Investment Research General Market Conditions Weekly Focus...2 | 27 May 2016 s materialise, they...

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Investment Research — General Market Conditions

Market Movers ahead

In the US, we have a heavy calendar next week with many important data releases.

Most importantly, the labour market report for May is due out on Friday, which might

be pivotal to the market’s pricing of a potential summer hike from the Fed. We

estimate non-farm payrolls increased by 160,000 in May. Moreover, we estimate that

the unemployment rate declined to 4.9% and that average hourly earnings increased

by 0.2% m/m, implying a wage inflation rate of 2.5% y/y.

In the euro area, the main focus will be the ECB meeting on Thursday. We expect the

ECB to maintain its patient stance as broad financing conditions have improved

following the easing measures announced in March.

In the UK, the PMIs for May might attract some attention and will tell us whether

April’s dive to three-year lows across sectors was temporary or whether the economy

is actually slowing further in Q2 ahead of the referendum, possibly due to Brexit

uncertainties.

In Scandinavia, focus will be on Q1 GDP figures from Sweden and Denmark, while

both the labour market report and retail sales data from Norway will be watched

closely as well. Moreover, we would also keep an eye on the Danish foreign currency

reserves data due out on 2 June, as the latest daily net position data points to currency

intervention of some DKK10bn in May.

Global macro and market themes

US consumption and housing gain pace giving comfort to the Fed.

A summer hike is increasingly likely barring any negative surprises.

The USD is set to strengthen short term driven by higher US yields.

Euro yields are supported by QE – set to stay range bound.

Moderate improvement in German sentiment indicators.

US housing very strong in early spring… …and strong pick-up in US consumption

Source: Macrobond Financial Source: Macrobond Financial

27 May 2016

Editor Senior Analyst Morten Helt +45 45 12 85 18 [email protected]

Weekly Focus

US domestic economy picks up speed

Contents

Market movers ..................................................... 2

Global Macro and Market Themes ......... 6

Scandi update ....................................................... 9

Latest research from Danske Bank

Markets .................................................................. 10

Macroeconomic forecast .......................... 11

Financial forecast ............................................ 12

Calendar................................................................. 13

Follow us on Twitter for the latest on

macroeconomic and financial market developments:

@Danske_Research

Financial views

Source: Danske Bank

Major indices

27-May 3M 12M

10yr EUR swap 0.54 0.50 0.90

EUR/USD 112 112 118

ICE Brent oil 49 47 53

27-May 6M 12-24M

S&P500 2090 -3 -+3% 0-5%

https://twitter.com/Danske_Research



2 | 27 May 2016 www.danskeresearch.com

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Weekly Focus

Market movers

Global

In the US next week, we have a heavy calendar, with many important data releases.

Most importantly, we get the jobs report for May on Friday. Several FOMC members

(including doves with voting rights) have mentioned that a summer hike in either June

or July is a ‘live possibility’ if incoming data are in line with their expectations. A

strong jobs report would confirm that the labour market continues to tighten and

increase the possibility of a June hike further. Based on the higher claims and a

decline in the PMI composite employment index (to the lowest level since April

2014), we estimate non-farm payrolls increased by 160,000 in May. Note that a strike

going on for the sixth week involving around 40,000 workers is likely to affect total

payrolls negatively, as workers are not counted when they are not receiving pay

cheques. We estimate the unemployment rate declined to 4.9% and average hourly

earnings increased by 0.2% m/m, implying a wage inflation rate of 2.5% y/y in May.

On Wednesday, we get the ISM manufacturing index for May. Despite the

stabilisation in China and a weaker US dollar, the regional surveys and the Markit

manufacturing PMI index all indicate a fall and even a print below 50 cannot be ruled

out. This said, the order-inventory balance is positive, suggesting that ISM will move

higher. We estimate the ISM manufacturing index declined to 50.2 in May. On

Friday, we get the ISM non-manufacturing index for May and we see downside risks

due to regional surveys and a decline in the PMI service index. If these downside risks

materialise, they would put some pressure on the general expression that growth is

accelerating in Q2. Thus, we also intend to keep an eye on the Conference Board

consumer confidence for May on Tuesday, as US growth should be driven by private

consumption.

The week also brings PCE inflation figures for April on Tuesday. We estimate the

core index increased 0.1% m/m (but it is a close call between 0.1% and 0.2%)

implying a core inflation rate of 1.5% y/y (1.6% y/y). We estimate headline inflation

was 1.1% y/y, driven mainly by higher gasoline prices.

The week also brings several speeches by FOMC members, with the focus on how the

Fed judges incoming data and the probability of a summer hike.

In the euro area, the main event next week is the ECB meeting on Thursday. We

expect the ECB to maintain its patient stance, as broad financing conditions have

improved following the easing measures announced in March. This stance was also

confirmed in the ECB accounts (minutes) from the latest meeting in April, as the ECB

said ‘focus of attention had very much shifted to the implementation details of both the

corporate bond purchases and the TLTRO-II’ and added that ‘as the new measures

were implemented, they would deliver additional accommodation’. The ECB might be

waiting for the higher oil price to lift headline inflation but despite an expected

significant increase in inflation, we do not believe inflation will be high enough for

the ECB not to extend QE purchases beyond March 2017 in the second half of this

year.

In terms of data releases, the PMIs for Italy and Spain are due. The flash composite

PMI for the euro area released last week saw a small decline to 52.9 despite the

German and French PMIs improving, driven primarily by the service sectors. Based

on this, we expect a decline for the periphery countries to explain the overall falling

PMI index.

