2017 Q2 Macro – Quarterly update: Here comes the sun
1
2017 Q2
Please see important disclosures and disclaimers on page 25
Index
1. Executive summary
2. Current economic topics
3. Global macro
• GDP, unemployment & inflation
• Leading indicators
• Commodities
4. Nordic region
• GDP, unemployment, consumer confidence & inflation
• Car registrations & employment
• Construction & business confidence
• Bankruptcies & construction costs
• Currencies & interest rates
5. Appendix
Please contact content providers for inquiries:
Søren Steenstrup, [email protected]
Kenneth Winther, [email protected]
2
2017 Q2
Executive summary
Here comes the sun
• Near-term macro economic data looks mostly sunny with some political and geopolitical clouds in
the horizon. The growth momentum currently indicates global economic upturn. The US is
expected to continue growing healthily as job creation continues to drive unemployment lower
and inflation pressure is slowly building. The EU economy is growing despite the hightened
political uncertainty. Emerging market and especially Chinese growth is stabilizing after years of
deceleration, but is still high compared to the US and EU, while North Korea and Russia seem
increasingly as the main geopolitical risk
• For the first time in a long time, Global economic growth is synchronized, where economic
data across the broad lines are optimistic and continues to surprise positively. While the
inflation rate still is moderate, data has lately begun to surprise to the upside
• The positive economic backdrop has also led uncertainty and financial stress to drop to levels
not seen in years. Considering the line-up of potential impactful events especially in Europe, this
seems surprising; France will hold presidential and parliamentary elections on April 23rd and
June 11th, respectively, where populist Le Pen could become an important force. Greece may fail
to repay its debt in July and Germany holds its federal election in September. This is even
before mentioning, a potential early Italian election and important news of Britain’s “Brexit”negotiations with the EU
• The World’s largest sovereign wealth fund, Norway’s Oil Fund, is adapting to the lower inflow of
oil-money and low interest rates by changing the way it invests. Firstly, it plans to invest less in
low-yielding bonds and more in equities and real estate going forward to increase returns.
Secondly, the amount of money the Government is allowed to take from the fund annually
expected lowered from 4% to 3% of the total fund. The changes are important as nearly 20% of
the Norwegian government budget is financed by the Oil Fund and fluctuations in asset prices
can determine the level of government spending
• Nordic countries have shown positive and accelerating growth. Inflation has been rising, but
remains low, except in Norway, and unemployment rates have been falling slightly. Employment
growth has waned, except in Denmark, while new car registrations accelerated in Denmark and
Sweden. Construction confidence is stable in Denmark and Sweden, while business confidence
has waned, except in Sweden. Building costs in Norway continues to accelerate
3
2017 Q2
Current Economic Topics
4
2017 Q2
Current topics – Expansion and Reflation
• The world economy is currently experiencing Global synchronized growth not seen
in a long time
Nice economic conditions, clouds
may appear later during the cycle
• Economic data continues to surprise positively across geographic regions (figure
left) and leading indicators for growth also strike an upbeat tone (see s. 11-13).
While growth is not expected to accelerate, it is likely to remain high in the coming time
(s. 22)
• Although the inflation levels have remained moderate, the long growth streak and
tighther labor markets around the world are building an upward pressure. The first
signs are already showing as inflation data has begun to surprise to the upside (figure
right)
• The question remains how long inflation will stay low, while high growth persists
Sources: Citigroup Global Markets, Bloomberg and Tryg Investments
Economic surprise index*
100
US
Inflation surprise index*
EU
Positive surprise
EM
100
75
75
50
50
25
Positive surprise
EU
EM
25
0
0
-25
-25
-50
-75
US
-50
Negative surprise
-100
jan-13
5
jul-13
2017 Q2
jan-14
jul-14
jan-15
jul-15
jan-16
jul-16
jan-17
Negative surprise
-75
jan-13 jul-13 jan-14 jul-14
*Indicates whether actual data is higher or lower than economists’ expectations
jan-15
jul-15
jan-16
jul-16
jan-17
Current topics – Calm before the storm?
