Macro Weekly

Macro week 39 by Harald Magnus Andreassen & Synne Holbæk-Hanssen

Last week:

Corona news: The number of new daily cases in the US turned up last week, we assume temporarily, following a decline by almost 50%. Hospitalisations and deaths are still low (vs. spring levels) – and the economic costs of turning the curve have been limited, the recovery has at least not stalled. The no of new cases in Europe is still on the way up but the virus is far less aggressive than before, the no of hospitalisations and deaths are even lower than in the US (vs. no of new cases). However the no of deaths doubled last week, both Spain, France, Italy and UK contributed. In Norway, growth in cases has stabilized, while Denmark continued to report an sharp acceleration
China August data came in above expectations. Industrial production rose another 1% m/m and is back at the pre corona trend path. Investments growth is slowly easing, up 4.2% m/m and the gap to the trend before corona is shrinking (still at 4%). The weakest data point is retail sales, which are growing but remain 7% below the old trend. Services in total are up 2% vs. Dec, but is still 3% below the pre corona trend path
The FOMC came across as slightly less dovish than expected, stating that interest rates will be kept at zero until inflation has reached 2% and is on track to moderately exceed that level. Thus, the Fed does not have to wait raising rates until actual average inflation over some time has reached 2%; it will be sufficient that the forecast implies so. Q4 2020 GDP revised up by almost 3 pp to -3.7% and unemployment down by 1.7 pp, vs the June forecast, illustrating the huge uncertainty in any forecast these days! (Both OECD and IMF revised their US & global forecasts sharply up last week). The FOMC did not promise any increase in bond purchases, as some had expected. US retail sales growth slowed further in August, following a steep rise the prior months. However, that’s not surprising as sales are 3% above the pre corona trend. Manufacturing production growth also slowed in August, and the gap vs the February level is still wide, at 7%. The first September manufacturing surveys rose but are not signalling a rapid recovery from here – but still decent growth. More evidence of a housing market recovery; the Homebuilders’ index rose to a new ATH and housing starts fell just marginally, after soaring the past months. New jobless claims are slowly heading down
The Bank of England held the interest rate unchanged at 0.1% and will continue the bond purchase programmes
Eurozone industrial production rose 4.1% in July, and ¾ of the decline in March/April is reversed (but 7% is still missing, like in the US, in August). Germany the weakest of the major countries
Norges Bank Q3 Regional Network survey was weaker than we expected. The Network expects a substantial slowdown the coming months, to a 0.4% growth pace, from 2.9% in May-July (however, we do not interpret these figures literally due to the huge changes in activity recent months, but the forecast was anyway not strong)! The construction sector is expecting close to a normal growth rate the next 6 month, others not. Oil related, exports and household services are expecting a decline. In addition, Mainland businesses are signalling what will be the sharpest cut in investments in 3 decades, if they do what they say (and not just to the Network survey)

This week:

Preliminary September PMI

We expect the first September PMIs to continue to note a continued recovery but not strong enough to close the gap anytime soon in services. During the previous months, PMIs have been useless when it comes to the translation into actual growth rates. Hopefully, the PMIs will soon reflect actual changes from month to month, as they failed to do during the most ‘extreme’ months

Durable goods orders have recovered rapidly and are above the levels prior to corona! Signals an ‘extreme’ lift in business investments in Q3
The flow of funds report will confirm an incredibly rise in household savings in Q2, as household income have been overcompensated. Low interest rates are fuelling a mortgage boom, driving household credit growth up. Businesses most likely pulled back their lending
The housing market is thriving, both new and existing home sales have shot up

Sweden

The Riksbank will maintain the interest rate at 0% and continue its bond purchases. Just SEK 195 bn of the 500 bn program has been utilised so far

Norway

Will Norges Bank signal an interest hike before Q4 2022, as the Bank communicated in June? Given the sharp growth in house prices and expectations of upward revisions of the growth forecasts vs June, there are strong arguments in favour of this. However, the soft Regional Network report as well as elevated uncertainties could justify a more dovish approach and our take is that the bank will wait and see. The market probably expects an upward adjustment as a hike is priced in by more than 50% in late 2021
The LFS unemployment rate rose to 5.8% in July, according to unsmoothed monthly data, while the May – July average equalled 5.2%. In the LFS, furloughed workers are only counted as unemployed after 3 months – and in July the March cohort of furloughed were counted. Even if we expect a decline in August, we assume that the 3 m average will get a lift, up to 5.6%. Hours worked rose sharply in July, but may have fallen in August, as parts of the service sector most likely slowed

Macro week 39 report: Macro Weekly SB1 Markets 20 - 39.pdf

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