Composite PMI employment index

suggests lower jobs growth

Source: Markit Economics, BLS

We see downside risks to both ISM

indices in May

Source: ISM

We see no pickup in core inflation yet,

higher oil prices set to increase

headline

Source: BEA

Bank lending is important for the

ECB’s TLTRO-II loans

Source: ECB, Danske Bank Markets

Euro area aggregateEUR trn

Interest rate on TLTRO II loans

will be d etermined in Jan-1 8

TLTRO II interest

rate = dep osit rate

(-4 0bp)

TLTRO II interest

rate between MRO

and deposit rate

TLTRO I I interest

rate = MRO rate

(0 bp)5.55

5.60

5.65

5.70

5.75

5.80

5.85

5.90

2013 2014 2015 2016 2017 2018 2019

Eligible loans (determines rate on TLTRO II)

Trend to 2.5% in Jan-18

Eligible loans

Benchmark period


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The release of Euro area HICP inflation figures for May is due on Tuesday and we

expect inflation to remain low at -0.2% y/y similar to the level in April. Core inflation

should also remain unchanged at 0.7%, similar to April and thus not recovering to the

1.0% level seen in March. The higher oil price in May will not lift the yearly inflation

rate as the oil price was also high in May last year. Later this year, the impact of the

higher oil price should be seen and we expect a sharp increase in inflation – above

what is priced in the market.

On Tuesday, we also get the data for the euro area money supply developments for

April. Growth of the M3 money supply averaged 5.0% leading up to April and we

estimate the growth rate remained high with a further modest increase in April. We

expect focus to be on bank lending figures, as they are key indicators for economic

growth and important for the ECB’s TLTRO II loans, determining whether banks will

have a negative or zero interest rate on the loans.

Unemployment rate data for April are also released on Tuesday and we expect the

declining tendency to continue. Specifically, we expect the unemployment rate to

decline to 10.1% in April, from 10.2% in March, and hence narrow further towards

the European Commission’s estimate of the structural unemployment rate of 9.7%.

This should follow, although we look for somewhat weaker GDP growth in Q2

compared with Q1. However, as potential GDP growth is low, we believe the

unemployment rate will continue to decline.

On Friday, euro area retail sales data is released. We expect an increase of 0.6%,

driven by rising consumer confidence, which was released this week together with our

expectation of a declining unemployment rate. Although March saw a monthly

decline of 0.5%, witnessing the high volatility we expect the trend in retail sales to

remain positive throughout 2016.

In the UK, everything continues to be driven by the upcoming EU in/out referendum

(see Brexit Monitor No. 5: Brexit fears eased further this week, 27 May).

In terms of data releases, we look forward to the PMIs for May. In April, PMIs across

sectors went down to three-year lows, so the May figures will tell us whether this was

just a temporary dive or whether the economy is actually slowing further in Q2 ahead

of the referendum, possibly due to Brexit uncertainties. In particular, focus is on the

PMI service index due to the importance of the service sector for overall growth in the

UK.

We expect Chinese PMI manufacturing to moderate a bit further. PMI manufacturing

rose sharply in March and fell back slightly in April. However, the level is still quite

high and we see a risk of a bigger decline than consensus for May. US industrial

surveys have been weak in May suggesting that the global improvement in the early

spring months was a bit exaggerated and we believe the picture will be the same in

China. We look for Caixin PMI manufacturing to fall to 48.5 in May (consensus 49.3)

from 49.4 in April. However, we do not expect it to be game over for the Chinese

recovery but more a correction to a too big increase in March. Our case is still intact

for a moderate recovery in China this year, driven by the construction sector and

exports – and to some extent a boost to infrastructure investment. In particular, the

construction sector should continue to be a driver of a cyclical recovery in China after

a very hard landing over the past two years.

Still low inflation despite oil price rise

Source: Eurostat, Danske Bank Markets

Euro area consumer confidence points

to higher retail sales

Source: European Commission, Eurostat, Danske

Bank Markets

PMI figures for May should tell us how

much the UK economy has slowed

ahead of the referendum

Source: Markit Economics

Chinese PMI to correct a bit further in

May – but we expect it to be temporary

Source: Macrobond Financial, Danske Bank

http://danskeanalyse.danskebank.dk/abo/MonitorBrexit5270516/$file/Monitor_Brexit_5_270516.pdf


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Scandi

In Denmark, the central bank is due to publish currency reserves data for May on

Thursday. We would keep an eye on the currency numbers, as the latest daily net

position data points to currency intervention of some DKK10bn in May. On Tuesday,

Statistics Denmark publishes GDP data for Q1 and we estimate very subdued growth

of 0.1%. Dankort payment card data point to very weak growth in private

consumption and there has also been only a small increase in exports of goods. We

believe that 2015’s decline in housing investment will reverse this year. However,

there are also plans to cut public investment. There is particular uncertainty about the

data this time around, due to the early timing of Easter this year, but we do not believe

Q1 brought the strong surge in growth that we hope to see later in the year. Looking

ahead, it seems that private consumption has fared better in Q2. Tuesday also brings

the Economic Council’s spring forecast for the Danish economy, while Wednesday

brings the Nationalbank’s figures for foreign portfolio investments and securities

statistics for April.

In Sweden, the week ahead kicks off with a bang, as we receive much-anticipated Q1

GDP data (Monday, at 09:30 CEST). Our point forecast remains at 4% y/y but, after a

recent batch of weak data, we must profess that risks are decidedly skewed on the

downside. Indeed, an outcome as low as 3% would not be a surprise to us, entailing a

distinct negative quarterly growth rate. We also receive PMI data (Wednesday at

08:30 CEST), which we feel receives far too much attention given its weak leading

properties. More interestingly, Statistics Sweden publishes industrial and services

production and industrial orders (all published Friday at 09:30 CEST) and we expect

production numbers – at least – to drop off somewhat after a string of weak order

data.

In Norway, we would normally see the release of retail sales data for April (due

Monday) as the week’s main event, as the danger of a deeper and more protracted

downturn in the economy is closely tied to a slowdown in private consumption. Retail

sales have indeed pointed towards a trend in this direction since the start of the year

but strong new car sales and consumption of services have meant that private

consumption has held up well regardless. The informational value of retail sales has

therefore deteriorated somewhat, due particularly to high month-on-month volatility.

