danske bank weekly focus 28 may 2010
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8/9/2019 Danske Bank Weekly Focus 28 May 2010
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www.danskeresearch.com
Investment Research
Market movers ahead
Next week two important US data reports are due to be released. The manufacturingISM index is expected to decline moderately, while a massive increase in non-farm
payrolls of 700,000 is expected.
The Bank of Canada is likely to begin hiking interest rates on Tuesday. InEuroland markets willfocus on event risks related to the debt crisis. Bad news can
quickly spook the markets. European key indicators next week are expected to paint apicture of strong growth momentum, but declining confidence.
In Asia manufacturing PMIs are expected to show a slight fall. Chinas official NBSmanufacturing PMI could generate some negative headlines.
At the G20 finance minister meeting in South Korea next weekend the European debtcrisis will be high on the agenda.
In Scandinavia retail sales are expected to confirm that demand is picking up.Global update
The past week has been a volatile cocktail of concern about fiscal sustainability inEurope, the health of the financial sector in southern Europe, the impact of new
financial regulation and added geopolitical uncertainty on the Korean Peninsula.
Many markets were completely dried up at the beginning of the week and stockmarkets were in steep decline. It looked pretty ugly. The absence of more bad news
has contributed to an improving market situation at the end of the week.
In terms of data, the week has been positive with strong Euroland industrial orders,for example, and strong US consumer confidence.
Focus
The US manufacturing cycle is approaching an inflection point with productioncatching up on demand. We look for a peak in the pace of manufacturing growth and
expect the ISM to begin to move lower within a few months.
Stocks recover slightly after steepdecline EUR/USD weakening
Source: Reuters Ecowin Source: Reuters Ecowin
28 May 2010
Editors
Allan von Mehren
+45 4512 8055
alvo@danskebank.dk
Steen Bocian
+45 45 12 85 31
steen.bocian@danskebank.dk
Weekly FocusSigns of relief
Contents
Market movers ahead ........................................... 2
Global update................................................................... 4
Scandi Update ................................................................ 6
Focus US: Euro crisis could speed up
manufacturing slowdown .................................. 8Equities: Back to fundamentals ................ 11
Fixed Income: Rates - Relief time ............ 12
FX: Extreme EUR decline ................................. 13
Commodities: defying fundamentals . 14
Financial views........................................................... 15
Macroeconomic forecast .............................. 17
Financial forecast ................................................... 18
Calendar ........................................................................... 19
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Weekly Focus
Market movers ahead
Global
In the US, next week includes the release of the two most important data reports. On
Tuesday the manufacturing ISM index is expected to show a moderate decline, to60.0. This is based on a weakening in regional PMIs, along with increasing
uncertainty stemming from the recent turmoil in financial markets. A further
deterioration in credit and equity markets may pose a risk to US growth. The second
big release of the week will be the May employment report on Friday. We expect a
massive increase in non-farm payrolls of 700,000. This jump is primarily driven by
hiring for the census, giving a temporary boost to employment. Census workers are
expected to leave the federal payrolls relatively quickly. Excluding census we look for
a 200,000 reading. The coming week also includes data for pending home sales. There
is a risk of a decline here as Aprils home buyers might not have been able to take
advantage of thefirst time home buyer tax creditthat expired at the end of the month.
In Canada the Bank of Canada has abandoned its previous commitment to unchangedinterest rates until Q3, and with the Canadian economy looking strong, Tuesday is
likely to see the bank start its hiking cycle. However, the fiscal crisis brewing in
Europe is a risk to this view.
In Euroland markets will focus on event risks related to the debt crisis. Bad newsabout the Spanish banking sector or other trouble spots could easily spook the
markets. In terms of economic indicators there will be plenty of data to dig into.
Monetary developments may show signs of improvements in loan flows, but M3
growth will nevertheless decline due to base effects. Euro area flash inflation is likely
to show an increase to 1.6% in May from 1.5% in April, but there is little reason for
concern as inflationary pressures are not mounting at present. German unemployment
may have declined further to 7.7% in May as German growth is likely to have beenstrong despite the debt crisis, while euro area unemployment is projected to remain
stable at 10.0%. Final PMIs are likely to post small downward revisions to the flash
estimates. Finally we get revised euro area GDP for Q1 10. We would not be
surprised to see an upward revision to the somewhat disappointing 0.2% q/q growth
first announced.
In the UK, focus will be on PMIs and house prices. Despite the fact thatmanufacturing and service PMIs are expected to decline slightly, sentiment indicators
are indicating strong UK expansion. House prices are still on the rise, fuelled by low
rates.
Swiss Q1 GDP out on Tuesday is expected to confirm a maturing recovery. With afirm improving cyclical position of the economy, pressure is building for the SNB to
gradually step away from its current emergency setting of monetary policy.
In Asia focus next week will mainly be on the release of manufacturing PMIs acrossAsia. In our view, growth in manufacturing activity probably peaked in Q1 10 and for
that reason we are likely to see a slight decline in manufacturing PMIs in most Asian
countries in the coming months. We suspect that Chinas official NBS manufacturing
PMI might generate some negative headlines, because it could drop substantially
(from 55.7 to 53.0 in May) albeit largely due to seasonal distortions. We expect the
more reliable HSBC manufacturing PMI to decline only marginally in May.
Eurozone M3 growth remains innegative territory
Source: Reuters Ecowin
ISM and non-farm payroll key events
next week
Source: Ecowin and Danske Markets
In China PMIs suggest that growth inindustrial production will ease
Source: Reuters Ecowin and Markit
85 90 95 00 05 10
28
33
38
43
48
53
58
63
-750
-550
-350
-150
50
250
450
650 1000 persons Index
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Weekly Focus
In Japan we expect industrial production to have increased a solid 2.7% m/m. Thisstrong gain comes on the back of even stronger gains in exports in April and so far it
appears that the recovery in industrial activity has maintained its momentum in Q2 in
Japan. Consequently Japan is one of the few Asian countries were we expect
manufacturing PMIs to have improved in May.
Finally, focus will be on comments surrounding the G20 finance ministers meetingin South Korea on 4-5 June. We expect no major news regarding a possible Chinese
revaluation. The European debt crisis will be high on the agenda and uncertainty
created by the European debt crisis has probably postponed a Chinese revaluation into
Q3.
Scandies
In Denmark the coming week will see quite a few important data releases. First, weexpect Q1 GDP growth to have picked up, with projected growth of 0.4% q/q in
Q1 10. Second, April retail sales numbers are expected to show an increase of 0.5%
m/m. Third, the week ahead will see the release of data on insolvencies andforeclosures of real estate for May 2010.
In Sweden confidence data are being published this week, with both PMIs and theNational Institute for Economic Researchs Business and Consumer Confidence
surveys. In addition, on Tuesday, the Riksbank will publish its Financial Stability
Report. If the Riksbank feels that the uncertainty has made a July hike (priced in) less
probable, the arguments will be chiselled out from its view of the impact on financial
markets.
We expect Norwegian retail sales to have recovered in April following a marginaldecline in March, although reports from retail shops do not point to a spending spree.
All things considered, our cautious estimate is that retail sales grew 0.3% m/m in
April, but the calendar adjustment leaves us with upside risk to this estimate. We look
for a moderate decline in PMI to 51.0 in May. Norges Bank seems highly likely to
reintroduce its currency purchases in the FX market. Based on the new forecasts of
the oil-adjusted budget deficit and tax receipts from oil companies, we expect the day-
to-day purchasing need to be around NOK100m.