• When reading the news, it is sometimes easy to get the impression that the world is
close to falling apart and while some events certainly could wreck economic havoc, it
seems people do not attach great probability to these events
If perceived uncertainty was a picture
• Financial market’s perceived uncertainty has reached lows not seen in a long time
(lower figure) and has shown a falling trend throughout most of last year
• This is despite a lineup of potentially impactful events: France’s presidential and
parliament elections April 23rd and June 11th where the populist party Le Pen could
become an important force. Greece is likely fail its debt repayment in July and German
federal elections are expected in September
• Italy may surprise with elections this year and the UK’s ”Brexit”-negotiations with
the European Union also has potential to disturb the peace
Sources: Bank of America Merrill Lynch, Bloomberg
Financial market risk*
Equity
35
105
30
95
25
85
20
75
15
65
10
sep-15
55
sep-15
6
feb-16
2017 Q2
jul-16
dec-16
Interest rate
20
Currencies
16
12
8
feb-16
jul-16
dec-16
4
sep-15
GBP/USD
EUR/USD
jan-16 maj-16 sep-16
*Equity volatility = VIX index, Interest rate volatility = MOVE index, Currency volatility = 3M options
jan-17
Current topics – Emerging economies in better shape
• Back in 2013, when US interest rates started rising fast (the so-called ”Taper Tantrum” period), many feared for a group
of emerging market countries with massive current account deficits known as the ”Fragile 5” as they were very
dependent on being able to attract foreign capital
• Since then, these countries have been on an economic diet: Their currencies depreciated, which slowed imports and
helped exports, while structural reforms and fiscal restraint were implemented in most countries. All this has helped the
economies to become better balanced and reduced their current account deficits (left figure)
• When Donald Trump won the US election late last year, US interest rates rose fast again, but this time the ”Fragile 5”
economies where better prepared and currencies have held up well (with exception of Turkey’s Lira)
• The ”Fragile 5” economies still have plenty of room for improvement, but are in better shape and not as fragile as they
once were
Sources: Bloomberg and Tryg Investments
”Fragile 5” current accounts (% of GDP)
Prime 2013
0%
”Fragile 5” currencies relative to US Dollar since US election
Ult 2016
120
South Africa
-2%
7
India
Brazil
US election
& US interest
rate rise
100
-4%
-6%
Turkey
South
Africa
2017 Q2
Turkey
India
Brazil
Indonesia
80
nov-16
dec-16
jan-17
feb-17
mar-17
Indonesia
Current topics – Norwegian Oil Fund adjusts strategy
Size of the Norwegian Oil Fund (% of Norwegian GDP)
• The world’s largest sovereign wealth fund, the Norwegian
Oil Fund, is looking to adjust its investments and handout
policy as the fund paid out more than it received from the
Government for the first time last year
250%
• As the returns on investments are expected to be lower in
the future and the low oil price lowers the inflow of money, the
fund is planning to increase equity holdings from 60% to
70% (lower figure) and add 1%-point to real estate
annually in the coming years to increase returns
150%
• This is a big shift as the 900 bUSD fund already owns more
than 1% of the world’s and more than 2% of Europe’s listed
equity
• At the same time the ”budgetary rule” (i.e. how much
money the Government can take from the fund annually) is
considered lowered from 4% to 3%
• While the changes are likely to improve long term
sustainable management of the oil wealth, the short term
swings in asset prices can influence the state budget
significantly from year to year as ca. 20% of Norwegian
budget is financed by transfers from the oil fund
200%
100%
50%
0%
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Norwegian Oil Fund benchmark allocation to equity
80%
70%
70%
60%
60%
50%
40%
8
2017 Q2
Sources: Financial Times, The Economist, Norges Bank,
Norskpetroleum.no (upper figure), Bloomberg and Tryg
Investments
30%
40%
1998
2007
Future
2016
Global Macro
9
2017 Q2
Global macro – Economic indicators
Unemployment rate, %
GDP, QoQ, %
USA
EU
USA
Japan
15%
EU
Japan
14%
12%
10%
10%
5%
8%
0%
6%
-5%
4%
-10%
2%
Last Observation: 2016Q4
-15%
2009
2011
2013
Last Observation: 2017M2
0%
2009
2011
2015
Inflation rate, %
EU
USA
Japan
2017
Germany
Japan
5%
4%
5%
4%
4%
3%
3%
3%
2%
2%
1%
2%
0%
1%
-1%
1%
-2%
0%
Last Observation: 2017M2
-3%
2009
10
2015
Interest rate, 10yr, %
USA
6%
2013
2017 Q2
2011
2013
2015
2017
-1%
2009
2011
2013
Figure sources: Bloomberg Finance L.P. and Tryg
2015
2017
Global macro - Leading indicators
Consumer Confidence, US
PMI/ISM
65
ISM, Manufacturing, US
PMI Manufacturing, EU
Conference Board
ISM, Non-manufacturing, US
PMI Services, EU
60
120
55
100
50
80
45
60
40
40
35
20
Last Observation: 2017M3
30
2009
2011
2013
2015
2017
IFO, Germany
IFO Business Climate
IFO Expectations
UoM, Consumer Expectation
Last Observation: 2017M3
0
2009
2011
2013
2015
2017
Index description
IFO Current Assessment
130
• PMI measures companies’ expectations for the Eurozone,
where values above 50 indicates economic expansion and
vice versa.