Nevertheless, we estimate a rebound in April after a couple of weak months, due

partly to the problems with seasonal adjustment around Easter. We estimate an

increase of 0.8% m/m. With conflicting signals elsewhere, labour market data provide

a useful cross-check for the state of the Norwegian economy. Somewhat surprisingly

NAV’s figures for registered unemployment (due Friday) have fallen for three months

in a row, which may mean that the labour market is now recovering. Here too we

expect a slight correction after Easter, with an increase of 400-500 people from April

to May. Nevertheless, we expect the gross unemployment rate to fall to 2.9% for

seasonal reasons. Also coming up are Labour Force Survey (LFS) unemployment

figures for March (February-April) due on Monday. These have been very unstable

from month to month over the past year but based on NAV data we would expect the

LFS jobless rate to be unchanged at 4.6%. It is also worth keeping an eye on the LFS

data for employment, which increased sharply in January before levelling off in

February. We have been arguing for some time that the headwinds from dwindling oil

investment are easing – as reflected, for example, in a stronger PMI in autumn 2015.

Since New Year, however, the PMI has been weaker than actual industrial production,

which we think is due partly to the problems with seasonal adjustment around Easter,

so we would not discount an improvement in the PMI in May being announced on

Wednesday.

Production should lose its momentum

Source: Statistics Sweden. Danske calculations

Unemployment has begun to fall

Source: NAV, Macrobond Financial


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Market movers ahead

Source: Bloomberg, Danske Bank Markets

Global movers Event Period Danske Consensus Previous

Mon 30-May 8:45 FRF GDP, preliminary q/q|y/y 1st quarter 0.5%|… 0.5%|1.3% 0.5%|1.3%

14:00 DEM HICP, preliminary m/m|y/y May …|-0.3% 0.3%|-0.1% -0.5%|-0.3%

Tue 31-May 1:50 JPY Industrial production, preliminary m/m|y/y Apr -1.5%|-5.1% 3.8%|0.2%

10:00 EUR Money supply (M3) y/y Apr 5.1% 5.0% 5.0%

14:30 USD PCE core m/m|y/y Apr 0.1%|1.5% 0.2%|1.6% 0.1%|1.6%

15:45 USD Chicago PMI Index May 50.7 50.4

16:00 USD Conference Board consumer confidence Index May 96.0 94.2

Wed 01-Jun 3:00 CNY PMI manufacturing Index May 50.0 50.1

3:45 CNY Caixin Manufacturing PMI Index May 48.5 49.2 49.4

16:00 USD ISM manufacturing Index May 50.2 50.5 50.8

Thurs 02-Jun 14:15 USD ADP employment 1000 May 178 156

14:30 EUR ECB's Draghi speaks at press conference

14:30 USD Initial jobless claims 1000 268

Fri 03-Jun 14:30 USD Non farm payrolls 1000 May 160 160 160

16:00 USD ISM non-manufacturing Index May 55.2 55.3 55.7

Scandi movers

Mon 30-May 9:30 SEK GDP q/q|y/y 1st quarter 0.4%|4.0% 0.6%|4.2% 1.3%|4.5%

10:00 NOK Retail sales, s.a. m/m Apr 0.8% 1.0% -0.7%

10:00 NOK Unemployment (LFS) % Mar 4.6% 4.6% 4.6%

Tue 31-May 10:00 NOK Credit indicator (C2) y/y Apr 4.8% 4.9%

Wed 01-Jun 8:30 SEK PMI manufacturing Index May 53.8 54.0

9:00 NOK PMI manufacturing Index May 48.5 48.0

Thurs 02-Jun 16:00 DKK Currency reserves DKK bn Apr 412 403.5

Fri 03-Jun 9:30 SEK Industrial production s.a. m/m|y/y Apr -0.3%|2.5% 1.4%|5.5%

10:00 NOK Unemployment % May 2.9% 2.9% 3.1%


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Weekly Focus

Global Macro and Market Themes

US domestic economy picks up speed

The recent regional US manufacturing surveys have been weak across the board showing

that ISM manufacturing is likely to fall back further in May, adding to the correction from

the surge in ISM manufacturing in early spring. This could add uncertainty to investors

over the course for the US economy. The question is, how will this affect the Fed? Fed

members seem to put less emphasis on ISM manufacturing than in the past. When the Fed

lifted rates in December, ISM manufacturing stood at 48.5. Instead the Fed has

highlighted domestic developments lately, expressing optimism that growth is back on

track after weak development in Q4 and Q1:

Retail sales rebounded strongly in April pointing to a recovery in private

consumption following a couple of weak quarters (see chart next page).

Home sales have surged in the early spring months, with both new home sales and

pending home sales (a good indicator for existing home sales) jumping higher in

April. Part of the increase is probably exaggerated, but the trend since December is

clearly up. This breaks a period of slowing during 2015.

Consumer confidence (University Of Michigan) for May surprised to the upside,

rising back to the highs of early last year after a period of moderation. And this has

happened despite a rise in gasoline prices which normally weighs on consumer

sentiment.

Finally core durable goods shipments are showing signs of stabilisation following

a sharp decline in investment activity since mid-2015. It may be an indication that the

significant drag from the decline in oil investments is starting to fade.

US housing very strong in early spring following slowdown in 2015

Source: Macrobond Financial

Today’s key points

US consumption and housing gain

pace giving comfort to the Fed

A summer hike is increasingly

likely barring any negative

surprises

USD to strengthen short term

driven by higher US yields

Euro yields supported by QE – to

stay range bound

Moderate improvement in German

sentiment indicators

US regional surveys soft in May

Source: Macrobond Financial, Danske Bank


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Weekly Focus

Given these developments the probability is rising of a Fed hike in June or July. In this

case there is scope for further repricing at the short end of the US yield curve as a

hike is not fully priced until November and a second hike not fully priced until October

next year. We look for US yields to push higher over the summer and autumn based on

this.

European bonds continue to be supported by the ECB purchases, and 10-year bund

yields are close to the lows despite a rise in US yields recently (see chart). We expect this

to continue in the short term with range trading in German bonds. In H2, though, German

yields will see some upward pressure from a moderate rise in inflation and spill-over from

US yields.