Market movers ahead
Source: Bloomberg and Danske Markets
Global movers Event Period Danske Consensus Previous
Mon 31-May 2:25 U SD F ed's Be rnanke (vote r, neutr al ) spea ks
11:00 EUR CPI Flash estimate y/y May 1.6% 1.7% 1.5%
Tue 01-Jun 10:30 GBP PMI, Manufacturing Index May 57.7 57.9 58.0
16:00 USD ISM Manufacturing Index May 60.0 59.5 60.4
Thu 03-Jun 16:00 USD ISM (NAPM) non-manufacturing Index May 55.7 56 55.4
Fri 04-Jun 14:30 USD Nonfarm payroll 1000 May 700 500 290
14:30 USD Unemployment % May 9.8% 9.8% 9.9%
During the week Fri 04 - 05 OTH G20 Finance Ministers , Central Bankers Meet
Scandi movers Event Period Danske Consensus Previous
Tue 01-Jun 8:30 SEK Swedbank PMI survey Index May 62.0 64.0
9:00 NOK PMI Index May 51.0 52 51.9
Wed 02-Jun 16:00 DKK Currency reserves DKK bn May 404.1
Swedish surveys imply consecutive
growth
Source: Reuters Ecowin
Danish GDP growth set to pick up
Source: Reuters Ecowin and Danske Research
Norwegian consumer spending has
disappointed
Source: Reuters Ecowin
PMIServices
IndustryHouseholds
08 09 10
-3.5
-2.5
-1.5
-0.5
0.5
1.5
-3.5
-2.5
-1.5
-0.5
0.5
1.5 STD Net balances
00 02 04 06 08 10
320
325
330335
340
345
350
355
360
365
320
325
330335
340
345
350
355
360
365DKK bn DKK bn
GDP
02 03 04 05 06 07 08 09 10
90
95
100
105
110
115
120
90
95
100
105
110
115
120
Index 2005=100
Retail sales
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Weekly Focus
Global update
A volatile cocktail
The past week has been a volatile cocktail of continued concern about sustainability ofpublic finances in Europe, concern about the health of the financial sector (particularly in
Southern Europe), concern about the impact of the new financial regulation and added
geopolitical uncertainty on the Korean Peninsula. Money markets remained stressed as
illustrated by the elevated 3M Libor OIS spread, albeit with some signs of the stress
easing late last week. Outside Europe, there is increasing focus on the European debt
crisis and both the US and China acknowledge that it is here that the battle to stabilise the
global economy will have to be fought in the short run. Hence, discussions about Chinas
exchange rate policy have temporarily faded into the background and the European debt
crisis featured high on the agenda at the US-China summit and is likely to be at the top of
G20 agenda in connection with the finance ministers meeting on 4-5 June. China was
directly drawn into the efforts to stabilise financial markets when it denied speculationthat it plans to reduce its exposure to European debt.
Euroland - struggling to gain market confidence
On the data front, we got more good news out of the euro area. Industrial orders increased
a massive 5.2% m/m in March. Even though this number is usually highly volatile, the
continued strength in manufacturing orders bodes well for the general direction of
industrial production in the months ahead. Hence, industrial production will continue to
be an important driver of the recovery in the euro area. We look for above-trend growth
in Q2, with Germany in particular looking strong for the coming quarters. In its monthly
bulletin, the German Bundesbank said that the latest financial market turbulence has not
yet affected the real economy in Germany and it concludes that the German economyremains on a recovery path, and that economic output will probably expand strongly in
the second quarter.
Otherwise limited data releases and most eyes have been on the ongoing euro debt crisis.
In Spain, Cajasur one of Spains regional cajas or savings banks was taken over by the
Bank of Spain, raising renewed fairs over the Spanish banking sector. During the week,
Banco Espaa asked lenders to increase provision. On Tuesday, the IMF released the
annual Article IV consultation on the Spanish economy with a very clear message.
Reform is needed now! Key challenges, according to the IMF, are the need for a more
flexible labour market, fiscal consolidation, and banking sector consolidation. Going
forward, we expect Spain to take on tough measures to rebalance the economy. This week
austerity measures for 2010-11 were approved in parliament to accelerate the reduction of
the fiscal deficit measures included a 5% wage reduction for public workers. We expect
more measures to be implemented. An increase of the retirement age is another issue that
will be discussed. These kinds of discussions have also been seen in France this week.
The IMF also released Article IV on Italy. The language was softer, but the message
clear: further reform is needed, competitiveness should be improved, and the banking
sector needs more capital. The Italian government this week gave details on how it aims
to rein in the deficit over the coming years as austerity measures were announced.
Public budgets: Tough times lies ahead
Source: Reuters Ecowin and Danske Markets
Note: Public budgets, % of GDP, SGP: Stability and
growth impact
"[Heading 2]"
Fiscal consolidation accelerated
Source: Reuters Ecowin
Note: Public budgets, % of GDP, SGP: Stability and
growth impact
Stress increasing in the interbank
market
Source: Reuters Ecowin
New SGP Change
2009 - -11.2% -
2010 -9.3% -9.8% 0.5%
2011 -6.5% -7.5% 1.0%
2012 -4.4% -5.3% 0.9%
2013 -3.0% -3.0% 0.0%
Spain
New SGP Change
2009 - -9.3% -
2010 -7.3% -8.3% 1.0%
2011 -4.6% -6.6% 2.0%
2012 -4.6% -4.6% 0.0%2013 -2.8% -2.8% 0.0%
Portugal
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Weekly Focus
US - Strong data flow continued in April and into May
There are still limited signs of impact in the data from the financial turmoil in the few
pieces of May data that have been released. For instance, Conference Board Consumer
Confidence rose to the highest level since April 2008, confirming the recent improving
trend in consumer spending, which is tracking another 3.0-3.5% AR gain in Q2. But thejury is still out and the turmoil may show up when we start receiving June data.
April housing data got another lift from the expiration of the first time home buyer credit,
which expired last month. While it is likely that home sales will see a setback as the boost
from the credit fades away, there are signs of genuine improvement in housing turnover.
This was indicated by the recent NAHB reading, which saw a significant improvement in
expectations of future sales. The recent solid new home sales is likely to support housing
construction, which is set to contribute positively to GDP growth in Q2. Despite a soft
reading in April, the impressive trend continued in durable goods orders, which is up
almost 20% over a year ago, with signs of reacceleration going into Q2. Also orders for
capital equipment remain on a solid trend, up 21.5% AR over the past quarter.
Elsewhere, focus has been on the deterioration of the US money market, which has been
behind some of the hit to risk appetite and credit markets. The debate has been going on
whether the Fed should do more to prevent a further deterioration, e.g. by launching
further liquidity facilities. However, the market functioning is still not poor enough to
make any use of the programmes. Hence, we think that the bar is relatively high for
further Fed intervention, but do not rule out a cut in the penalty rate on the swap line (see
Strategy US: Thoughts on the Fed and the money markets).
Drop in consumer prices is stimulus, not intensifying deflation
Data released in Japan in the past week. Exports in April soared 6% m/m suggesting that
the recovery in industrial production in Japan will remain strong in the coming months.
On the other hand, unemployment in April unexpectedly increased for the second month
in a row to 5.1%, which put the strength of the Japanese labour market into question.
Finally the decline in consumer prices intensified in April, where CPI excluding fresh
food declined 1.5% y/y after dropping 1.2% y/y in the previous month. However, the
decline in consumer prices in April was solely due to the abolition of several fees
(including high school fees) as part of the governments latest stimulus package. The
termination of some fees is estimated to have shaved 0.5% off consumer prices in April.
Hence, the drop in consumer prices in April should really be regarded as a stimulus to the
Japanese economy and not intensifying deflation.
Private consumption still appears
solid in the US
Source: Reuters Ecowin and Danske
Durable goods orders suggest capex is
improving
Source: Reuters Ecowin and Danske Markets
Recovery in Japans exports continues
Source: Reuters Ecowin and Danske Markets
80 85 90 95 00 05 10
20
30
40
50
60
70
80
90
100110
120
130
-5
-3
-1
1
3
5
7 % y/y IndexConference Board Expectations3 mth's avergae >>
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Scandi Update
Denmark Concrete austerity plan
The government reached a deal with the Danish Peoples Party during the week on a so-
called recovery plan. We view it as positive that a plan for consolidating public financesis now in place and that it is very specific. Denmark joins a stream of European countries
now spelling out exactly how they plan to bring public finances back into balance.
We believe it is important for Denmark to meet the EUs convergence criteria. Denmark
has chosen a model for its exchange rate that has made it particularly vulnerable to
financial markets confidence in its economy, so it is crucial to be squeaky clean.
