including figures for the labour market, where the positive trend seems to be continuing. Seasonally-adjusted gross unemployment fell by 800 people from October to November and Statistics Denmark has also begun to publish new monthly data on the number of employees, which rose by 2,900 from September to October. Manufacturing confidence, meanwhile, fell from -15 in November to -19 in December and while the decrease is naturally a cause for concern, we still feel that the data does not reflect economic realities. The indicator is down at the levels seen when the crisis was at its worst in 2008-09, and the economy is in way better shape than it was back then, both at home and in Europe. Low oil prices good news for Denmark Source: Statistics Denmark Sweden – not much data since the New Year There’s not been much data in Sweden over Christmas and New Year and the impression has been somewhat split. For industry, the November trade balance was again a disappointment suggesting Swedish exporters are still struggling with weak demand. The rise in Manufacturing PMI is not much comfort until we see a lasting rebound in European markets. The domestic front has been better. Retail sales continued to grow strongly at 4.5% y/y in November but the outlook is more dimmed as there has been a call for re-elections and that call being cancelled. The latter is really the ‘big news’ over the past couple of weeks as we are currently trying to understand the implications of the socalled ‘December agreement’ between the Red/Green government and the right-wing Alliance parties (opposition) for economic policies going forward. The Riksbank’s minutes added no new information but re-emphasised that it is preparing to use unconventional tools with FX interventions being quite unlikely, in particular as the krona is already weak. 9| 9 January 2015 www.danskeresearch.com Weekly Focus Norway – households are holding up Lower oil prices spell lower growth in the Norwegian economy. The direct effects via lower oil investment and spill-over effects from the supply industry are obvious and relatively easy to monitor, but the indirect effects via weaker business and consumer confidence are more uncertain. The week’s housing data for December showed no signs whatsoever of an effect on expectations, with strong demand for housing pushing up prices and turnover. The retail sales figures for November confirmed that growth is picking up again after slowing during the summer in 2014. Private consumption is therefore on course for annualised growth of almost 2.5% in Q4 14, which will prop up GDP growth. Given that the worst of the headlines did not come until December, it is probably too early to sound the all-clear but as new car sales grew more than 5% m/m in December, this suggests that Norwegian consumers remain upbeat. 