A further rise in US short-end yields is likely to support further USD strength in the

short term. Our equity team has changed to a negative bias for the stock market as

markets are not prepared for further Fed rate hikes and earnings expectations are too high

for 2017.

Moderate improvement in core Europe, Chinese profits grow

German data on PMI and ifo business expectations improved a bit further this week. After

taking a bit hit in early 2016 from the EM turmoil it seems that businesses are somewhat

more optimistic – even despite the uncertainty over the Brexit vote. If – as the current

polls and odds at book makers suggest – the UK stays in the EU, we will likely see a

further improvement in business sentiment over the summer and autumn. Investments are

also likely to pick up in H2 if the UK stays in the EU as businesses are likely to keep

plans in the drawer until there is clarity that the UK is staying within the EU.

German GDP growth for Q1 was confirmed at a robust 0.7% q/q this week and the details

point to strong domestic demand with construction investments in particular being very

strong. However, GDP growth is likely to be slower in Q2 as some of the strength was

probably weather related and due to normal volatility in the numbers. Industrial

production numbers also showed a big decline in March after very strong readings in

January and February. This leaves a low base for the start to Q2.

In China it has been quiet on the data front this week. The only release of interest was

industrial profit growth, which fell to 4.2% y/y in April from 11.1% in March. For the

two months as a whole profits thus grew 7.7% y/y which is the strongest growth rate

since mid-2014. The improvement is driven by higher producer prices and a lift to

activity levels in early 2016. We expect profit growth to stay in moderately positive

territory for the rest of the year, leaving some support to Chinese stock markets.

Sentiment is still quite downbeat around China and worries over the debt development are

hanging like a heavy cloud over the Chinese economy, with foreign investors very

reluctant to put money to work in China. This will likely be the case for a long time.

However, we believe the cyclical recovery over the coming quarters we look for will be

enough to give some lift to Chinese stocks this year. Next week’s PMI’s may, however,

add to the concern, as we look for a further decline as the correction to the very strong

surge in March is probably not over. But we continue to expect a moderate underlying

recovery this year driven by a rise in construction investments as home sales have been

very high and inventory-to-sales ratios are back at normal levels in China as a whole.

Sharp house price increases are also likely to spur more investments in tier-1 and tier-2

cities.

Strong pick-up in US consumption

lately


Sharp drag from US investments

may be fading


German yields close to the lows

despite lift to US yields


German business sentiment

improving despite Brexit risk



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Global market views

Source: Danske Bank Markets

Asset class Main factors

Equities

Short term: sell on rallies

M edium term: moderately negative

Bond market

Core yields: still low Bund yields in Q2, but higher later in the year Higher QE,TLTRO II and 'hunt for yield' but no more rate cuts and higher US yields later this year.

US-euro spread: wider but no t befo re we see F ed hikes We still look for policy divergence in Q4 but for now the 'hunt for yield' supports treasuries.

Peripheral spreads set to tighten further from here QE, improving fundamentals and search for yield. However, a lo t o f event risk at the moment and ultra-long supply.

C redit spreads: neutral Initial ECB-driven rally likely over. Technicals still supportive.

FX

EUR/USD - Lower near-term on relative rates and Brexit fear, then higher Fundamentals support cross in the medium to long term but downside risks short term from Fed and Brexit risks.

USD/JPY - To edge higher near term on monetary and fiscal easing USD/JPY to rise near term but further out to stabilise on valutaion and current account surplus.

EUR/SEK - Broader range of 9.10-9.50 has been re-established Range-trade near term but lower medium term as the Riksbank becomes more confident in inflation fight.

EUR/NOK - Settling in 9.10-9.40 interval now, then lower as cycle turns Relative rates limit short-term downside potential, fundamentals point to lower EUR/NOK in H2 16.

Commodities

Oil price – Consolidation in US oil sector leading to recovery OPEC has lost leverage over o il price; sliding dollar and improved growth outlook to drive o il price higher.

M etal prices – Anticipating recovery in Chinese construction Consolidation in mining industry puts a floor under prices, awaiting support from higher global economic growth.

Gold price – Flat near term Looming Brexit uncertainty, vo latility in o il market may support safe haven demand for gold.

Agriculturals – Upside risks, spillover from rally in palm oil price Attention has turned to La Niña weather risks in H2 16.

Key drivers for our stance are: 1) The Fed will hike soon (our house call says September) and equity markets are simply

not ready for this, 2) Earnings expectations for 2017 with increases of 10-15% compared to 2016 are too optimistic.

Slashing of earnings expectations will make equities trade lower given that multiples are at highs, 3) M acro

environment is stable and 4) Central banks (other than Fed) will have an easing bias in their stance, but the question is

whether low rates are sufficient to spur earnings growth ahead on equities from here.


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Scandi update

Denmark – labour market continued to improve in March

The monthly employment statistics showed a seasonally adjusted increase of 3,800 people

in work from February to March, despite a decrease of 800 in the public sector. This goes

to show that firms are continuing to take on more and more staff, as they have been ever

since April 2013. The improvement in the labour market can also be seen in

unemployment and wages: the jobless rate is now down to 4.2% and the latest wage data

from the Confederation of Danish Employers show growth of 2.2% y/y in Q1. With

inflation over that same period running at 0.3%, it means that Danish workers have seen a

significant increase in their real wages.

Sweden – last minute revisions

A couple of weeks ago we sent out what we thought would be our final estimate of

Swedish Q1 GDP growth. At the time, bar production side data, our indicators pointed

mostly above 4% y/y (vol., and calendar adjusted). However, with the last iteration of

international trade data, we now have a clearer and unfortunately also considerably more

negative view on GDP Q1, especially from the demand side of GDP. This said, it is also

important to remember that some indicators are still strongly positive, reaching as high as

5% y/y. Now, with a range of outcomes stretching from 2.5% y/y all the way up to 5.0%

y/y, a high degree of uncertainty is obvious. Nonetheless, we have decided to keep our

forecast of 4% y/y but instead of most risks pointing to the upside, we now see a more

balanced, perhaps even negative, skew of risks to Q1 GDP.