The main income-boosting element of the plan is that income tax thresholds will not rise
in line with prices and wages in 2011-13. In other words, an extra year has been added to
the freeze proposed in the governments original plan. In real terms, this means that
people will pay slightly more income tax and so contribute DKK6.6bn in 2013 towards
plugging the gap in public finances. The increase in the threshold for top-rate tax is alsoto be put back by a further year.
In contrast to this, the halving of the period for which unemployment benefit is payable
from four to two years will play less of a role in the coming three-year period. This move
will save around DKK5bn in the longer term, but less in the short term because those who
are already unemployed will not be covered by the new rules. A reduction in the duration
of unemployment benefit makes good sense economically and has previously been
recommended by the wise men of the Economic Council and by the Labour Market
Commission.
On the other hand, local government spending has been spared and indexation of
transfer payments will be permitted after all. That said, local authorities cannot look
forward to an all-you-can-eat buffet. For one thing, there needs to be zero growth in
expenditure. For another, the governments tools for curbing local government spending
will be strengthened. It may nevertheless prove difficult to keep local government
spending down, and so it is still uncertain whether this part of the governments plan can
be put into practice.
The specific elements of the plan will always be open to debate, but in purely economic
terms at least there are some very sound sources of income, which means that the plan
will not be welcomed by everyone. The fact is, though, Denmark cannot afford not to take
action. The government deficit has reached a size where there is a need for change and
it is crucial for the consolidation process to be concrete and fast-acting.
Sweden
First indications regarding Q2 GDP growthDuring the past week we have received the first few data on economic developments in
Q2 via, inter alia, April retail sales and trade balance (including export and import prices)
numbers. And even though there might be said to have been some disappointment in
relation to market expectations, the numbers are still consistent with decent quarterly
growth rates and thus with a continuous hawkish tone from the Riksbank. In short, the
numbers out for the Swedish economy thus far do not imply a postponed first hike or
even a flatter Riksbank repo rate path.
Danish government deficit
Source: Statistics Denmark, Danske Research
The Riksbanks repo rate forecast
Source: Riksbank
00 02 04 06 08 10
-7
-5
-3
-1
2
4
6
-7
-5
-3
-1
2
4
6General govt. budget bal. % GDP
08 09 10 11 12
0.0
1.0
2.0
3.0
4.0
5.0
0.0
1.0
2.0
3.0
4.0
5.0% %
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Weekly Focus
Norway Automatic stabilisers
At the beginning of the current public debt crisis, it was suggested in some quarters that
Norwegian industry could be facing a three-headed troll. First, lower growth in Europe
would have a direct effect through lower market growth for Norwegian exporters.
Second, the financial turmoil would result in higher interest rates and tighter creditstandards at banks. Third, NOK could appreciate considerably against EUR due to the
currency unions public debt problems. Once again, though, the market has shown us that
fears of this kind of total meltdown were unwarranted. When the outlook becomes
sufficiently bleak, investors completely lose their appetite for risk, leading to substantial
net sales of NOK. The latest foreign exchange statistics from Norges Bank show that
foreign banks sold NOK19bn during the previous week, the highest level since October
2008, causing NOK to depreciate substantially, including against EUR. The automatic
stabilisers are in good working order.
Weekly (net) purchases of NOK
Source: Norges Bank
07 08 09 10
-40000
-30000
-20000
-10000
0
10000
20000
30000
-40000
-30000
-20000
-10000
0
10000
20000
30000mln. mln.
>
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Weekly Focus
Focus US: Euro crisis could speed up manufacturingslowdown
V-shaped manufacturing recovery to peak soon
Over the past three quarters, the US manufacturing sector has experienced a classic
V-shaped recovery. By April this year manufacturing production was up almost 8% since
the trough in June 2009 and is currently running at an 8-10% annual pace.
The manufacturing ISM index reached a cycle high of 60.4 in April. Fundamentals now
suggest that leading manufacturing indicators are very close to a peak, and that the pace
of manufacturing growth is bound to slow in H2 10.
This should not come as a great surprise. As with earlier manufacturing recoveries, the
inventory dynamics initially provided a forceful boost, as the cutback in production was
excessive compared with the decline in demand. However, as the recovery matures and
output catches up with demand, production growth should eventually settle down to moreaverage levels.
As the chart to the right indicates, we are close to this point in the cycle. Production has
been expanding faster than demand over the past quarters, and the gap between the two
has narrowed. This implies that inventories are about to stabilise and that the restocking
will soon begin.
Usually this marks an important point in the cycle because the ISM (i.e. the growth rate in
manufacturing production) is driven by the relationship between inventories and demand,
as illustrated by the chart above. When inventory growth picks up relative to demand
growth, the ISM moves lower and manufacturing growth slows. This is likely to take
place within the next few months.
Fundamentals suggest moderate slowdown from strong levels
The big issue is how hard the landing will be. Generally, fundamentals are suggesting that
the descent in the ISM will be relatively moderate.
First, there are relatively limited signs of overshooting at the current stage of the
manufacturing cycle. Although production has increased significantly, it has not yet fully
closed the gap on demand. In fact, real inventories of finished manufacturing goods are
still declining albeit at a slower pace and manufacturing re-stocking is probably still a
few months away. At the same time, real demand for manufacturing goods is running at a
10% AR, which is much faster than in the 2002 recovery.
Second, demand growth is broadly based. Unlike the previous recovery which wassolely driven by domestic consumer demand consumption, capex and exports are all
contributing positively this time around. From this perspective, the manufacturing
recovery looks relatively solid.
Third, monetary conditions remain very supportive with a zero fed funds rate and plenty
of excess liquidity in the system.
Hence, barring any shocks to the system, we should be in for a relatively orderly
slowdown in the ISM, as suggested by the ISM model which forecast a decent to 56-57
by October.
Key points
The manufacturing cycle isapproaching an inflection point
with production catching up on
demand. We look for the ISM to
begin to move lower within a
few months.
Fundamentals provide limitedsigns of overshooting and
generally point to a moderate
decline in the ISM in H2 10.
Contagion from the Euro debt
crisis is the main risk.
The direct impact via slowingexports to Europe is minimal,
but the deterioration in credit
and equity markets poses a
more serious risk to the
manufacturing cycle and the
US recovery.
Senior Analyst
Peter Possing Andersen
+45 45 13 70 19
pa@danskebank.dk
Production catching up with demand
Source: Reuters Ecowin and Danske Markets
Senior Analyst
Signe Roed-Frederiksen
+45 45 12 82 29
sroe@danskebank.dk
02 03 04 05 06 07 08 09
82.5
85.0
87.590.0
92.5
95.0
97.5
100.0
102.5
82.5
85.0
87.590.0
92.5
95.0
97.5
100.0
102.5Index 2007=100 Index 2007=100
Manufacturing production
Manufacturing & trade sales
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Weekly Focus
Contagion from the Euro crisis could fast-forward the setback
However, this is exactly the big issue currently. How severe will the contagion from the
Euro debt crisis be? As always, the answer will depend on the duration and the magnitude
of the shock, which is impossible to predict. However, we can try to assess the damage
already done.
Basically, there are two obvious channels of contagion: (1) a direct channel in terms of
the trade flow and exchange rate, and (2) an indirect channel via interlinked global
financial markets.
The direct impact through trade flow is likely to be limited.
First, exports to Euroland account for only 10% of total US exports and total exportsare only 11% of GDP.
Second, the contribution to export growth from Euroland has been zero over the pastyear. Hence, the entire improvement in the export sector has taken place in areas that
are likely to be only second-order affected by the crisis.
Third, the broad real effective dollar exchange rate has strengthened little despite thesharp decline in EUR/USD. Furthermore, there is usually a relatively long lag fromchanges in the exchange rate to the impact on trade flows (6-12 months).
The bigger issue is the indirect contagion through the deterioration of global financial
markets. As we have emphasised previously (seeResearch US: Manufacturing recovery
ahead, 22 January 2009) financial conditions and in particular credit conditions are
very important for the manufacturing cycle, as they tend to amplify the inventory
dynamics.