10 | 9 January 2015 Private spending increasing Source: Macrobond www.danskeresearch.com Weekly Focus Latest research from Danske Bank Markets 8/1/15 Flash Comment - Decent euro retail sales with more to come Euro area retail sales remain decent and looking ahead they should continue their positive trend as they are supported by the sharp decline in the oil price. 8/1/15 Nordic Outlook - January 2015 Quarterly update on the Nordic economies. 7/1/15 Flash Comment - Negative euro inflation in December Euro inflation declined below the deflation limit for the first time since the financial crisis in 2009. 7/1/15 Flash Comment: FOMC minutes - Foreign economic developments the main risk The minutes of the December 16-17 FOMC meeting didn't reveal much new information, but there are a few things worth noticing. 6/1/15 Monitor: US labour market: downside risk to December payrolls We expect non-farm payrolls to show an increase of 195,000 in December, below the consensus estimate at 240,000. 5/1/15 Flash Comment: Charts on US data over the holiday season - consumer-driven growth amid falling inflation Below is an overview of US data over the holiday season. Overall, US data continues to surprise on the upside, although there were a few negative surprises as well, notably the ISM manufacturing index for December. 11 | 9 January 2015 www.danskeresearch.com Weekly Focus Macroeconomic forecast Macro forecast, Scandinavia Private Public Fixed Stock Ex- Im- Infla- Unem- Public Public Current Year GDP 1 cons.1 cons.1 inv.1 build.2 ports1 ports1 tion1 ploym.3 budget4 debt4 acc.4 Denmark 2014 2015 2016 0.9 1.6 2.0 0.4 1.9 2.0 0.9 0.9 0.6 2.2 2.2 4.0 0.3 -0.1 0.1 2.8 2.3 4.2 3.8 2.9 4.6 0.6 0.6 1.5 5.1 4.9 4.7 2.3 -2.4 -2.4 44.5 42.5 43.0 6.8 6.4 5.9 Sweden 2014 2015 2016 1.8 2.0 1.9 2.3 1.6 1.8 1.5 1.5 0.8 4.6 3.4 2.1 0.3 0.1 0.0 2.2 3.2 5.0 4.9 3.7 4.5 -0.2 0.3 1.2 7.9 7.6 7.3 -1.9 -1.6 -1.0 40.2 42.0 42.3 5.1 5.0 4.8 Norway 2014 2015 2016 2.6 1.8 2.3 1.8 2.0 2.2 3.3 2.5 2.2 1.2 -5.5 1.3 0.4 -0.1 0.0 0.4 0.8 0.9 2.6 3.8 3.3 2.1 2.8 2.0 3.5 3.7 3.7 - - - Macro forecast, Euroland Private Public Fixed Stock Ex- Im- Infla- Unem- Public Public Current Year GDP 1 cons.1 cons.1 inv.1 build.2 ports1 ports1 tion1 ploym.3 budget4 debt4 acc.4 Euroland 2014 2015 2016 0.9 1.5 2.1 0.9 1.5 1.1 0.9 0.9 0.7 0.6 1.5 5.4 -0.1 0.0 0.0 3.7 4.6 4.2 3.6 4.3 4.1 0.4 -0.1 1.6 11.6 11.4 10.9 -2.6 -2.3 -1.9 94.5 94.6 93.3 2.5 2.6 2.5 Germany 2014 2015 2016 1.5 1.9 2.6 1.2 1.9 1.6 1.1 1.1 0.8 2.8 2.1 6.8 -0.1 0.0 0.0 4.1 5.5 4.9 3.7 5.4 5.3 0.8 0.2 2.1 5.1 5.0 4.7 0.2 0.0 0.2 74.5 72.4 69.6 7.1 7.1 6.7 France 2014 2015 2016 0.3 0.6 0.9 0.3 0.8 0.6 2.0 0.8 0.4 -1.7 -0.8 3.1 -0.1 0.0 0.0 2.1 3.4 3.4 2.9 3.2 4.0 0.6 0.1 1.3 10.4 10.4 10.2 -4.4 -4.5 -4.7 95.5 98.1 99.8 -1.9 -1.9 -2.2 Italy 2014 2015 2016 -0.4 0.5 1.2 0.3 0.6 0.5 -0.2 0.2 0.4 -2.6 -1.4 3.4 0.3 0.0 0.0 2.0 3.7 4.3 0.4 2.3 3.8 0.2 0.1 1.0 12.6 12.6 12.4 -3.0 -2.7 -2.2 132.2 133.8 132.7 1.5 1.5 1.8 Spain 2014 2015 2016 1.3 2.3 2.6 2.3 2.4 1.9 0.8 0.3 0.4 2.5 4.8 6.8 -0.1 0.0 0.0 4.6 6.0 4.5 7.7 7.0 4.9 -0.2 -0.8 1.3 24.7 23.2 21.7 -5.6 -4.5 -3.7 