Macro week 7 by #1 Chief Economist Harald Magnus Andreassen, and Macro Analyst Tina Norden
Last week
The War/European Energy/Commodities
Russia has started a new campaign, and Ukraine is begging the West for more weapons and ammunition
Mixed commodities: The oil price rose, while European gas prices fell further – as did metal prices
In China, mobility has returned to a very high level after the Chinese New Year
Global auto sales: Sales flattened in January, following two month’s decline. China and EMU contributed at the downside, the rest of the world on the upside
China: Inflation accelerated 0.3 pp to 2.1% in January, and the core was up 0.2 pp to 0.9%. Producer prices are down y/y. Any better?
US
Fed Chairman Jay Powell reiterated his message from the press conference in an interview on Tuesday: Disinflation has begun, it is very early stages, there will be further rate increases, and it may well be that we have to do more – but the market just listen to the disinflation word. However, during a data thin week rate expectations rose sharply, the terminal rate by 16 bps to 5.18%, a new cycle high (following the 14 bp lift the previous Friday). The rest of the curve rose, the 10 y to 3.75%, up 22 bps
Atlanta Fed’s median wage tracker still reports 6%+ wage growth, more than 3 pp higher than over the 10 years prior the pandemic. Which over time will yield 3 pp higher CPI inflation than before the pandemic
EMU: Retail sales were down 2.7% in December and the trend is straight down
Sweden
The Riksbank lifted as widely expected the signal rate by 50 bps again, to 3,00% - and to above Norges Bank’s policy rate. The bank also lifted the interest rate path by close to 50 bps – and FRA’s rose by 50 bps as well. Riksbank signals a terminal rate at 3.33%, the market is 20 bps above. The QE programme expired at year end, and the bank is announcing that it will start QT beginning in April. The 10 y bond yield rose 50 bps too, much more than elsewhere
Svensk Mäklarstatistik (the realtors) reported a 1.9% decline in the prices of flats in Jan. Prices are now down 14% from the peak.. Real house prices are back to the early 2015 level. And the central bank is willing to continued hiking…
Japan: Wages grew 2.5% in through ‘22, the fastest pace 1991. The Dec y/y rate was 4.9%, but heavily influenced by the fact that wages were lower than normal in Dec-21 – also real wages are in fact still falling
Norway
CPI inflation surprised sharply to the upside in January. The headline CPI rose 1.1 pp to 7.0%, and the core was up 0.6 pp to 6.4%, both significantly above our, the market’s and Norges Bank’s f’casts (if not for the total CPI). The price increases are broad based, with autos (even if adjusting for higher taxes, in the core CPI), housing and newspapers/books contributing the most on the upside. Both domestically and imported prices were to blame. Electricity prices fell 10%. The Dec core inflation data was a ‘rates up’ print, the Jan print sealed the deal for a 2nd 2023 hike from NoBa, following the well announced hike to come in March. The market puts a 80% probability for a third hike, to 3.5%, following a 35 bps lift in the OIS cure last week. It does not seem unreasonable
Manufacturing production fell for the 2nd month and was down 0.6% in Dec, we expected it to remain unchanged. In fact, production in oil-related sectors was unchanged, but activity in the other sectors was down by 0.7% m/m. Only the production of chemicals, ships/platforms, and repairs were higher m/m
The vacancy rate was up 0.4 pp to 3.6% in Q4, far above our estimate at 3.0%. The unfilled job openings rate is the highest on record (data from 2010)
The Calendar: US CPI, manuf. prod, housing market, and NO GDP + Norw. investment surveys
China
New home prices have fallen since Sept-21, along with existing home prices. Authorities have put in place numerous measures to support demand, but so far without any luck
Credit growth has slowed even if the authorities have tried to stimulate growth, as least vs construction and housing
US
Inflation is easing and headline CPI fell 0.1% m/m in December and underlying inflation is some 3.1%,as energy prices have fallen which is of course still not the Fed’s target. The core is also coming down and the annual rate is now at 5.7%, down from the peak at 6.6%, thanks to falling goods prices. Services inflation (x rents) is still at 6.2% and rents are still on the rise. However, we still expect both the headline and the core to moderate further in January, and the uncertainty may be at the downside
Manufacturing production has turned south and is now below the pre-pandemic trend and only 0.8 pp above the Feb-20 level. Production in all main sectors declined in December, and new orders are not promising either, according to surveys
Both housing starts and permits are down 21%-29% since March/April of last year, and permits fell further in December, suggesting a continued fall in starts. The Home builders’ Housing Market Index plunged over the past year but rose a tad in Jan, and is expected further up in Feb
UK: Wage inflation is still on the rise, and was up 6.7% y/y in November. It used to be below 3% before the pandemic, and now inflation is still at 10.5% and unions are striking for growth in real wages – the BoE has a tough job ahead. At the same time, unemployment is the lowest in decades but have probably bottomed
Norway
GDP growth has been relatively strong and the level is above NoBa’s estimate, yet again. Mainland business investments have remained strong and so has consumption. The weak links? Manufacturing production and oil investments. In Dec, the surge in auto sales will lift GDP by almost 2 pp, before the impact from higher imports and lower inventories are incorporated. (Import data has been surprisingly muted, but we assume a substantial drag). The headline number will anyway not be relevant for an assessment of the cycle (auto sales fell like never before in January which will take GDP down. We expect an 1% lift m/m in Dec, and a 1.1% q/q growth in Q4. Annual accounts will reveal more details on wages, profits etc.
Investment surveys are out on Thursday. The 2023 estimate for oil & gas investments will be revised up more than anytime before as a large no. applications for field developments was delivered late last year to benefit from the temporary tax incentive offered if the PDO will be included in the forecast. We expect a NOK 30 bn lift in 2023 investments, to 180 bn – if so 13% up from the equivalent 2022 f’cast. The first forecast for 2024 will also be lofty, we expect NOK 160 bn, with the uncertainty at the upside. Manufacturing investments have been very upbeat, and the last 2023 estimate was 44% higher than the 2022 equivalent. The problem is that other surveys are more downbeat. We expect not much further upward revisions, and not in power supply either
The TBU (the Technical Committee preparing the wage negotiations) will present it’s preliminary report at Friday. An ‘official’ estimate last year’s wage growth (may be north of 4%, given new data), and a forecast for 2023 inflation will be published (probably not higher than the 4.8% – 4.9% forecast NoBa/SSB has published as electricity prices has fallen sharply. However, the core CPI is moving in the wrong direction…