Since late April, global financial conditions have indeed been deteriorating (seeMonitor
Euro debt crisis watch). The S&P500 is down by 10% from its peak, there are severe
signs of strains in the USD money market, and long-term credit spreads are widening.
The good, the bad and the ugly scenario
In an effort to quantify the impact from the European debt crisis on the manufacturing
cycle we have created three scenarios, which we apply to our ISM model in combination
with the fundamental outlook.
1. No shock all financial variables on end-April levels.2. Current shock all financial variables on 25 May levels.3. Global crisis this shock is calibrated to resemble a further worsening c.f. the table
below.
Assumption on key financial variables
Source: Danske Markets
2010 2011 2010 2011 2010 2011
S&P500 1265 1391 1069 1176 891 980
10 year govenrment bond 3.7 3.7 3.1 3.1 2.5 2.5
Real Effective Exchangerate 87 87 90 90 95 95
Credit Spread* 241 241 310 310 400 400
Libor Spread 15 15 26 26 100 100
NYMEX WTI 85 85 70 70
Year end
Current ShockNo Shock
Year end Year end
Global Crisis
Our ISM model suggests the
slowdown should be moderate
Source: Reuters Ecowin and Danske Markets
Euro area is of marginal importance
for exports
Source: Reuters Ecowin and Danske Markets
Credit spread widening
Source: Reuters Ecowin and Danske Markets
90 95 00 05 10
30
35
40
45
50
5560
65
30
35
40
45
50
5560
65 Index Index
ISM
Model +6months (1987-present)
08 09 10
-25
-20
-15
-10
-5
0
5
10
1520
-25
-20
-15
-10
-5
0
5
10
1520 %-point %-point
Annual contribution to USexports from Euroarea
Annual contribution to USexports from non-euro countries
Jan
08
May Sep Jan
09
May Sep Jan
10
May
150
350
550
750
950
1150
1350
200
250
300
350
400
450
500
550
600
650 bp bpCDX 10yr X-over >>
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Weekly Focus
The above financial shocks have a direct impact on the manufacturing sector but also an
indirect impact via changes in underlying fundamentals such as private consumption,
inventory accumulation, capex , etc. We take both of these channels into account.
The no shock scenario can be used as a baseline and as an assessment of the underlying
dynamics of the manufacturing cycle. The decline in the ISM will be very gradual at 0.6points per month on average until Q1 11, when the ISM should stabilise around 53. This
is a relatively shallow dip as the this corresponds to GDP growth of around 3.5% which is
well above trend growth.
The current shock scenario is an estimate of the damage currently done to the
manufacturing cycle if conditions remain in the current state. On top of the direct impact
on production caused by a deterioration in credit conditions and equity markets, the
current shock will also dampen capex, private consumption spending and inventory
accumulation. Demand growth will thus peak at a lower level and the decline in demand
growth will be fast-forwarded. The net impact will be a faster and deeper decline in the
ISM with the ISM bottoming at 50 in early 2011 before converging towards the no
shock path.
This underlines that with the current better shape of fundamentals, it would take a large
shock to bring the economy into recession. That said, with the ISM dropping nine points
over 12 months, markets would probably start pricing in some probability of a double-dip
in the US economy. The market impact could thus be significant but we have probably
seen much of the reaction already on the back of the recent turmoil.
The new global crisis shockcan be used as a benchmark for the impact of the crisis if
financial conditions continue to worsen. In that case, the direct and indirect impact on the
US manufacturing sector would be severe. Our model estimates that the ISM would
decline at a fast pace over the coming six months and drop to 47 by spring next year.
Although our model estimates that the ISM bottoms above recession level, dynamics tend
to be nonlinear in extreme events. The model is thus probably underestimating the true
depth of the downturn and we see a large probability of the US economy being pushed
into recession in such a scenario as a negative feedback loop between financial markets
and the real economy takes hold.
Estimated path of the ISM in the three
scenarios
Source: Reuters Ecowin and Danske Markets
Demand dynamics in each scenario
Source: Reuters Ecowin and Danske Markets
07 08 09 10 11 12
30
35
40
45
50
55
60
65
30
35
40
45
50
55
60
65Index Index
ISM No shock
Global crisis
Currentshock
Jun Oct Feb Jun Oct Feb Jun Oct
09 10 11
0
1
2
3
4
5
6
7
0
1
2
3
4
5
6
7%- change, 6 month %- change, 6 month
Nominal demand growth
Global crisis
Current shock
No shock
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Weekly Focus
Equities: Back to fundamentals
Fear of ghosts from the past
The equity market has recently been gripped by deep fears of a repeat of the events ofautumn 2008, when the collapse of Lehman Brothers sent shock waves through the global
economy and tipped it into a spiralling recession. This time it is the sovereign debt crisis
plaguing the eurozone nations that is the basis of the fear, which via banking stocks and a
massive weakening of the euro expanded a regional equity crisis into a crisis on a global
scale. Fears of a sustained economic downturn in Europe have been further stoked by the
cutbacks that various EU governments have planned for 2011-12. Europe and the US are
pushing through new financial regulations that spark concerns of overkill in the financial
sector while uncoordinated actions such as Germanys unilateral ban on naked short-
selling merely increase the uncertainty surrounding the hard-pressed financial sector.
But 2010 is not 2008In our opinion, however, the current situation remains manageable and is therefore very
different from the Lehman Brothers crisis. The eurozones centre of gravity France,
Italy and Germany is seeing stable to falling interest rates, which means that the bulk of
companies and private individuals in the eurozone have experienced a slight improvement
in their long-term financing options. Uncertainty with respect to a possible sovereign
default in Greece is the factor that may prolong the markets downturn. However, the
timing is largely impossible to predict and in fact the eurozones stability package that
is currently allowing Greece to fund itself at 5% and not 19% (that Greece government
bond yields reached three weeks ago) has radically reduced the chances of a Greek
collapse.
Back to fundamentals
The downturn of the past few weeks has seen Nordic, European and US equities tumble
10-11% from their peaks in April. However, it would be much too premature to discard
the long-term market healing that started in Q1 09. This is the engine designated to keep
driving global equity markets forward following the 2008-09 recession. At present, the
equity market is close to completely pricing out this recovery, as demonstrated by the
market now discounting zero growth in corporate earnings over the next five years. Over
an economic cycle, close to 10% is discounted on average, so when the market reckons
on close to zero annual earnings growth over a five-year period it is being overly
negative. What should support the fundamental improvement in corporate earnings in the
coming quarters are: A) Falling financing rates in the major economies that will continue
to stabilise the benchmark global housing markets; B) Further robust economic expansion
in Emerging Markets, which as a group are free of the deep indebtedness of governments,
households and financial institutions seen in the OECD countries; C) The non-financial
OECD corporate sector which, given its lack of excessive debt and marked improvement
in productivity in recent years, has the resources to invest in jobs, capex and M&A; and
D) The weakened euro, which means that European companies remain competitive
despite a weak regional economy.
Chief Analyst
Morten Kongshaug
+45 45 12 80 57
Mokon@danskebank.com
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Weekly Focus
Fixed Income: Rates - Relief time
Fear is the short-term risk
Since the German ban hit the news last week, a vicious circle of increasing risk aversion
has been taking place stocks plunge, credit spreads widen, swap spreads increase,
German yields drop and the curve flattens. Further, even though markets are moving in
the other direction today, one swallow does not make a spring.
However, we believe current market movements are exaggerated. Even assuming an
investor is quite bearish on Euroland growth (despite the current level of leading
indicators), the US and Asian economies are in reasonably good shape with the direct
threat to the global economy from low or no growth in Euroland limited. When was the
last time the Euroland consumer was the global growth engine? Despite the deteriorated
outlook in Euroland, the markets current fears are excessive.
The risk that increasing risk aversion will continue, escalating into a vicious spiral, is
significant and will persist in the coming days and weeks. Another risk lies in thefinancial system where Euroland banking troubles could develop into a global disaster
killing the global recovery although we regard this as fairly unlikely.
Banks globally are generally better capitalised and liquidity buffers are considerably
larger than they were before the Lehman Brothers collapse. Furthermore, any future
losses will not be hidden in clever derivative constructions such as following the sub-
prime collapse.
