Macro Weekly

Macro week 3 by #1 Chief Economist Harald Magnus Andreassen, and Macro Analyst Tina Norden

Last week:

Tight lockdowns are able to combat even the mutated virus. Last week, the no of new cases fell sharply in both UK and Ireland. The cost is high though, as mobility has been cut sharply down, very likely hurting the economy. However, as hospital occupancy rose sharply, these countries had no choice. The no new cases fell even faster in the Czech Rep, where hospitals are ‘crushed’ (the occupancy rates equals more than 3.600 patients. In Norway, we have 158…), and the no of deaths is very high. This is also the case in the UK – and will soon be in Ireland too. In Denmark, the no of new cases will have come down by 75% from the peak 4 weeks ago this week. Other countries in Europe are reporting fewer cases, Norway included. In the US, the no of cases may have flattened (but not for the first time…)
No major vaccine news, but Pfizer is slowing its Belgium production for some weeks to be able to boost production from March. ‘Some’ old and very sick Norwegian nursing home patients have died after receiving the Pfizer jab, suggesting that the really old and ill should not receive the covid-19 vaccine. Johnson & Johnson’s vaccine seems to be on track, and Oxford/AstraZenica will probably be authorised by the end of January. The pace of vaccinations has gained pace in both US and even more then UK, and they are ahead of other European countries (though both are well behind Israel). We still assume that distribution will be far smoother the coming weeks/months – this is not an impossible logistical challenge!
The challenge remains: The vaccines will not arrive fast enough to curb the 3^rd wave, now, in early 2021. Without social distancing (and more economic pain), an unacceptable explosion in new cases & hospitalisations, especially if the mutated virus takes the lead in more countries (which it probably will). However, the outlook from some time in Q2 or at least in Q3 is far better, given the rapid ramp up of vaccine production. In addition, the death rate (CFR, at least from the virus…) will soon decline as the old’ies are getting vaccinated the coming weeks (but hospitals will still have a problem if too many ‘normal’ people are infected, as ‘normal’ people also are becoming hospitalised)
China’s GDP grew faster than expected in Q4, and is up 6.5% y/y, a higher growth rate than through 2019, as GDP expanded by 2.6% (11% annualised) in Q4 (and Q3 was revised up) ! Industrial production also surprised on the upside, while retail sales and investments were slightly lower, and housing starts were revised down. The overall picture is that the economy has fully recovered from the corona hit in Q1. Credit growth is clearly slowing, but not abruptly, and probably in line with the authorities preferences. Exports remained strong in December, far above any reasonable pre-corona trend lines. Imports are not weak either – and the trade surplus is at some 4% of GDP
President elect Biden proposed a huge 2021 fiscal stimulus package, USD 1.900 bn (9% of GDP), in addition to the USD 900 bn (4% of GDP). The total stimulus seems to be far higher than the US economy needs now, as lack of demand is not the problem, it’s the coronavirus that keeps parts of the economy in check until it is brought under control. It is still unclear how much of the proposal Biden and the Democrats can get through the Senate (60 of 100 votes are needed to stop a filibuster, or Biden can utilise his one shot per year budget reconciliation procedure, where a simple Senate majority is sufficient).
US retail sales fell sharply in December, and not just due to restaurants/bars – core goods were down 2%, no doubt due the coronavirus challenges. In addition, Nov was revised down. Still, core goods consumption remains 6% above the Feb level, in volume terms. Manufacturing production rose more than expected, and is now 3% below the Feb level, while the first Jan manuf. survey was close to unch, signalling continued growth. Core CPI is up just 1.3% y/y, but early stage producer prices are on the way up
EMU industrial production rose by 2.5% out of the blue in Nov (manuf. +3.3%), but just due to a (tax related?) 50%+ hike in ‘production’ in the Irish manufacturing sector. Ex Ireland, EMU production was up +0.2%, marginally below the expected 0.3%
UK GDP contracted 2.6% in Nov, no doubt corona related – and the level remain almost 9% below the pre-corona level
Norwegian Mainland GDP fell by 0.9% in Nov, expected down 1.6%. Fishing & aquaculture and electricity production fell sharply, in sum deducting 0.8 pp from the headline, leaving just -0.1% for the rest of the economy (SSB says -0.4%), even if hotels/restaurants reported a 27% decline (a - 0.4 pp drag). Other sectors reported continued growth. ML GDP is down 2.4% vs. the Feb level. Core CPI is up 3% y/y, slightly less than expected – still far above the 2% price target

This week: The first Jan PMIs, US housing data, ECB, Norges Bank

January PMIs

In Dec, EMU surprised on the upside, big time, signalling that Q4 was not a disaster – but weak retail sales data still indicating a coronavirus driven setback. January is expected a tad weaker than December but with manufacturing still well into positive territory. In the US, the ISMs were stronger than Markit’s PMI – but a lower PMI is expected in Jan, obviously due to the 3^rd wave. The UK PMIs are expected down, more due to corona than Brexit, we assume

USA

The housing market has been very strong and we doubt it will slow down now. The increase in market rates have not yet influenced mortgage rates, as mortgage spreads have fallen even faster – pushing mortgage rates further down. The homebuilders’ survey, housing permits & starts and existing homes sales (with prices) are reported this week. New jobless claims soared last week, what now?
Hopefully, the Wednesday inauguration of Biden will go smooth, and Trump will leave town

EMU

The ECB will probably not signal any policy changes

Retail sale fell almost 4% in Nov, and a small Dec uptick is expected. If that materialise, a substantial downside risk for Jan, due to the last, harsh lockdown

Norway

Norges Bank will not signal any changes at its ‘routine’ between MPR meeting
We expect a further increase in SSBs quarterly manufacturing survey
Homebuilders will report new home sales & starts, SSB housing starts (and other construction starts)

Macro week 3 report: Macro Weekly SB1 Markets 21-03.pdf

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