120
110
• ISM measures companies’ expectations for the US, where
values above 50 indicates economic expansion and vice
versa.
100
• IFO measures business’ current assessment and
90
expectations for the next 6 month for Germany, where a
rising index-value indicates economic expansion and vice
versa.
80
Last Observation: 2017M3
70
2009
2011
11
UoM, Consumer Confidence
140
2017 Q2
2013
2015
2017
Figure sources: Bloomberg Finance L.P. and Tryg
Global macro – Business Cycle Clock
OECD Global Composite Leading Indicator* – Indicating Global upturn
2002
1,0
2003
2010
Upturn
2004
2011
2012
2005
2006
2013
2007
2014
2015
2008
2016
2009
2017
Expansion
0,8
Change in CLI
0,6
0,4
0,2
0,0
-0,2
-0,4
-0,6
-0,8
-1,0
Slowdown
Downturn
95
96
97
Last observation: January-2017
98
99
100
CLI
101
102
103
*OECD CLI measures the global growth momentum 6 month forward. A value above 100 indicates positive
economic momentum.
12
2017 Q2
104
Figure sources: Bloomberg Finance L.P. and Tryg
105
Global macro – Business Cycle Clock
IFO German Business Climate* – Indicating German expansion
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
125
Upturn
Expansion
Downturn
Slowdown
IFO Expectations
120
115
110
105
100
95
90
85
80
75
75
80
Last observation: February-2017
85
90
95
100
105
IFO Current Assessment
110
115
*The IFO-indicators measures German companies’ assessment of their business situation currently and
expectations 6 month forward. A value above 100 indicates positive economic momentum.
13
2017 Q2
120
Figure sources: Bloomberg Finance L.P. and Tryg
125
Global macro - Commodities
Broad Commodity Index and Food Index*
Broad Commodity Index
550
Food Index
Agriculture
Corn
$/bushel
2.000
500
Wheat
Soybeans
1.800
450
1.600
400
1.400
350
1.200
300
1.000
250
800
200
600
150
400
100
2009
2011
2013
2015
2017
Metals*
$/tonne
12.000
200
2009
2011
2013
2015
2017
Oil
Aluminum (left)
Copper (left)
Metal Index (right)
1.200
1.000
10.000
8.000
800
6.000
600
4.000
400
2.000
200
$/barrel
Brent
140
Nymex
120
100
80
60
0
2009
2011
2013
2015
2017
0
40
20
0
2009
2011
2013
2015
*Broad Commodity Index consists of following futures: Cotton, Orange Juice, RBOB Gasoline, Heating Oil, Wheat, Corn, Soybeans, Coffee, Live Cattle, Crude Oil, Cocoa, Gold, Aluminum,
Silver, Nickel, Lean Hogs, Sugar, Copper and Natural Gas. Food Index: Hogs, Steers, Lard, Butter, Soybean oil, Cocoa, Corn, Wheat and Sugar. Metal Index: Copper, Lead, Steel, Tin and Zinc.