Higher yields in coming weeks as relief rally continues
We expect some relief on bond markets in the coming weeks as the crisis takes a step
back. Governments and central banks have worked hard to counter the crisis. We expect
implementation of the EUR720bn package to help ease fears in the coming months. Fiscal
belt-tightening in Italy, Spain and Portugal should also go some way to help secure the
credibility of fiscal programmes.
This should not be over-interpreted as a happy days are here again view. Still, even
given massive headwinds facing Euroland and especially PIIGS, recent market
movements appear overdone.
ECB a lone buyer
Huge concerns remain concerning the long-term sustainability of public finances in
PIIGS countries. However, Italy has joined Spain and Portugal in announcing further
austere fiscal measures, tightening public finances by EUR24bn in order to reduce thedeficit from 5% of GDP in 2010 to 2.7% in 2012. While such tightening has been called
for by markets and pundits alike for some time, they are now also stoking fears
concerning the growth outlook and prospects for banks in Euroland, mainly in PIIGS.
The ECB has succeeded in reducing yields through its buying, though the central bank
remains the sole buyer. Real money and other deep pocket accounts are still seizing the
opportunity to dump PIIGS bonds. There is no buying interest despite the fact that the
ECB is acting as a backstop, which is a little surprising. So far ECB buying has
concentrated on the 0-3 year segments in Greece, Portugal and Ireland.
Key events of the week ahead
Risk aversion and money markettension will set the tone on fixed
income markets in the coming
week.
G20 meeting. The FX market andthe eurozone debt crisis are the
main points of interest.
ISM and the US labour marketreport are the most important
economic data on the agenda.
The debt crisis has sent German yields
to record lows will it last?
Source: Ecowin
2-year yield in Greece and Germany
Source: Ecowin
Senior Analyst
Jesper Fischer-Nielsen
+45 45 12 85 18
jfis@danskebank.dk
Jan
08
May Sep Jan
09
May Sep Jan
10
May
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
10 year
% bp
2 year
0
2
4
6
8
10
12
14
16
18
20
0
2
4
6
8
10
12
14
16
18
20
Nov
2009
Dec
2009
Jan
2010
Feb
2010
Mar
2010
Apr
2010
May
2010
%%
Germany Greece
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Weekly Focus
FX: Extreme EUR decline
Is the latest EUR/USD slide different from past extrememovements?
The recent slump in EUR/USD may appear erratic but the pair has on previous occasions
also experienced quite sharp movements. Defining an extreme movement as when the
annualised one-month change in the pair exceeds 100%, we find that this has only
occurred 14 times since the euro was introduced in 1999.
Judging from past extreme movements, we find that the current slide in EUR/USD
appears to be only a little different from other extreme movements. The decline
follows roughly the same pattern, even though the decline in the first half of May appears
a little more dramatic than average. EUR/USD has, however, continued lower since the
latest extreme movement was detected (12 May), but history would suggest that
there should be some kind of consolidation over the coming days or weeks.
Looking at expected volatility instead we find that the most recent rise conflicts with
that which is usually observed around extreme EUR/USD spot movements. This
implies either that: (1) markets have become overly nervous and that volatility is
currently very expensive; or (2) volatility was too cheap to begin with and now has
adjusted to a fairer level. W think the first option is probably the most likely one-month
historical volatility now exceeds its 10-year average by two standard deviations, which
has only happened twice before. The latter option is less likely as both actual and implied
one-month volatilities were around fair value levels (of roughly 10%).
From a fundamental perspective, we still believe it is likely that the euro will fall
further against the dollar though, as the solvency problems within the eurozone remain,
massive aid packages have been introduced without being able to prop up the euro, euro
rates are likely to stay low for a prolonged period and investors remain sceptical about theentire euro situation.
Strong DKK despite rate reduction but for how long?
On Wednesday, the Danish Central Bank decided to lower both the deposit rate and
the current account for the second time in only two weeks to stem the strengthening
of the krone and to curb further currency inflow. It seems as if the bank has
succeeded. EUR/DKK forwards are now lower than spot up to one year, implying that it
is not a sweet deal to be short EUR/DKK any longer unless the central bank allows the
spot rate to fall further below the central parity of 7.44038. The chance of additional
currency inflow and rate cuts has therefore diminished.
The Australian dollar shows strong potential
The past months sell-off in risky assets has brought about a significant correction in the
Australian dollar. The AUD sell-off appears overdone, however, when benchmarked
against the relatively cyclical position of the Australian economy and given our
expectation of further rate hikes in H2 10. With the money market currently pricing no
hikes on the 12-month horizon, the AUD has the potential to recover strongly if the
market begins pricing in rate hikes again which is also why we currently view a long
AUD/USD spot position as the most attractive risk normalisation trade.
Another tough week for the euro
Source: Reuters Ecowin
EUR/USD before and after extremes
(1M annualised change > 100%)
Source: Danske Markets, Reuters EcoWin
1M implied EUR/USD volatility before
and after extremes
Source: Danske Markets, Reuters EcoWin
Senior Analyst
John Hydeskov
+45 45 12 84 97
johy@danskebank.dk
0% 2% 4% 6%
JPY
CHF
NOK
SEK
USD
GBP
CAD
NZD
AUD
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Weekly Focus
Commodities: defying fundamentals
It would seem natural to ask what has happened to fundamentals after a month during
which commodities have largely seen intraday movements guided by swings in global
risk appetite. The causes are not very different compared with previous months:continued fears over southern European debt problems, monetary policy tightening in
China and concerns about the effects of financial regulation. However, their influence on
markets for risky assets has clearly been bigger in recent weeks. Investor sentiment has
continued to deteriorate despite the attempts of EU policymakers to stem the euro
confidence crisis. While commodities most sensitive to the business cycle such as
metals and oil have suffered distinct losses, gold has surged to new record highs on
safe-haven demand.
Still, our economists anticipate that the rescue package, which EU policymakers
eventually agreed upon in mid-May will ultimately do its job in stabilising borrowing
conditions for debt-ridden countries, see Q&A on the EU debt crisis. However, they also
stress that the road to recovery in the eurozone will most likely be a rather bumpy one andthat event and political risk remain high. Notably, we should not forget that commodities
is one area that politicians seem keen to regulate in order to limit any price impact of the
speculative segment. Also, the risk of another set-back in global risk appetite is certainly
still pertinent and could continue to weigh in the short term.
In our view, as long as Europe avoids a more broad-based debt crisis, and an outright
banking crisis, global growth should not be endangered by recent events as the recovery
momentum currently appears remarkably strong. Indeed, we think that commodity
markets have to a large degree been defying fundamentals recently, essentially pricing in
a double-dip recession in Europe which is not our base scenario. Although the fact that
fiscal tightening will arrive sooner than previously anticipated in the euro area should
weigh on growth, commodity-intensive regions such as Asia and the US may in factsee even stronger activity levels than previously forecast. Crucially, we are now
witnessing the first decisive indications that commodities are about to see an OECD
demand recovery. For metals, this has been under way for some time now but new is an
expansion in not least US demand for oil.
Although the longer-term global growth outlook seems broadly intact, we cannot rule out
the possibility of further setbacks in the near term. One of the things to look out for is
appreciation of the Chinese yuan. We reckon that commodity markets may be spooked by
this at first sight but that the complex will eventually benefit from more balanced growth.
Also, our FX team now looks for EUR/USD to move lower on a six-month horizon,
arguing that political risks and relative rates could weigh on the single currency for
months to come. Further out, dollar weakness could set in however. As a re-coupling ofcommodities with the dollar may be occurring at present, this could affect prices.
On the whole, we expect a re-coupling with supply-demand factors in the months to come,
benefiting not least cyclical products such as base metals and oil, in particular distillates.
Importantly, we view the recent correction as just that: a setback adjusting prices levels,
leaving the course of commodities essentially unchanged. Hence, forecast revisions this
time mainly relate to a revised EUR/USD profile and some level corrections. Notably, we
now look for Brent to average USD80 (prev. 86) this year and USD90 (prev. 94) in 2011.
SeeCommodities Monthly: Correction not a change in direction, published May 27.