98.1 101.2 100.6 0.5 0.7 0.9 Finland 2014 2015 2016 -0.2 0.5 1.3 -0.2 -0.2 0.5 0.2 0.0 0.0 -4.5 0.0 3.0 - 1.5 3.0 4.0 -0.5 1.5 3.0 1.0 0.9 1.2 8.6 9.0 8.8 -2.2 -2.2 -1.5 59.5 61.5 62.5 -1.5 -1.0 -0.5 Macro forecast, Global Private Public Fixed Stock Ex- Im- Infla- Unem- Public Public Current Year GDP 1 cons.1 cons.1 inv.1 build.2 ports1 ports1 tion1 ploym.3 budget4 debt4 acc.4 USA 2014 2015 2016 2.4 3.1 2.7 2.4 3.1 2.8 0.0 1.3 0.8 5.3 6.5 5.6 0.0 0.0 0.0 3.2 4.7 4.5 3.6 5.7 5.3 1.1 1.4 1.2 6.2 5.5 4.9 -4.1 -2.9 -2.6 101.0 104.0 103.0 -2.3 -2.5 -2.6 Japan 2014 2015 2016 0.4 1.2 1.6 -0.9 1.0 1.4 0.3 1.1 1.2 4.2 0.7 0.8 0.2 0.3 0.4 7.9 7.2 7.6 7.0 3.5 7.0 2.6 1.4 1.7 3.6 3.5 3.3 -8.1 -6.7 -6.3 245.0 245.0 246.0 0.3 1.0 1.1 China 2014 2015 2016 7.4 7.2 6.8 - - - - - - 2.0 2.2 2.7 4.3 4.2 4.2 -1.1 -0.8 -0.8 40.7 41.8 42.8 1.8 2.4 2.3 UK 2014 2015 2016 3.0 2.8 2.8 2.3 2.5 2.3 1.1 0.7 -1.0 7.8 6.1 7.5 -0.2 0.0 0.0 -1.6 2.4 4.7 -0.8 3.9 4.7 1.5 1.5 2.0 6.2 5.5 5.5 -3.5 -1.9 -0.2 80.0 81.1 . -4.7 -3.5 -2.9 Source: OECD and Danske Bank. 1) % y/y. 2) % contribution to GDP growth. 3) % of labour force. 4) % of GDP. 12 | 9 January 2015 www.danskeresearch.com Weekly Focus Financial forecast Bond and money markets USD 09-Jan +3m +6m +12m 09-Jan +3m +6m +12m 09-Jan +3m +6m +12m 09-Jan +3m +6m +12m 09-Jan +3m +6m +12m 09-Jan +3m +6m +12m 09-Jan +3m +6m +12m 09-Jan +3m +6m +12m EUR JPY GBP CHF DKK SEK NOK Key int. rate 0.25 0.25 0.25 1.00 0.05 0.05 0.05 0.05 0.10 0.10 0.10 0.10 0.50 0.50 0.50 0.75 -0.25 0.00 0.00 0.00 0.20 0.20 0.20 0.20 0.00 0.00 0.00 0.00 1.25 1.00 1.00 1.00 3m interest rate 2-yr swap yield 10-yr swap yield Currency vs EUR Currency vs USD Currency vs DKK 0.25 0.30 0.60 1.30 0.07 0.03 0.03 0.03 0.11 0.15 0.20 0.20 0.56 0.55 0.57 0.93 -0.10 0.05 0.05 0.05 0.29 0.20 0.20 0.20 0.26 0.25 0.25 0.25 1.43 1.15 1.20 1.20 0.85 0.95 1.40 1.90 0.17 0.15 0.15 0.15 0.15 0.20 0.20 0.25 0.89 1.10 1.20 1.60 -0.21 0.05 0.05 0.05 0.43 0.35 0.35 0.35 0.25 0.25 0.25 0.25 1.12 1.00 1.00 1.10 2.12 2.55 2.75 3.05 0.77 0.85 0.80 1.05 0.48 0.75 0.80 0.85 1.71 2.25 2.40 2.65 0.40 0.95 1.05 1.25 1.10 1.15 1.10 1.35 1.15 1.10 1.00 1.20 1.80 1.80 1.80 2.00 118.0 114.0 112.0 117.0 140.8 139.0 139.0 147.0 78.1 77.0 76.0 79.0 120.1 121.0 122.0 124.0 743.9 744.25 743.90 743.90 948.2 930.0 920.0 900.0 900.1 940.0 900.0 850.0 118.0 114.0 112.0 117.0 119.4 122.0 124.0 126.0 151.0 148.0 147.0 148.0 101.8 106.0 109.0 106.0 630.7 653.0 664.0 636.0 803.9 816.0 821.0 769.0 763.1 825.0 804.0 726.0 630.7 653.0 664.0 636.0 743.9 744.25 743.90 743.90 5.28 5.35 5.35 5.06 952.2 966.6 978.8 941.6 619.4 615.1 609.8 599.9 78.5 80.0 80.9 82.7 82.6 79.2 82.7 87.5 Risk profile 3 mth. Price trend 3 mth. Price trend 12 mth. Regional recommendations Medium Medium Medium Medium Medium 0-5% 0-5% 0-8% 0-5% 0-5% 5-8% 0-5% 10-15% 5-10% 5-10% Neutral Underweight Overweight Overweight Overweight Equity Markets Regional USA (USD) Emerging markets (local curr) Japan Europe (ex. Nordics) Nordics