Elsewhere, data outcomes have been mildly negative and the Swedish FSA’s stability

report was an exercise in pre-committing to measures that, in our view, will almost

certainly push the housing market into recession – that is given the unlikely event that the

suggestions come to pass in parliament.

Norway – oil investment as expected

Statistics Norway’s oil investment survey contained a marginal upward revision of the

estimate for 2016 from NOK164bn to NOK165bn and a first estimate for 2017 of

NOK153bn, which was marginally more than we had predicted. All in all, the survey

indicates that investment will continue to fall but somewhat more slowly than this year.

This means that the headwinds from the oil sector regarding the rest of the Norwegian

economy will, as expected, ease in 2017. Together with highly expansionary monetary

and fiscal policy, this means that economic growth should pick up and that

unemployment should peak in the next few months. The results of the survey should also

be in line with Norges Bank’s assumptions in the March monetary policy report and so

have little impact on future interest rate decisions. However, along with higher oil prices

the results reduce the downside risk to the Norwegian economy. Given the slightly

stronger macro data of late, only a significantly stronger krone would now trigger lower

interest rates.

Employment up further in March

Source: Statistics Denmark

A more complete picture of external

trade points to downside risks to GDP

Note: The dashed lines are National Accounts

data and the solid lines are from the exports and

imports statistics

Source: Macrobond Financial, Statistics Sweden.

Danske calculations

Decline in oil investment easing



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Latest research from Danske Bank Markets

26/ 5/16 Russian output and demand - waiting for green shoots

Russia's output is recovering on strengthening local production.

20/5 Brexit Monitor No. 4: GBP rallied sharply this week supported partly by big lead for

'remain' in biased phone polls

Opinion polls continue to signal a close race but ‘remain’ is still ahead in most polls.

Most notable was the Ipsos MORI poll published two days ago, which showed a 55% to

37% lead for ‘remain’ (from 49% to 39%).

http://danskeresearch.danskebank.com/link/FlashCommentRussiaoutputdemand260516/$file/FlashComment_Russia_output_demand_260516.pdf

http://danskeresearch.danskebank.com/link/MonitorBrexit4200516/$file/Monitor_Brexit_4_200516.pdf

http://danskeresearch.danskebank.com/link/MonitorBrexit4200516/$file/Monitor_Brexit_4_200516.pdf


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Macroeconomic forecast

Source: OECD and Danske Bank. 1) % y/y. 2) % contribution to GDP growth. 3) % of labour force. 4) % of GDP.

Macro forecast, Scandinavia

Denmark 2015 1.2 2.1 0.9 0.8 -0.4 -0.9 -1.3 0.5 4.7 -2.1 40.2 7.02016 0.9 1.6 0.4 0.9 0.2 0.4 1.1 0.4 4.3 -2.8 38.2 6.62017 1.7 2.2 0.4 1.9 0.0 3.6 3.8 1.4 4.1 -2.0 38.8 7.0

Sweden 2015 4.1 2.6 2.5 7.3 0.1 5.9 5.4 0.0 7.4 -0.4 43.4 4.92016 3.0 2.4 2.7 5.4 0.0 6.0 7.0 0.6 6.9 -1.0 42.5 5.82017 2.0 1.8 2.6 3.4 -0.1 3.5 4.2 0.6 6.5 -1.2 42.7 5.5

Norway 2015 1.0 2.0 1.8 -4.1 0.5 2.6 0.5 2.1 3.0 - - -2016 1.3 1.6 3.2 -1.8 -0.6 0.7 1.3 3.0 3.3 - - -2017 2.2 1.9 3.4 0.9 0.0 1.1 2.2 2.5 3.3 - - -

Macro forecast, Euroland

Euroland 2015 1.6 1.7 1.3 2.6 - 5.0 5.6 0.1 10.9 -2.1 90.8 3.72016 1.6 1.2 1.7 2.9 - 3.4 4.0 0.2 10.1 -1.7 90.6 3.62017 1.8 1.2 1.1 3.9 - 4.3 4.5 1.3 9.5 -1.5 89.5 3.4

Germany 2015 1.5 1.9 2.5 1.7 - 5.2 5.6 0.1 4.6 0.9 71.5 8.72016 2.3 1.6 2.1 4.3 - 4.6 5.0 0.1 4.5 0.5 68.2 8.62017 2.3 1.6 1.0 6.1 - 4.5 5.3 1.7 4.5 0.4 65.0 8.4

France 2015 1.1 1.5 1.5 -0.2 - 5.6 5.7 0.1 10.6 -3.8 96.4 -1.32016 1.1 1.0 0.9 2.2 - 3.4 4.3 0.4 10.6 -3.4 97.1 -1.62017 1.4 1.0 0.8 4.0 - 3.5 4.1 1.3 10.3 -3.0 97.3 -2.2

Italy 2015 0.7 0.9 0.3 0.6 - 4.0 5.4 0.1 11.9 -2.6 133.1 2.22016 1.3 1.0 0.4 2.7 - 3.5 3.9 0.8 10.6 -2.2 132.0 1.92017 1.4 0.8 0.4 4.1 - 4.2 4.1 1.5 10.0 -1.5 129.5 1.9

Spain 2015 3.2 3.0 2.4 6.3 - 6.0 7.8 -0.6 22.2 -4.5 100.4 1.42016 2.8 2.5 0.9 6.2 - 5.4 6.4 0.0 20.5 -3.5 101.4 1.32017 2.4 1.8 0.4 6.1 - 4.2 4.9 1.3 19.0 -2.5 100.4 1.4

Finland 2015 0.5 1.4 -0.9 -1.1 - 0.6 -0.4 -0.2 9.4 -2.8 63.1 0.12016 0.7 0.6 0.0 2.5 - 1.5 2.0 0.4 9.6 -3.0 65.8 0.22017 1.1 0.5 -0.5 3.5 - 4.0 3.5 1.0 9.4 -2.8 67.4 0.5