Monthly changes
Source: Bloomberg, Danske Markets.
PMIs strong but signs of a soft patch
06 07 08 09 10
30
35
40
45
50
55
60
65
30
35
40
45
50
55
60
65 index indexEuro zone PMI
China PMI
US ISM
Global PMI
Source: EcoWin, Danske Markets.
More EUR weakness ahead but worst
is probably over
90 pct. region 50 pct. region Spot (incl. DB forecast) Forwar d
Jun
09
Aug Oct Dec
10
Feb Apr Jun Aug Oct Dec
11
Feb Apr Jun
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
EUR/USD
Source: Bloomberg EcoWin, Danske Markets.
Note: historical EUR/USD spot rate, DanskeMarkets forecasts, forward rates and uncertainty
priced on the option market.
Senior Analyst
Christin Tuxen
+45 4513 7867tux@danskebank.dk
-20 -10 0 10 20
ICE Brent
API2 coal
Aluminium
Copper
Gold
LIFFE Wheat
% m/m
http://danskeresearch.danskebank.com/link/ResearchEuroland20052010/$file/ResearchEuroland_20052010.pdfhttp://danskeresearch.danskebank.com/link/ResearchEuroland20052010/$file/ResearchEuroland_20052010.pdfhttp://danskeresearch.danskebank.com/abo/CommoditiesMonthly270510/$file/CommoditiesMonthly_270510.pdfhttp://danskeresearch.danskebank.com/abo/CommoditiesMonthly270510/$file/CommoditiesMonthly_270510.pdfhttp://danskeresearch.danskebank.com/abo/CommoditiesMonthly270510/$file/CommoditiesMonthly_270510.pdfhttp://danskeresearch.danskebank.com/abo/CommoditiesMonthly270510/$file/CommoditiesMonthly_270510.pdfhttp://danskeresearch.danskebank.com/link/ResearchEuroland20052010/$file/ResearchEuroland_20052010.pdf -
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Weekly Focus
Financial views
Equities
Our overall view is that the stock markets will return to the bullish trend due tocontinued global economic expansion and due to overly nervous investors who have
now priced in close to zero growth in corporate earnings over the coming five years.
Hence we see the recent market correction as a buying opportunity. However,
investors should still recognise that, in the short term, the high risk profile of the
market may continue due to very uncertain economic conditions for the Financials
sector. We reiterate our European/Nordic recommendations to underweight Financials
and overweight Industrials and Health Care. The latter two are main beneficiaries of a
weaker EUR and a stronger USD.
Fixed Income
Risk aversion is the only driver of yields at the moment. If the rebound in risky assetscontinues, both German and US yields will follow suit by moving higher. However, if
the crisis escalates once again, yields will once again drop faster than a lead balloon.
We expect some relief in bond markets in the coming weeks as the crisis takes a stepback. Governments and central banks have done much to counter the crisis and we
expect the implementation of the EUR720bn package to help ease fears. Fiscal belt-
tightening in Italy, Spain and Portugal also goes some way to help the credibility of
fiscal programmes.
Euroland intra-spreads: We remain overweight in Germany, Italy, the Netherlands,Austria and Ireland. We underweight France, Spain, Greece and Portugal. We
recommend 5Y Italy versus France and 30Y Italy versus Germany.
Scandinavian government bonds are performing well and we remain overweight 2YDGBs and 5Y SGBs vs. France and long 10Y DGBs vs. France. We are long NOK
T-bills on an outright basis with open currency exposure.
Credit
The credit market remains somewhat sidelined with limited flow and no activity in theprimary market. Banks remain under some pressure as sovereign debt fears refuse to
go away despite the fiscal bailout of Greece and the other southern European countries.
From a fundamental perspective we are positive on investment grade credit. Companycredit metrics are currently sound and we thus consider the default risk in the short to
medium term as very low. The ongoing fiscal concerns continue to affect banks and
we are cautious, as the effects of fiscal tightening will be felt on the loan book quality.
FX Outlook
EUR/USD trades with heightened volatility lower on Euroland debt woes andhigher on position squaring and hopes/fears of co-ordinated central bank intervention
to prop up the euro. We think the euro will remain under pressure in the coming
months. EUR/CHF has spiked on short squeezes, but we think the pair will return
lower soon. EUR/GBP is likely to trend lower but risks of credit downgrade and crisis
budget loom. AUD looks oversold and is likely to rebound.
Equities and US 10Y yield
Source: Reuters Ecowin
EUR/USD and USD/JPY
Source: Reuters Ecowin
Credit spreads
Source: Reuters Ecowin
Commodity prices
Source: Reuters Ecowin
Nov
09
Jan
10
Feb Mar Apr May
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
4.0
875
925
975
1025
1075
1125
1175
1225
1275 Index %US 10-year gov bond >>
07 08 09 10
1.5
2.5
3.5
4.5
5.5
6.5
0.0
5.0
10.0
15.0
20.0
25.0 % points % points
>
May
09
Sep Nov Jan
10
Mar May
2000
2250
2500
2750
3000
3250
3500
3750
4000
55
60
65
70
75
80
85
90USD/barrel Index
LME metal prices >>
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Weekly Focus
After having fallen substantially against the euro as financial turmoil escalated,Scandinavian currencies, SEK and NOK, have rebounded nicely. We still like the
Scandies, but recommend caution as markets are very nervous at the moment. Selling
EUR/SEK and EUR/NOK on rallies appears to be the best strategy at the moment.
Commodities While we cannot rule out the possibility of further setbacks to commodity prices in
the near term, we view the recent price action as a correction and not a change of
course. With the prospects for global growth broadly intact, a re-coupling with
supply-demand factors is likely to benefit cyclical products in the months to come.
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Weekly Focus
Macroeconomic forecast
Source: OECD and Danske Bank. 1) % y/y. 2) % contribution to GDP growth. 3) % of labour force. 4) % of GDP.
