2018q4 macro –quarterly update: party like it’s 1999€¦ · 14 2018 q4 global macro...

2018 Q41

2018 Q4 Macro – Quarterly update: Party like it’s 1999

Please see important disclosures and disclaimers on page 25

2018 Q42

Index1. Executive summary2. Current economic topics3. 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. AppendixPlease contact content providers for inquiries:Søren Steenstrup, [email protected] Winther, [email protected]

2018 Q43

Executive summaryParty like it’s 1999• Global growth level remains healthy, although the growth momentum currently indicates a Global economic downturn. The US and EU are expected to continue growing healthily and US inflation pressure is building. Emerging markets (EM) and especially Chinese growth is stabilizing after years of deceleration, but is still high compared to the US and EU

• The US economy is steaming ahead and the labor market is getting very tight. Small businesses now report that it has never been harder to find people to fill job openings in nearly 30 years. The last time business saw conditions like this was in 1999. Employees are also voluntarily quitting their jobs at a rate not seen in more than 10 years. Wage growth has already accelerated and is expected to go even higher in the future

• The current global economic expansion is the longest in recent economic history, and although it is expected to continue in the near future, the risk of a recession are slowly starting to emerge on the horizon. As mentioned above, signs of economic overheating is starting to emerge in the US and if inflation starts to rise quickly it could trigger a new recession. Traditional bubbles in the economy (e.g. general overinvestment, housing market or excessive financial risk taking) do not seem to be present currently and a potential future US recession could therefore be milder than usual

• The Eurozone is again taking headlines as the new Italian populist government has decided to increase the budget deficit from -0.8% to -2.4%. As Italian government debt to GDP is already at 132%, this has led other European countries and investors to fear another debt crisis in the Eurozone

• Many emerging markets countries have seen their growth soften recently, but is the worst over? Depends on where you look. Mexico and China seem close to regain positive growth momentum, while many others (e.g. Turkey, Indonesia, South Africa and South Korea) still struggle. The worst may not be over as president Trump after finishing trade discussions with Mexico and Canada now can turn his undivided attention to trade disputes with China and other EM countries

• Nordic countries have shown positive growth after Denmark exited its technical recession and inflation remains low, except in Norway. Unemployment rates have been constant, except for the rise in Sweden, and employment growth has accelerated. New car registrations in Sweden areaffected by higher registration taxes on July 1st. Construction confidence remains high in Denmark and has waned slightly in Sweden, while business confidence remains high. Building costs in Norway have accelerated in recent months

2018 Q44

Current Economic Topics

2018 Q45

Current topics – Party like it’s 1999• The US economy continues to be growing fast and some might even say a bit too fast as companies are finding it harder to find new employees

• The number of companies finding it harder to find new employees is at record high and has even surpassed the previous record from 1999 (left figure) and the number of people voluntarily quitting their jobs is equally high (right figure). This spells higher wage pressure and will likely propel wage growth even higher. An example of this trend is the giant company Amazon, which will lift their minimum wage from 11 to 15 USD/hour and effects up to 350,000 employees

• Apart from the wage growth, the higher import costs due to new US tariffs are likely to lift the US inflation rate going forward

5

US Wage growth (%) and quits rate (%)

Sources: Tomas Castelazo, www.tomascastelazo.com (top right), Bloomberg (lower figures) and Tryg Invest

Wages going higher

0

10

20

30

40

1989 1993 1997 2001 2005 2009 2013 2017

IndexHard to fill job openings for small businesses

1,5

2,0

2,5

3,0

3,5

1,0

1,5

2,0

2,5

2007 2009 2011 2013 2015 2017 2019

Quits rate (left, 12M lagged) Hourly earnings (right)

2018 Q46

Current topics – Recession risk on the rise• As the longest economic expansion in newer history continues with no near-end in sight, the risk of recession may be looming on the horizon

• Recessions usually come from overheating of an economy, which creates imbalances and thus stops growth. The most obvious candidate for this is the US, which is furthest in the economic cycle and is starting to see inflation pressure rise (see s. 5). When it’s hard for companies to find new employees or/and the wage cost continues to rise, investment usually halt and then a recession is created. Not surprisingly, models for recession probabilities are starting to pick up (see lower figures), although from low levels

• While a recession is always hard to live through, many economists argue that a future US recession may be milder than the last as no obvious bubbles have built up, e.g. general overinvestment, frothy housing market, high lending growth or financial risk taking.

6

Recession models for the United States

Sources: Deutsche Bank (left), Goldman Sachs (right) and Tryg Invest

2018 Q47

Current topics – Euro crisis 2.0?• Europe is always able to give a bit of a scare to spectators when it comes to political risk and this quarter is no different. This time news is especially coming from Italy

• Italy elected a new parliament earlier this year, where the populist party 5 Star Movement and the centre-right coalition have formed a new government. This has led to a very noisy government, that only seems to agree on one thing: spend more money

• Earlier this year, the expected budget deficit was -0.8%. The new government was quick to indicate that the deficit would be closer to -1.6%, but now expect it to land at -2.4%. This is a huge problem as Italian Government debt is already at a whooping 132% to GDP.