Macro forecast, Global

USA 2015 2.4 3.1 0.7 4.0 0.2 1.1 4.9 0.1 5.3 -2.5 101.7 -2.72016 1.8 2.4 0.9 3.2 -0.3 2.8 3.4 1.8 4.8 -2.9 100.9 -2.52017 2.4 2.4 0.8 5.0 0.0 4.9 5.0 3.0 4.5 -2.9 98.6 -2.5

China 2015 6.8 - - - - - - 1.7 4.2 -0.8 41.8 2.42016 6.7 - - - - - - 2.3 4.2 -0.8 42.8 2.32017 6.6 - - - - - - 2.0 4.3 -1.0 43.5 2.5

UK 2015 2.3 2.8 1.5 4.1 0.2 5.1 6.3 0.1 5.4 -5.0 87.4 -5.22016 1.8 2.4 0.8 0.1 0.5 1.9 3.0 24.2 5.0 -3.9 88.9 -5.52017 2.1 2.3 0.0 5.1 0.0 3.0 3.2 5.7 4.8 -2.9 88.3 -5.2

Source: OECD and Danske Bank. 1) % y/y. 2) % contribution to GDP growth. 3) % of labour force. 4) % of GDP.

Year GDP 1

Private

cons.1

Public

cons.1

Fixed

inv.1

Stock

build.2

Current

acc.4

Im-

ports1

Public

debt4

Public

budget4

Ex-

ports1

Infla-

tion1

Unem-

ploym.3

Ex-

ports1

Im-

ports1

Infla-

tion1

Unem-

ploym.3

Public

budget4

Current

acc.4

Public

debt4

Unem-

ploym.3

Public

budget4

Public

debt4

Year

Year GDP 1

Private

cons.1

Public

cons.1

Fixed

inv.1

Stock

build.2

Current

acc.4

GDP 1

Private

cons.1

Public

cons.1

Fixed

inv.1

Stock

build.2

Ex-

ports1

Im-

ports1

Infla-

tion1


Weekly Fo

cus

Weekly Focus

Financial forecast


Bond and money markets

Currencyvs USD

Currencyvs DKK

USD 27-May - 664.7

+3m - 664.1

+6m - 652.4+12m - 630.3

EUR 27-May 111.9 743.7

+3m 112.0 743.8

+6m 114.0 743.8+12m 118.0 743.8

JPY 27-May 109.7 6.06

+3m 115.0 5.77

+6m 116.0 5.62+12m 116.0 5.43

GBP 27-May 146.6 974.1

+3m 147.4 978.6

+6m 154.1 1005.1+12m 157.3 991.7

CHF 27-May 99.0 671.7

+3m 98.2 676.1

+6m 98.2 664.1+12m 97.5 646.7

DKK 27-May 664.7 -

+3m 664.1 -

+6m 652.4 -+12m 630.3 -

SEK 27-May 827.9 80.3

+3m 812.5 81.7

+6m 789.5 82.6+12m 754.2 83.6

NOK 27-May 828.1 80.3

+3m 830.4 80.0

+6m 807.0 80.8+12m 754.2 83.6

Equity Markets

Regional

Price trend12 mth

Regional recommen-dations

USA (USD) Strong domestic demand, USD weakening 0-5% Overweight

Emerging markets (local ccy) Commodities and China stabilising 0-5% Overweight

Japan (JPY) Stronger JPY, weak earnings outlook 0-3% Underweight

Europe (excl. Nordics) Brexit, po litical uncertainty, stronger EUR 0-3% UnderweightNordics Earnings growth, expensive valutaion 0-5% Overweight

Commodities

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2016 2017

NYMEX WTI 34 45 47 49 51 53 55 57 44 54

ICE Brent 35 45 47 49 51 53 55 57 44 54

Copper 4,672 4,900 5,000 5,100 5,200 5,300 5,400 5,500 4,918 5,350

Zinc 1,687 1,800 1,850 1,900 1,950 2,000 2,050 2,100 1,809 2,025

Nickel 8,537 8,500 9,500 10,500 10,700 10,900 11,100 11,300 9,259 11,000

Aluminium 1,516 1,550 1,650 1,750 1,800 1,850 1,900 1,950 1,616 1,875

Gold 1,183 1,250 1,250 1,250 1,225 1,200 1,175 1,150 1,233 1,188

Matif Mill Wheat (€/t) 157 165 165 165 165 165 165 170 163 166

Rapeseed (€/t) 359 410 435 435 425 415 405 405 410 413

CBOT Wheat (USd/bushel) 466 485 495 505 525 535 545 555 488 540

CBOT Corn (USd/bushel) 363 375 380 390 400 410 415 420 377 411CBOT Soybeans (USd/bushel) 881 1,000 1,075 1,080 1,085 1,090 1,095 1,100 1,009 1,093