Macro forecast, Scandinavia
Denmark 2009 -4.9 -4.6 2.5 -12.0 -1.7 -10.3 -13.2 1.3 3.5 -2.8 38.8 4.02010 1.8 2.7 1.2 -2.3 0.8 2.7 2.6 2.0 4.6 -5.6 42.0 3.22011 1.9 2.5 0.5 1.3 0.2 3.5 3.5 1.8 5.0 -4.5 46.5 2.5
Sweden 2009 -4.9 -0.8 2.1 -15.3 -1.5 -12.5 -13.4 -0.3 8.4 -1.3 39.5 7.62010 1.8 2.2 4.6 0.4 0.5 3.5 6.8 1.4 10.3 -2.8 43.1 5.92011 2.0 1.8 1.5 2.2 0.0 4.4 4.2 2.4 10.3 1.0 44.0 6.8
Norway 2009 -1.4 0.1 5.0 -7.9 -1.8 -4.2 -9.6 2.2 3.1 8.0 26.0 19.02010 3.1 5.0 3.1 -0.5 1.0 2.3 5.6 2.5 3.3 12.0 26.0 24.92011 1.7 4.4 2.5 0.0 0.0 1.4 7.3 1.9 3.4 10.0 - 17.0
Macro forecast, Euroland
Euroland 2009 -3.9 -0.6 2.2 -10.9 -0.7 -13.0 -11.7 0.3 9.6 -7.0 79.8 -0.72010 1.8 0.3 1.7 -0.1 0.5 6.8 4.9 1.0 9.8 -7.2 83.7 -0.42011 2.2 1.5 1.6 4.7 0.1 5.3 5.4 1.5 9.5 -6.1 87.4 -0.6
Germany 2009 -5.0 0.5 2.5 -12.3 0.4 -14.5 -8.5 0.2 7.5 -3.5 73.0 4.02010 2.8 0.7 1.7 5.7 0.1 8.9 7.5 1.0 8.1 -5.0 76.5 3.72011 2.3 2.1 1.4 5.5 0.0 6.4 7.4 1.2 7.6 -3.0 79.0 3.2
France 2009 -2.2 0.8 1.6 -7.0 -1.4 -10.9 -9.6 0.1 9.4 -8.3 78.0 -2.32010 0.4 1.5 1.9 0.9 -0.6 5.7 6.5 1.2 10.0 -8.5 82.0 -2.52011 1.4 1.2 1.0 3.5 0.0 6.2 6.2 1.5 9.7 -7.0 87.0 -2.2
Italy 2009 -4.8 -1.6 1.6 -13.1 -0.3 -19.2 -15.2 0.7 7.8 -5.3 114.6 -2.22010 1.5 0.9 1.3 0.1 0.2 8.0 6.0 1.9 8.6 -5.0 116.0 -2.02011 2.2 1.0 1.0 5.2 0.1 8.4 7.2 2.0 8.3 -4.5 117.5 -1.7
Spain 2009 -3.7 -5.1 5.0 -15.5 0.0 -12.0 -18.2 -0.3 18.1 -11.2 54.3 -5.22010 -0.9 -0.5 1.8 -5.6 0.0 7.2 4.6 0.9 20.1 -10.0 66.0 -4.1
2011 0.9 0.7 0.2 0.2 0.0 6.1 4.1 1.9 19.8 -8.5 73.0 -3.2Finland 2009 -7.8 -2.1 0.7 -13.4 0.0 -24.3 -22.3 0.0 8.2 -2.2 44.0 1.4
2010 1.5 0.2 0.0 -4.0 0.0 4.0 2.0 1.4 10.0 -3.8 49.0 1.42011 2.5 1.5 0.5 3.5 0.0 9.0 5.5 2.0 9.2 -3.3 52.0 2.2
Macro forecast, Global
USA 2009 -2.4 -0.6 1.8 -18.3 -0.7 -9.6 -13.9 -0.3 9.3 -9.9 83.8 -3.02010 3.3 2.5 1.5 1.7 1.0 11.8 9.5 1.9 9.5 -10.6 93.2 -3.42011 3.0 2.4 8.5 8.6 -0.1 5.0 21.3 1.8 8.7 -8.3 98.3 -3.2
Japan 2009 -5.2 -1.1 1.6 -19.3 -0.3 -24.2 -17.1 -1.3 4.7 -8.0 220.0 1.92010 2.7 1.9 1.3 1.3 -0.1 18.7 1.1 -0.7 4.3 5.2 220.4 2.02011 2.1 1.6 1.0 5.3 0.0 5.1 4.7 0.3 - - - 2.5
China 2009 8.7 - - - - - - -0.9 4.3 -3.3 23.6 4.82010 9.7 - - - - - - 3.4 4.0 -2.2 20.5 5.22011 9.5 - - - - - - 3.7 4.0 -2.2 20.5 5.7
UK 2009 -4.9 -3.0 2.8 -16.2 0.0 -10.6 -13.3 2.2 7.5 -8.6 68.6 -2.62010 1.3 0.2 3.0 -5.2 0.0 4.4 0.9 2.5 8.1 -11.5 80.3 -2.42011 2.1 2.0 2.2 2.6 0.0 6.9 5.0 1.7 7.9 -8.7 88.2 -2.0
2009 -1.4 1.3 2.1 -1.5 1.3 -10.9 -6.4 -0.5 3.7 -0.7 39.3 8.7
2010 1.6 1.2 1.4 1.5 -1.0 5.2 2.9 0.5 4.8 -2.4 41.9 10.22011 1.7 1.4 0.7 1.0 0.1 4.1 3.7 0.9 4.6 -2.9 41.0 10.9
Year GDP
1
Private
cons.
1
Public
cons.
1
Fixed
inv.
1
Stock
build.
2
Ex-
ports
1
Im -
ports
1
Infla-
tion
1
Unem-
ploym.
3
Public
budget
4
Current
acc.
4
Public
debt
4
Current
acc.4
Public
cons.1
Fixed
inv.1
Stock
build.2
Ex-
ports1
Current
acc.4
Im -
ports1
Public
debt4
Public
budget4
Ex-
ports1
Infla-
tion1
Unem-
ploym.3
Switzer-
land
Year GDP1
Private
cons.1
Im -
ports1
Public
debt4
Public
budget4
Year GDP1
Private
cons.1
Public
cons.1
Fixed
inv.1
Stock
build.2
Infla-
tion1
Unem-
ploym.3
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8/9/2019 Danske Bank Weekly Focus 28 May 2010
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Weekly Focus
Financial forecast
Source: Danske Markets
Bond and money markets
Currency
vs USD
Currency
vs DKK
USD 28-May - 599.6
+3m - 620+6m - 648
+12m - 587
EUR 28-May 124.1 744.1
+3m 120 744.0
+6m 115 745.0
+12m 127 746.0
JPY 28-May 91.2 6.57
+3m 95 6.53
+6m 99 6.54
+12m 102 5.74
GBP 28-May 145.8 874.1
+3m 143 886
+6m 139 898
+12m 155 910
CHF 28-May 114.9 521.7
+3m 115 539
+6m 119 544
+12m 111 529DKK 28-May 599.6 -
+3m 620 -
+6m 648 -
+12m 587 -
SEK 28-May 778.6 77.0
+3m 792 78.3
+6m 817 79.3
+12m 724 81.1
NOK 28-May 640.1 93.7
+3m 638 97.3
+6m 661 98.0
+12m 598 98.2
PLN 28-May 327.7 183.0
+3m 333 186
+6m 348 186
+12m 311 189
Equity markets
Regional
Price trend
12 mth.
Regional recommen-
dations
USA 0% to +10% Underweight
Japan 0% to +10% Neutral
Emerging markets (USD) 0% to +10% Overweight
Pan-Europe (EUR) 0% to +10% Neutral
NordicsSweden 0% to +10% Neutral
Norway 0% to +10% Neutral
Denmark 0% to +10% Neutral
Commodities
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2010 2011
NYMEX WTI 81 78 80 85 87 89 92 94 81 91
ICE Brent 79 79 79 84 86 88 91 93 80 90Copper 7,274 7,300 7,500 7,800 8,200 8,600 8,650 8,700 7,468 8,538
Zinc 2,307 2,150 2,200 2,400 2,500 2,500 2,550 2,550 2,264 2,525
Nickel/1000 20 24 22 23 23 23 23 23 22 23
Steel 464 525 550 575 580 585 590 600 529 589
Aluminium 2,199 2,200 2,250 2,300 2,400 2,400 2,400 2,400 2,237 2,400
Gold 1,110 1,175 1,150 1,100 1,050 1,000 1,000 1,000 1,134 1,013
Matif Mill Wheat 126 133 133 132 127 133 133 133 131 132
CBOT Wheat 518 480 470 450 475 500 500 500 480 494
CBOT Corn 389 370 375 400 410 420 430 440 384 425
CBOT Soybeans 969 960 975 1,000 1,025 1,050 1,075 1,100 976 1,063938
467
2.97
3.90
4.40
4.26
4.50
4.70
2.90
3.60
3.15
5.34
5.85
6.10
6.35
4.20
2.04
2.25
2.30
2.50
4.90
3.60
3.70
1.55
1.60
1.65
3.54
3.85
4.00
3.55
20112010
3.90
3.41
3.75
3.50
3.25
3.40
3.55
71
22
6,855
1,909
1,213
137
71
450
2,039
369
26-May
-5% to +5%
-5% to +5%
-5% to +5%
-5% to +5%
-5% to +5%
-5% to +5%
High
High
Low
Average
High
High
3.16
4.40
Currency
vs EUR2-yr swap yield
Risk
Low -5% to +5%
Price trend
3 mth.