14
2017 Q2
Figure sources: Bloomberg Finance L.P. and Tryg
2017
Nordic Region
15
2017 Q2
Nordic region – Economic indicators
Consumer Confidence (higher value indicates more optimism)
GDP, YoY, %
Denmark
Norway
Sweden
10%
35
8%
30
Denmark
Norway
Sweden (right)
160
145
25
6%
20
4%
130
15
2%
10
0%
5
115
0
-2%
100
-5
-4%
-10
-6%
Last Observation: 2016Q4
-8%
2009
2011
2013
Last Observation: 2017M4
-20
2009
2011
2015
Inflation rate, %
2013
2015
2017
70
Unemployment rate, %
Denmark
5%
85
-15
Norway
Sweden
Denmark
Norway
Sweden
10%
9%
4%
8%
3%
7%
6%
2%
5%
1%
4%
3%
0%
2%
-1%
1%
Last Observation: 2017M2
-2%
2009
16
2017 Q2
2011
2013
2015
2017
Last Observation: 2017M1
0%
2009
2011
2013
Figure sources: Bloomberg Finance L.P. and Tryg
2015
2017
Nordic region – Car registrations and employment
New car registrations, # of vehicles
New car registrations (YoY), %
Q1 2016
Q2 2016
Q3 2016
Q4 2016
14%
40.000
12%
35.000
10%
Denmark
Norway
Sweden
30.000
8%
25.000
6%
4%
20.000
2%
15.000
0%
10.000
-2%
5.000
-4%
-6%
Denmark
Norway
Sweden
Total employment (YoY), %
Q1 2016
3,5%
Q2 2016
Q3 2016
Q4 2016
4%
3%
2,5%
2%
2,0%
1%
1,5%
0%
1,0%
-1%
0,5%
-2%
0,0%
-3%
-0,5%
-4%
-1,0%
-5%
2017 Q2
Denmark
2013
2015
2017
Total employment (YoY), %
3,0%
-1,5%
17
Last Observation: 2016M12
0
2009
2011
Norway
Sweden
Last Observation: 2016M12
-6%
2009
2011
Denmark
Norway
Sweden
2013
Figure sources: Bloomberg Finance L.P. and Tryg
2015
Nordic region – Construction and Business Confidence
Sweden construction confidence survey
Denmark construction confidence survey
DK Construction Confidence
SE Construction Confidence
DK Order Book Assessment
40
0
20
-10
0
-20
-30
-20
-40
-40
-50
-60
-60
-80
Last Observation: 2017M3
-70
2009
2011
2013
2015
Last Observation: 2017M3
-100
2009
2011
2017
Nordic confidence surveys
…
DK Economic Sentiment Indicator (left)
SE PMI (right)
NO PMI (right)
140
70
130
65
120
60
110
55
100
50
90
45
80
40
70
35
Last Observation: 2017M3
60
2009
2011
18
SE Order Book Assessment
2017 Q2
2013
2015
2017
30
2013
2015
2017
Index description
• Construction confidence and order book assessment
measures construction companies’ current
expectations for the activity compared to a “normal
level”, where values above 0 indicates optimism and
vice versa
• PMI measures companies’ expectations for the local
economy, where values above 50 indicates economic
expansion and vice versa
• Economic Sentiment Indicator measures companies
and consumers’ expectations to the Danish economy,
where values above 100 indicates economic expansion
and vice versa
Figure sources: Bloomberg Finance L.P. and Tryg
Nordic region – Bankruptcies and Construction Costs
Building costs (YoY, %)
Bankruptcies (#)
DK Bankruptcies
NO Bankruptcies
DK Residential Building Costs
900
NO Residential Building Costs
10%
800
700
600
5%
500
400
300
0%
200
100
Last Observation: 2017M2
0
2005
2007
2009
2011
2013
2015
2017
Norwegian types of residential building costs (YoY, %)
NO Multi-Dwelling Building Costs
NO Detatched House Building Costs
10%
Last Observation: 2017M2
-5%
2005
2007
2009
2011
2013
2015
Norwegian construction wage cost (YoY, %)
8%
NO Construction Wage Index
7%
9%
8%
6%
7%
5%
6%
4%
5%
4%
3%
3%
2%
2%
1%
1%
Last Observation: 2017M2
0%
2006
2008
2010
19
2017 Q2
2012
2014
2016
Last Observation: 2016M12
0%
2005
2007
2009
2011
Figure sources: Bloomberg Finance L.P. and Tryg
2013
2015
Nordic currencies and interest rates
Interest rates (swaps), %, Denmark
Nordic Currencies
NOK/DKK
SEK/DKK
1,10
1yr
4,5%
3yr
5yr
7yr
10yr
4,0%
1,00
3,5%
3,0%
0,90
2,5%
2,0%
1,5%
0,80
1,0%
0,5%
0,70
0,0%
0,60
2009
2011
2013
2015
2017
Interest rates (swaps), %, Norway
1yr
6,0%
3yr
5yr
-0,5%
2009
2011
2013
2015
2017
Interest rates (swaps), %, Sweden
7yr
10yr
1yr
4,5%
3yr
5yr
7yr
10yr
4,0%
5,0%
3,5%
3,0%
4,0%
2,5%
2,0%
3,0%
1,5%
1,0%
2,0%
0,5%
0,0%
1,0%
-0,5%
0,0%
2009
20
2017 Q2
2011
2013
2015
2017
-1,0%
2009
2011
2013
Figure sources: Bloomberg Finance L.P. and Tryg
2015
2017
Appendix
21
2017 Q2
Bloomberg consensus table – GDP Growth
Consensus expectations
GDP growth
US
2017
2,20%
2018
2,30%
2019
2,20%
EU
1,60%
1,55%
1,40%
Japan
1,10%
0,95%
1,00%
France
1,30%
1,40%
1,40%
Germany
1,60%
1,60%
1,45%
United Kingdom
1,60%
1,30%
1,55%
Spain
2,50%
2,10%
1,90%
Italy
0,90%
1,00%
0,90%
China
6,50%
6,20%
5,90%
Brazil
Russia
0,80%
1,10%
2,20%
1,50%
...