Average

0.67

-0.26

-0.02

0.59

374

-0.45

-0.73

-

--

-0.10

-0.10

-0.10

0.78

0.971.14

-0.28

-0.28

-

-

Key int.rate

0.50

0.50

0.751.00

0.25

-0.75

0.00

0.00

-0.30-0.30

0.50

0.50

-0.50

0.75

-0.50-0.50

0.00

0.50

-

-0.45

10-yr swap yield

-0.48

0.05

0.050.05

3m interest rate

0.65

0.00

-0.10

0.50

-0.75

0.05

-0.28

0.59

0.601.04

0.50

0.25

1.00

-0.75-0.75

-0.50

-0.30

-0.11

1.401.65

0.85

1.151.50

-

-

0.95

-0.30

-

0.85

0.05

0.100.10

-

--

-0.33

-0.35

0.95

-0.30

1.020.99

0.70

-0.45

111.9

-

-

--

122.7

743.8

743.8743.8

926.2

926.4

890.0

910.0

920.0

900.0890.0

930.0

110.7

743.7

76.0

75.0

110.0

112.0115.0

112.0

114.0118.0

128.8

132.2136.9

Currencyvs EUR

2-yr swap yield

Risk profile3 mth

Price trend3 mth

1.60

1.68

1.95

1.01

-0.16

-0.13

0.84

-0.68

0.07

-0.15

-0.10-0.10

1.05

76.3

2.25

74.0

408

27-May

49

8,395

4,661

1,876

1,221

167

49

1,556

20172016

0.50

0.700.90

-

--

1.48

1.55

0.09

Medium -3 -+3%

1,082

480

0.54

1.251.40

1.66

1.50

1.75

1.701.95

-0.15

-

--

1.95

1.001.20

0.80

1.11

1.15

0.85

High

High

High -5 -+5%

Medium -3 -+3%

-3 -+3%

-5 -+5%


Weekly Fo

cus

Weekly Focus

Calendar

Calendar


Continued


Calendar


Continued



Key Data and Events in Week 22

During the week Period Danske Bank Consensus Previous

Sat 28 GBP Nationwide house prices m/m|y/y May 0.3%|4.8% 0.2%|4.9%

Monday, May 30, 2016 Period Danske Bank Consensus Previous

- DEM Retail sales m/m|y/y Apr 1.2%|… 1.0%|2.1% -1.4%|0.7%

1:50 JPY Large retailers' sales y/y Apr -1.2% -1.2%

1:50 JPY Retail trade m/m|y/y Apr -0.6%|-1.2% 1.5%|-1.0%

2:35 USD Fed's Bullard (voter, hawkish) speaks

8:45 FRF Household consumption m/m|y/y Apr 0.1%|2.7% 0.2%|2.7%

8:45 FRF GDP, preliminary q/q|y/y 1st quarter 0.5%|… 0.5%|1.3% 0.5%|1.3%

9:00 ESP HICP, preliminary m/m|y/y May 0.5%|-1.1% 0.5%|-1.2%

9:00 DKK Confidence indicator, industry, s.a. Net balance May -6

9:30 SEK GDP q/q|y/y 1st quarter 0.4%|4.0% 0.6%|4.2% 1.3%|4.5%

9:30 SEK Wages (blue collars/white collars) y/y Mar 2.1%

10:00 NOK Retail sales, s.a. m/m Apr 0.8% 1.0% -0.7%

10:00 NOK Unemployment (LFS) % Mar 4.6% 4.6% 4.6%

11:00 EUR Business climate indicator Net bal. May 0.2 0.1

11:00 EUR Industrial confidence Net bal. May -3.5 -3.7

11:00 EUR Economic confidence Index May 104.4 103.9

11:00 EUR Consumer confidence, final Net bal. May -7.0 -7.0

11:00 EUR Service confidence Net bal. May 11.5 11.5

14:00 DEM HICP, preliminary m/m|y/y May …|-0.3% 0.3%|-0.1% -0.5%|-0.3%

Tuesday, May 31, 2016 Period Danske Bank Consensus Previous

1:30 JPY Household spending y/y Apr -1.1% -5.3%

1:30 JPY Unemployment rate % Apr 3.2% 3.2%

1:30 JPY Job-to-applicant ratio Apr 1.3 1.3

1:50 JPY Industrial production, preliminary m/m|y/y Apr -1.5%|-5.1% 3.8%|0.2%

7:00 JPY Small business confidence Index May 47.5 47.8

7:00 JPY Housing starts y/y Apr 4.0% 8.4%

8:45 FRF HICP, preliminary m/m|y/y May …|-0.2% 0.4%|0.0% 0.1%|-0.1%

9:00 DKK GDP, preliminary q/q|y/y 1st quarter 0.1%|… 0.1%|… 0.1%|…

9:00 DKK Gross unemployment s.a. K (%) Apr 4.2% 4.2% 113 (4.2%)