1.26
1.32
0.49
1.50
0.55
1.67
1.25
1.25
1.65
1.30
85.1
142.6
744.1
84.0
83.0
82.0
138
137
141
966.2
794.3
406.6
760
400
400
950
940
920
765
395
124.1
-
-
-
-
113.2
744
745
746
0.50
0.65
1.00
120115
127
114
114
130
1.33
0.70
0.85
1.50
1.47
2.10
1.45
1.90
1.70
1.75
1.90
5.80
5.20
5.00
4.00
3.30
1.80
1.85
2.101.50
1.10
0.80
2.70
760
2.65
2.90
3.35
3.60
2.30
0.25
0.30
0.30
0.30
4.10
3.76
0.25
0.75
1.25
1.25
0.54
0.70
0.25
0.71
0.11
0.250.35
1.25
0.65
0.65
3.50
2.00
0.50
0.75
1.50
3.50
2.25
2.50
3.50
3.50
4.10
4.10
0.25
0.75
1.00
0.50
1.90
0.25
0.10
1.20
3.30
1.00
0.10
0.50
0.25
1.05
1.00
0.65
0.75
0.75
1.00
0.10
0.10
0.50
10-yr swap yield
0.64
1.05
1.05
1.05
3m interest rate
0.50
Average
Key int.
rate
0.13
0.130.13
1.00
3.00
0.25
1.00
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8/9/2019 Danske Bank Weekly Focus 28 May 2010
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Weekly Focus
Calendar
Source: Danske Markets
Key Data and Events in Week 22
Period Danske Bank Consensus Previous
- USD Memorial Day - Market closed
1:15 JPY Manufacturing PMI Index May 53.8 53.5
1:50 JPY Industrial production, preliminary m/m|y/y Apr 2.7%|33.4% 2.5%|27.4% 1.2%|31.8%
2:25 USD Fed's Bernanke (voter, neutral) speaks
3:10 USD Fed's Evans (non-voter, neutral) speaks
5:00 NZD Business Confidence Index May 49.5
7:00 JPY Housing starts y/y Apr 6.6% -2.4%
9:15 SEK Consumer confidence Index May 17.7 19.5
9:30 DKK GDP, preliminary q/q|y/y 1st quarter 0.4%| 0.3%| 0.2%|-3.2%
10:00 EUR M3 Money supply y/y Apr -0.5% -0.2% -0.1%
10:00 NOK Retail sales m/m|y/y Apr 0.3%| 0.3%| -0.1%|13.3%
10:00 NOK Credit indicator (C2) y/y Apr 3.9% 3.9% 3.9%
11:00 EUR Consumer confidence Net balanc May -19 -18 -18
11:00 EUR CPI Flash estimate y/y May 1.6% 1.7% 1.5%
11:00 ITL Flash CPI m/m|y/y May 0.3%|1.7% 0.9%|1.6%
11:00 EUR Businesss Climate Indicator Index May -0.10 0.25 0.23
11:00 EUR Economic Confidence Index May 101.1 100.6
11:00 EUR Services Confidence Index May 4 6 5
11:30 USD Fed's Plosser (non-voter, hawk) speaks
12:00 EUR Business confidence (industrial) Net balanc May -9 -6 -7
14:30 CAD GDP q/q ann. 1st quarter 5.8% 5.0%
14:30 CAD GDP m/m Mar 0.5% 0.3%
Period Danske Bank Consensus Previous
3:00 CNY NBS Manufacturing PMI Index May 53.0 54.5 55.7
4:25 USD Fed's Evans (non-voter, neutral) speaks
4:30 CNY HSBC Manufacturing PMI Index May 54.8 55.4
6:30 AUD RBA monetary policy meeting Jun 4.50% 4.50% 4.50%
7:45 CHF GDP q/q|y/y 1st quarter 0.7%|1.8% 0.7|0.6%
8:30 SEK Swedbank PMI survey Index May 62.0 64.0
9:00 NOK PMI Index May 51.0 52.0 51.9
9:15 ESP PMI, manufacturing Index May 51.5
9:30 CHF PMI Index May 64.4 65.9
9:30 DKK Retail sales, volume m/m|y/y Apr 0.5%| 2.9%|8.1%
9:30 SEK Riksbank Financial Stability Report
9:45 ITL PMI, manufacturing Index May 53.2 53.5 54.3
9:50 FRF PMI Manufacturing, final Index May 56.2 56.2 56.2
9:55 DEM Unemployment rate % May 7.7% 7.8% 7.8%
9:55 DEM PMI Manufacturing, final Index May 58.1 58.3 58.3
10:00 EUR PMI, manufacturing Index May 55.7 55.9 55.9
10:30 GBP PMI, Manufacturing Index May 57.7 57.9 58.0
11:00 EUR Unemployment % Apr 10.0% 10.0%
15:00 CAD BoC announces key policy interest rate 0.50% 0.50% 0.25%
16:00 USD ISM Manufacturing Index May 60.0 59.5 60.4
16:00 USD ISM prices paid Index May 77.0 73.0 78.0
16:00 USD Construction spending m/m Apr 0.0% 0.2%
19:00 USD Auction of USD42 bn 2-year notes
Period Danske Bank Consensus Previous
1:50 JPY Monetary Base y/y May 2.9%
3:30 AUD GDP 1st quarter 0.6%|2.6% 0.9%|2.7%
9:15 CHF Retail sales, Real y/y Apr 4.0%
10:30 GBP Mortgage Approvals 1000 Apr 48.9
10:30 GBP PMI, Construftion Index May 58.2
11:00 EUR Euroland PPI m/m|y/y Apr 0.7%|2.6% 0.6%|0.9%
13:00 USD MBA Mortgage Applications
16:00 USD Pending home sales m/m Apr 6.0% 5.3%
16:00 DKK Currency reserves DKK bn May 404.1
23:00 USD Total Vehicle Sales m May 11.40 11.21
Monday, May 31, 2010
Tuesday, June 1, 2010
Wednesday, June 2, 2010
-
8/9/2019 Danske Bank Weekly Focus 28 May 2010
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Weekly Focus
Calendar - continued
Source: Danske Markets
Period Danske Bank Consensus Previous
1:50 JPY Capital Spending y/y 1st quarter -9.6% -17.3%
8:45 FRF Unemployment % May 10.1% 10.0%
9:50 FRF PMI services, final Index May 61.8 61.9 61.99:55 DEM PMI Services, final Index May 53.7 53.7 53.7
10:00 EUR PMI, services Index May 56.0 56.0 56.0
10:30 GBP PMI, services Index May 55.6 55.3
11:00 EUR Retail sales m/m|y/y Apr |0.2% -0.1%|0.0%
13:30 USD Fed's Lockhart (non-voter, neutral) speaks
14:15 USD ADP Unemployment 1000 May 58 32
14:30 USD Unit labour cost q/q 1st quarter -1.0% -1.6% -1.6%
14:30 USD Initial jobless claims 1000
16:00 USD Factory Orders m/m (revised) Apr 1.4% 1.3% (1.1%)
16:00 USD ISM (NAPM) non-manufacturing Index May 55.7 56.0 55.4
17:15 USD F ed' s Bernanke (voter, neutral) speaks
18:15 USD F ed' s Rosengren (voter, dove) s peaks
19:15 USD F ed' s Hoenig (voter, hawk) s peaks
Period Danske Bank Consensus Previous
- OTH G20 Finance Ministers, Central Bankers Meet
9:40 CHF SNBs Hi ldebr and speaks in Interl aken
11:00 EUR GDP, Preliminary q/q|y/y 1st quarter 0.3%| 0.2%|0.5% 0.2%|0.5%
13:00 CAD Unemployment rate May 8.0% 8.1%
13:00 CAD Net change in employment May 20000 108700
14:30 USD Nonfarm payroll 1000 May 700 500 290
14:30 USD Average hourly earnings m/m|y/y May 0.1%| 0.0%|1.6%
14:30 USD Unemployment % May 9.8% 9.8% 9.9%
14:30 USD Nonfarm payroll - private 1000 May 200 210 231
15:30 USD Fed's Lockhart (non-voter, neutral) speaks
16:00 CAD Ivey PMI May 59.5 58.7
Period Danske Bank Consensus Previous
Fri 28 - 04 DEM Retail sales m/m|y/y Apr -2.4%|2.7%
Tue 01 - 05 GBP Halifax house prices m/m|y/y May 0.3%|7.4% -0.1%|6.6%
Wed 02 - 04 GBP Nationwide House Prices m/m|y/y May 0.4%|9.7% 0.4%|9.7% 1.0%|10.5%
Friday, June 4, 2010
During the week
Thursday, June 3, 2010
-
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Weekly Focus
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Please see the front page of this research report.
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