Strong growth & earnings, expensive Commodity-related equities are pressured Monetary easing, attractive pricing Stagnating economy, cheap valuation Cyclical profile, expensive Commodities 2015 NYMEX WTI ICE Brent Copper Zinc Nickel Aluminium Gold Matif Mill Wheat (€/t) Rapeseed (€/t) CBOT Wheat (USd/bushel) CBOT Corn (USd/bushel) CBOT Soybeans (USd/bushel) 09-Jan 49 51 6,104 2,160 15,550 1,832 1,212 191 362 566 394 1,043 Q1 54 58 6,800 2,325 17,500 2,025 1,190 177 347 565 385 1,050 Q2 58 62 6,925 2,350 18,000 2,075 1,180 180 354 575 395 1,070 Q3 66 70 7,050 2,375 18,500 2,125 1,170 182 357 580 400 1,080 2016 Q4 74 78 7,175 2,400 19,000 2,175 1,160 183 361 585 405 1,090 Q1 78 82 7,300 2,425 19,250 2,225 1,150 185 364 590 410 1,100 Q2 80 84 7,375 2,450 19,500 2,250 1,150 186 367 595 415 1,110 Q3 82 86 7,375 2,450 19,500 2,250 1,150 188 371 600 420 1,120 Average Q4 82 86 7,375 2,450 19,500 2,250 1,150 190 374 605 425 1,130 2015 63 67 6,988 2,363 18,250 2,100 1,175 181 355 576 396 1,073 Source: Danske Bank Markets 13 | 9 January 2015 www.danskeresearch.com 2016 81 85 7,356 2,444 19,438 2,244 1,150 187 369 598 418 1,115 Weekly Focus Calendar Key Data and Events in Week 3 During the week Period Danske Bank Consensus Previous Sat 10 - 15 CNY Aggregate Financing bn CNY Dec 1175 1200 1146.3 Sat 10 - 15 CNY New Yuan loans CNY bn. Dec 675 880 852,7 Sat 10 - 15 CNY Foreign Exchange Reserves bn. Usd Dec 3900 3887.7 Sat 10 - 15 CNY Money supply M2 y/y Monday, January 12, 2015 9:00 DKK CPI 9:00 CHF Centralbank - press briefing 9:30 SEK Budget balance 16:00 USD Fed's LMCI 18:40 USD Fed's Lockhart (voter, neutral) speaks Dec 12.50% 12.30% Consensus Previous Period Danske Bank m/m|y/y Dec -0.30%|0.20% SEK bn Dec 11 m/m Dec 2.9% Tuesday, January 13, 2015 Period Danske Bank -0.20%|0.50% Consensus Previous - CNY Trade balance USD bn Dec 46.4 49.0 54.5 - CNY Import y/y Dec 1.0% -6.20% -6.70% 10.9% 6.00% 4.70% ..|44.00 44.0|41.5 - CNY Export y/y Dec 0:50 JPY Bank lending y/y Dec 6:00 JPY Eco Watchers Survey Outlook (Current) Index Dec 8:00 SEK PES Unemployment % Dec 9:30 SEK CPI m/m|y/y Dec -0.10%|-0.60% -0.10%|-0.50% -0.05%|0.20% 2.70% 4.00% 4.10% -0.10%|-0.20% 9:30 SEK Underlying inflation CPIF m/m|y/y Dec 0.00%|0.30% 0.00%|0.60% 10:00 ITL Industrial production m/m|y/y Nov 0.10%|-2.70% -0.10%|-3.00% 10:30 GBP CPI m/m|y/y Dec 0.20%|0.70% 10:30 GBP PPI - input m/m|y/y Dec 10:30 GBP PPI - output m/m|y/y Dec -0.20%|-0.30% 0.20%|-0.10% 13:30 USD NFIB small business optimism Index Dec 97.8 98.1 20:00 USD Budget statement USD bn Dec 24.0 23:00 USD Fed's Kocherlakota (non-voter, dovish) speaks Wednesday, January 14, 2015 Period 0:50 JPY Money supply M2 8:45 FRF HICP 9:30 EUR Draghi and Merkel speaks at conference 9:30 EUR EU court gives advice on ECB's OMT 10:00 ITL 11:00 EUR 13:00 USD MBA Mortgage Applications 14:00 USD Fed's Plosser (non-voter, hawkish) speaks 14:30 USD Retail Sales m/m Dec 14:30 USD Retail Sales Control Group m/m Dec 14:30 USD Retail sales less autos m/m Dec 14:30 USD Retail sales less autos and gas m/m Dec 14:30 USD Import prices m/m|y/y Dec -0.30%|1.00% -1.00%|-8.80% Danske Bank y/y Dec m/m|y/y Dec ..