...
India
6,80%
7,40%
7,60%
Denmark
1,50%
1,70%
...
Norway
1,50%
1,85%
...
Sweden
2,35%
2,30%
...
Finland
1,10%
1,30%
...
22
2017 Q2
Table sources: Bloomberg Finance L.P. and Tryg
Bloomberg consensus table – Unemployment
Consensus expectations
Unemployment rate
US
2017
4,60%
2018
4,50%
2019
4,50%
EU
9,40%
9,10%
8,90%
Japan
3,00%
2,90%
2,80%
France
9,80%
9,50%
9,20%
Germany
5,95%
6,00%
6,00%
United Kingdom
5,00%
5,30%
5,20%
Spain
17,80%
16,70%
15,90%
Italy
11,70%
11,30%
10,70%
China
4,10%
4,10%
4,05%
Brazil
Russia
12,50%
5,50%
11,90%
5,40%
...
...
...
...
...
Denmark
4,25%
4,00%
...
Norway
4,70%
4,50%
...
Sweden
6,70%
6,60%
...
Finland
8,50%
8,40%
...
India
23
2017 Q2
Table sources: Bloomberg Finance L.P. and Tryg
Bloomberg consensus table - Inflation
Consensus expectations
Inflation (CPI)
US
2017
2,50%
2018
2,40%
2019
2,20%
EU
1,70%
1,50%
1,70%
Japan
0,60%
0,90%
1,65%
France
1,40%
1,30%
1,50%
Germany
1,82%
1,70%
1,82%
United Kingdom
2,55%
2,60%
2,25%
Spain
1,90%
1,50%
1,60%
Italy
1,20%
1,20%
1,50%
China
2,30%
2,30%
2,45%
Brazil
Russia
4,75%
4,80%
4,62%
4,30%
...
...
India
4,60%
4,90%
5,10%
Denmark
1,10%
1,50%
...
Norway
2,35%
2,10%
...
Sweden
1,60%
1,90%
...
Finland
1,20%
1,30%
...
24
2017 Q2
Table sources: Bloomberg Finance L.P. and Tryg
Disclosure & disclaimer
Origin of the publication
This publication originates from Tryg Forsikring A/S
Content of the publication or report
This publication has been prepared solely by Tryg Forsikring A/S.
Validity of the publication
All opinions and estimates in this publication or report are, regardless of source, given in good faith, and may only be valid as of the stated date of this
publication and are subject to change without notice.
No individual investment or tax advice
The publication is intended only to provide general and preliminary information to customers and shall not be construed as the basis for any investment
decision. This publication has been prepared by Tryg Forsikring A/S as general information for private use of customers to whom the publication has
been distributed.
Before acting on any information in this publication, it is recommendable to consult one’s financial advisor.
This publication may be based on or contain information, such as opinions, recommendations, estimates and valuations which emanate from:
Tryg Forsikring A/S’ analysts or representatives,
Publicly available information, or
Other named sources.
To the extent this publication is based on or contain information emanating from other sources (“Other Sources”) than Tryg Forsikring A/S (“External
Information”), Tryg Forsikring A/S has deemed the Other Sources to be reliable but neither Tryg Forsikring A/S, others associated or affiliated with Tryg
Forsikring A/S nor any other person, do guarantee the accuracy, adequacy or completeness of the External Information.
Limitation of liability
Tryg Forsikring A/S assume no liability as regards to any investment, divestment or retention decision taken by the customer on the basis of this publication. In
no event will Tryg Forsikring A/S be liable for direct, indirect or incidental, special or consequential damages resulting from the information in this publication.
Distribution restriction
Recipients of this publication should inform themselves about and observe all applicable legal requirements in their jurisdictions. The securities referred to in
this publication of report may not be eligible for sale in some jurisdictions. This publication is not intended for, and must not be distributed to customers in the
US.
This publication or report may not be mechanically duplicated, photocopied or otherwise reproduced, in full or in part, under applicable copyright laws. This
publication or any information made available in connection with it may not be disclosed or otherwise made available to any third party without the express
written consent of Tryg Forsikring A/S.
25
2017 Q2