9:30 DKK DORS publishes Spring report on Danish economy

9:55 DEM Unemployment % May 6.2% 6.2% 6.2%

10:00 NOK Norges Bank's daily FX purchases m Jun -900

10:00 NOK Credit indicator (C2) y/y Apr 4.8% 4.9%

10:00 EUR Money supply (M3) y/y Apr 5.1% 5.0% 5.0%

10:00 EUR Loans to households (adj. for sales and sec.) Apr

10:00 EUR Loans to NFCs (adj. for sales and sec.) Apr

11:00 EUR HICP inflation, preliminary y/y May -0.2% -0.1% -0.2%

11:00 EUR HICP - core inflation, preliminary y/y May 0.7% 0.8% 0.7%

11:00 EUR Unemployment % Apr 10.1% 10.2% 10.2%

11:00 ITL HICP, preliminary m/m|y/y May 0.3%|-0.3% 0.2%|-0.4%

12:00 ITL GDP, final q/q|y/y 1st quarter 0.3%|1.0%

12:00 EUR Portugal, GDP, final q/q|y/y 1st quarter 0.1%|0.8%

14:30 USD PCE deflator m/m|y/y Apr 0.3%|1.1% 0.3%|1.1% 0.1%|0.8%

14:30 USD PCE core m/m|y/y Apr 0.1%|1.5% 0.2%|1.6% 0.1%|1.6%

14:30 USD Personal income m/m Apr 0.5% 0.4% 0.4%

14:30 USD Personal spending m/m Apr 0.8% 0.6% 0.1%

14:30 CAD GDP m/m|y/y Mar 0.0%|… -0.1%|1.5%

15:00 USD S&P Case Shiller House prices Index Mar 182.8

15:45 USD Chicago PMI Index May 50.7 50.4

16:00 USD Conference Board consumer confidence Index May 96.0 94.2


Weekly Fo

cus

Weekly Focus

Calendar — continued


Wednesday, June 1, 2016 Period Danske Bank Consensus Previous

- USD Total vechicle sales m May 17.25 17.32

- JPY Official reserves assets USD bn May 1262.5

3:00 CNY PMI manufacturing Index May 50.0 50.1

3:00 CNY PMI non-manufacturing Index May 53.5

3:30 AUD GDP q/q|y/y 1st quarter 0.6%|2.7% 0.6%|3.0%

3:45 CNY Caixin Manufacturing PMI Index May 48.5 49.2 49.4

4:00 JPY Nikkei Manufacturing PMI, final Index May 47.6

7:45 CHF GDP q/q|y/y 1st quarter 0.3%|0.9% 0.4%|0.4%

8:30 SEK PMI manufacturing Index May 53.8 54.0

9:00 DKK House prices m/m|y/y Mar -0.3%|5.9%

9:00 DKK CB's securities statistics Apr

9:00 DKK Foriegn portfolio investments Apr

9:00 NOK PMI manufacturing Index May 48.5 48.0

9:15 CHF Retail sales y/y Apr -1.3%

9:15 ESP PMI manufacturing Index May 52.9 52.5 53.5

9:30 CHF PMI manufacturing Index May 54.0 54.7

9:45 ITL PMI manufacturing Index May 53.0 53.9

9:50 FRF PMI manufacturing, final Index May 48.3 48.3 48.3

9:55 DEM PMI manufacturing, final Index May 52.4 52.4 52.4

10:00 EUR PMI manufacturing, final Index May 51.5 51.5 51.5

10:30 GBP PMI manufacturing Index May 49.6 49.2

10:30 GBP Broad money M4 m/m|y/y Apr -0.4%|1.6%

10:30 GBP Mortgage approvals 1000 Apr 68.0 71.4

13:00 USD MBA Mortgage Applications % 2.3%

15:45 USD Markit manufacturing PMI, final Index May 50.5 50.5

16:00 USD Construction spending m/m Apr 0.5% 0.3%

16:00 USD ISM manufacturing Index May 50.2 50.5 50.8

16:00 USD ISM prices paid Index May 58.0 59.0

Thursday, June 2, 2016 Period Danske Bank Consensus Previous

3:30 AUD Retail sales m/m Apr 0.3% 0.4%

3:30 AUD Trade balance AUD m Apr -2100 -2163

7:00 JPY Consumer confidence Index May 40.3 40.8

9:30 SEK Current account SEK bn 1st quarter 63.7

10:30 GBP PMI construction Index May 51.8 52.0

11:00 EUR PPI m/m|y/y Apr -4.1%|0.1% -4.2%|0.3%

13:45 EUR ECB announces refi rate % 0.00% 0.00% 0.00%

13:45 EUR ECB announces deposit rate % -0.40% -0.40% -0.40%

14:15 USD ADP employment 1000 May 178 156

14:30 EUR ECB's Draghi speaks at press conference

14:30 USD Initial jobless claims 1000 268

14:35 USD Fed's Powell (voter, neutral) speaks

16:00 DKK Currency reserves DKK bn Apr 412 403.5

17:00 USD DOE U.S. crude oil inventories K -4226

19:00 USD Fed's Kaplan (non-voter, dovish) speaks


Weekly Fo

cus

Weekly Focus

Calendar — continued


Friday, June 3, 2016 Period Danske Bank Consensus Previous

- EUR Moody's may publish ESM's debt rating

- EUR S&P may publish Ireland's debt rating

- EUR Moody's may publish Finland's debt rating

2:00 JPY Labor cash earnings y/y Apr 0.8% 1.5%

3:45 CNY Service PMI Index May 51.8

4:00 JPY Markit PMI services Index May 49.3

8:30 SEK PMI services Index May 52.6

9:15 ESP PMI services Index May 54.0 55.1

9:30 SEK Industrial production s.a. m/m|y/y Apr -0.3%|2.5% 1.4%|5.5%

9:30 SEK Service production m/m|y/y Apr 0.3%|1.5% 0.9%|1.2%

9:30 SEK Industrial orders m/m|y/y Apr 1.7%|2.1%

9:45 ITL PMI services, preliminary Index May 51.4 52.1

9:45 USD Fed's Evans (non-voter, dovish) speaks

9:50 FRF PMI services, final Index May 51.8 51.8 51.8

9:55 DEM PMI services, final Index May 55.2 55.2 55.2

10:00 NOK Unemployment % May 2.9% 2.9% 3.1%

10:00 EUR PMI composite, final Index May 52.9 52.9 52.9

10:00 EUR PMI services, final Index May 53.1 53.1 53.1

10:30 GBP PMI services Index May 52.5 52.3

10:30 GBP PMI composite Index May 51.9

11:00 EUR Retail sales m/m|y/y Apr 0.6%|… 0.4%|2.1% -0.5%|2.1%

14:30 USD Non farm payrolls 1000 May 160 160 160

14:30 USD Unemployment % May 4.9% 4.9% 5.0%

14:30 USD Average hourly earnings, non-farm m/m|y/y May 0.2%|2.5% 0.2%|2.5% 0.3%|2.5%

14:30 USD Private payrolls 1000 May 157 171

14:30 USD Manufacturing payrolls 1000 May 0 4

14:30 USD Average weekly hours Hours May 34.5 34.5

14:30 USD Trade balance USD bn Apr -41.9 -40.4

15:45 USD Markit service PMI, final Index May 51.4 51.2

15:45 USD Markit composite PMI, final Index May 50.8

16:00 USD Capital goods orders, non-defense ex air, final % Apr -0.8

16:00 USD Factory orders m/m Apr 0.8% 1.5%

16:00 USD Durable goods orders, final m/m Apr 3.4%

16:00 USD ISM non-manufacturing Index May 55.2 55.3 55.7

18:30 USD Fed's Brainard (voter, dovish) speaks

The editors do not guarantee the accurateness of figures, hours or dates stated above

For furher information, call (+45 ) 45 12 85 22.


Weekly Fo

cus

Weekly Focus

Disclosures This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S (‘Danske

Bank’). The author of this research report is Morten Helt, Senior Analyst.

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Weekly Fo

cus

Weekly Focus

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