|0.00% HICP, final m/m|y/y Dec ...|-0.10% Industrial production m/m|y/y Nov 0.10%|.. Consensus Previous 3.60% 3.60% -0.20%|0.40% ...|-0.10% 0.30%|.. 0.10%|0.70% % 11.1 -0.20% 0.10% 0.70% 0.30% 0.60% 0.10% 0.10% 0.50% 0.50% 0.30% 0.60% -2.90%|… -1.50%|-2.30% Source: Danske Bank Markets 14 | 9 January 2015 www.danskeresearch.com Weekly Focus Calendar - continued Thursday, January 15, 2015 Period Danske Bank Consensus Previous JPY PPI m/m|y/y Dec -0.30%|2.10% -0.20%|2.70% 0:50 JPY Machine orders m/m|y/y Nov 4.60%|-6.40% -6.40%|-4.90% 1:01 GBP RICS House Price Balance Index Dec 10% 13% 1:30 AUD Employment change 1000 Dec 7.0K 42.7K 0:50 9:00 ESP HICP, final m/m|y/y Dec 10:00 NOK Trade balance NOK bn Dec 10:00 DEM GDP y/y 10:00 DEM Budget Maastricht % of GDP 11:00 EUR Trade balance 14:30 USD Initial jobless claims 1000 14:30 USD Empire Manufacturing PMI Index Jan 5.0 -3.6 14:30 USD PPI m/m|y/y Dec -0.40%|1.00% -0.20%|1.40% 14:30 USD PPI core m/m|y/y 0.10%|1.90% 0.00%|1.80% Consensus Previous % EUR Moody's may publish Ireland's debt rating 0:50 JPY Tertiary industry index 8:00 DEM HICP, final 9:00 CHF Retail sales 11:00 EUR CPI 11:00 EUR CPI - core, final 14:30 USD CPI 14:30 USD CPI - core 15:15 USD Industrial production 15:15 USD Capacity utilization 16:00 USD University of Michigan Confidence, preliminary 19:10 USD Fed's Bullard (non-voter, hawkish) speaks -0.20%|-1.10% 24.6 1.50% 0.10% 1.50% % EUR bn Friday, January 16, 2015 - ..|-1.10% 0.10% Nov 19.4 294 Dec Period m/m Nov m/m|y/y Dec Danske Bank -0.20% 0.20% ..|0.10% 0.10%|0.10% y/y Nov m/m|y/y Dec % Dec m/m|y/y Dec -0.30%|0.80% -0.40%|0.70% -0.30%|1.30% m/m|y/y Dec 0.10%|1.70% 0.10%|1.70% 0.10%|1.70% m/m Dec 0.20% 0.00% 1.30% % Dec 80.00% 80.10% Index Jan 94.1 93.6 22:00 USD TICS international capital flow, Net inflow USD bn The editors do not guarantee the accurateness of figures, hours or dates stated above 0.30% ..|-0.20% -0.20%|.. -0.20%|-0.20% 0.80% 93.7 0.80% Nov 178.4 For furher information, call (+45 ) 45 12 85 22. Source: Danske Bank Markets 15 | 9 January 2015 www.danskeresearch.com Weekly Focus Disclosure This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S (‘Danske Bank’). The authors of the research report are Allan von Mehren, Chief Analyst and Steen Bocian, Chief Economist. Analyst certification Each research analyst responsible for the content of this research report certifies that the views expressed in this research report accurately reflect the research analyst’s personal view about the financial instruments and issuers covered by the research report. Each responsible research analyst further certifies that no part of the compensation of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed in the research report. 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