Macro Weekly

Macro week 43 by #1 Sjeføkonom Harald Magnus Andreassen

Last week:

Still Very Bad Corona News: As we suggested one week ago, something was rotten in many Kingdoms and states in Europe – as in the US – we had to backpedal on our previous more optimistic analysis. The no of Covid-19 cases was growing fast in many countries, and worryingly rapidly from pretty high levels in some – and the acceleration continued everywhere last week (except for Denmark, Norway and Sweden). Hospitals are not yet overwhelmed but the no of patients are increasing rapidly, and to high levels in some cities. The no of Covid-19 related deaths in Europe has quintupled since the summer but still equals 5% the normal no of deaths, it was 70% extra at the peak in March/April. Several countries are re-introducing restrictions, however still local and more targeted than 7 months ago. Even so, the economic impact will probably be visible in Q4. On a positive note, the US the economy has not gone into reverse even if the no of infected has been rather high, and measures were introduced (in July) to curb the outbreak (but the no of cases is increasing rapidly again, there too)
The IMF revised its June global 2020 GDP forecast up by 0.8 pp to -4.4%, and its ‘21 f’cast down by 0.2 pp to +5.2%. By end of next year, global GDP is estimated to be more than 4.5% below the pre corona close to 3% p.a growth path. The 2020 upward revision is entirely due to a less dire outlook for Developed Markets (+2.3 pp), while Emerging Markets are revised down (-0.2 pp), even if China is lifted by 0.9 pp to +1.9%. India is scaled back 5.8 pp to -10.3%! So before you complain… Two weeks ago, the OECD too lifted its 2020 growth f’casts upwards
GDP in China rose 2.7% q/q, 4.9% y/y in Q3, a tad weaker than expected. However, activity is less than 1pp below the pre corona growth path. September data were significantly stronger than expected, industrial production is well above the pre corona trend. Retail sales rose sharply but are still the laggard (and now the only one). Exports and even more imports are very strong. Inflation is slowing, as is credit growth – but it remains well above income growth
No news on the negotiations about another US fiscal stimulus package, but some say that a deal should be reached soon, in order to get it implemented before the election. Manufacturing production surprised on the downside in Sept (-0.3%) and it is still 7% down vs. Dec. The first regional manufacturing surveys were mixed, the Phil Fed was strong, with orders growing at the 2^nd fastest pace ever (data from 1968)! In addition, retail sales were much stronger than expected, the core up well above 1% - and the level is 7% higher than in early 2020!
Manufacturing production in the EMU rose 1% in August but remains 5% below the Dec level. Only Italy (!) is above
Norwegian banks expect subdued demand for credit in Q4 – and weaker than we assumed demand from households and stronger than we forecasted for businesses. No major changes in credit standards were reported, according to Norges Bank’s lending survey. Banks in other countries, especially in the US, is tightening sharply. Homebuilders report much higher sales and starts are following suit, not surprising given the strong existing home market. The overall trade balance is in red as strong domestic demand for goods have lifted imports – and Mainland exports have fallen during the corona crisis

This week: October PMIs at the end of the week. US housing, some European surveys + LFS(AKU) unempl here

Preliminary PMIs

Barring weak service sector PMIs in the EMU, especially in the South, no doubt due to the escalation of the corona crisis, the September global PMI data strong, signalling a further uptick in growth. The PMIs have not been useful during the corona crises, not in other to figure out the depth in April or the timing or speed of the recovery. Still, we expect the PMI reports to give a better gauge of the growth pace during this autumn – and they will once more turn out to be reliable indicators. In October, the PMIs are expected more or less unchanged vs. September but services in the EMU is expected further down – a fair bet

USA

Housing data has been very strong, all over – and prices are surging, even if unemployment is high, just like in many other countries. We to not expect Fed’s beige book (its verbal regional network) to paint a strong picture of the US economy

Norway

We expect a further lift in SSB’s quarterly manufacturing survey but that the main index will remain well below an average level (slightly above 0). LFS (AKU) unemployment was much lower than we assumed in July (avg June-Aug) but still we expect a further decline in Aug (3 m avg), to 5%

Macro week 43 report: Macro Weekly SB1 Markets 20 - 43.pdf

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