• Italy has received a lot of pushback from other EU countries and financial markets (see lower figure), who fear that this may end up as a new debt crisis like in Greece. The Italian government has responded that one solution to their debt problem could be to leave the Euro. This has done little to sooth fears

• Next chapter in this saga will be written in mid-October, when Italy is due to submit their budget to the European Commission for approval. Needless to say, a lot more noise will come out of this

• Besides that, during Q4 a number of important summits between the UK and EU will decide whether a “hard” or “soft” Brexit deal will be reached

7

Italian 10yr interest rate

Sources: Presidenza della Repubblica (upper), Bloombergand Tryg Invest

Let’s spend some Euro’s: Deputy premier minister Di Maio

1,5%

2,0%

2,5%

3,0%

3,5%

jan-17 maj-17 sep-17 jan-18 maj-18 sep-18

Populist government formed

Higher expected budget deficit

2018 Q48

Current topics – Bruised Emerging Markets • President Trump’s trade war has been tone setting this year and emerging markets countries have seen growth negatively affected as they tend to be very open economies

• So what is growth doing now? In short, this depends on where you look: Several countries are experiencing growth downturn such as Turkey, South Africa, Indonesia and South Korea. Russia and Brazil are seeing growth momentum softening and India is seeing good growth and momentum. Mexico and China are seeing their growth momentum improving

• But China (and other EM countries) are not out of the woods yet, as Trump has reached new trade deals with Canada and Mexico, and can now focus more heavily on waging his trade war here. Furthermore, many tariffs on Chinese export will increase from 10% to 25% on January 1st 2019

8

Growth momentum for selected EM countries*

Sources: OECD, Bloomberg and Tryg Invest *Using OECD CLI indicators and past 6M history

-1,00

-0,50

0,00

0,50

1,00

96 97 98 99 100 101 102 103 104

Expansion (high and improving momentum)Upturn (negative, but improving momentum)

Downturn (negative and worsening momentum) Slowdown (high, but waning momentum)

Chan

ge in

CLI

CLI

Mexico China

Indonesia

South Africa

South Korea Russia

Turkey

India

Brazil

2018 Q49

Global Macro

2018 Q410

Global macro – Economic indicatorsGDP, QoQ, % Unemployment rate, %

Inflation rate, % Interest rate, 10yr, %

Figure sources: Bloomberg Finance L.P. and Tryg

-15%

-10%

-5%

0%

5%

10%

15%

2010 2012 2014 2016 2018

USA EU Japan

Last Observation: 2018Q2

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

2010 2012 2014 2016 2018

USA EU Japan

Last Observation: 2018M9

0%

2%

4%

6%

8%

10%

12%

14%

2010 2012 2014 2016 2018

USA EU Japan


-1%

0%

1%

2%

3%

4%

5%

2010 2012 2014 2016 2018

USA Germany Japan

2018 Q411

Global macro - Leading indicatorsPMI/ISM Consumer Confidence, US

IFO, Germany


Index description

• PMI measures companies’ expectations for the Eurozone, where values above 50 indicates economic expansion and vice versa.

• ISM measures companies’ expectations for the US, where values above 50 indicates economic expansion and vice versa.

• IFO measures business’ current assessment and expectations for the next 6 month for Germany, where a rising index-value indicates economic expansion and vice versa.

0

20

40

60

80

100

120

140

160

2010 2012 2014 2016 2018

Conference Board UoM, Consumer Confidence UoM, Consumer Expectation


70

80

90

100

110

120

130

2010 2012 2014 2016 2018

IFO Business Climate IFO Expectations IFO Current Assessment


30

35

40

45

50

55

60

65

2010 2012 2014 2016 2018

ISM, Manufacturing, US ISM, Non-manufacturing, USPMI Manufacturing, EU PMI Services, EU


2018 Q412

Global macro – Business Cycle ClockOECD Global Composite Leading Indicator* – Indicating Global downturn

*OECD CLI measures the global growth momentum 6 month forward. A value above 100 indicates positive economic momentum.

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

95 96 97 98 99 100 101 102 103 104 105

2002 2003 2004 2005 2006 2007 2008 2009 20102011 2012 2013 2014 2015 2016 2017 2018

Downturn

Upturn Expansion

Slowdown

CLI

Chan

ge in

CLI

Last observation: July/2018


2018 Q413

Global macro – Business Cycle ClockIFO German Business Climate* – Indicating German slowdown

*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.

75

80

85

90

95

100

105

110

115

120

125

70 80 90 100 110 120 130

2002 2003 2004 2005 2006 2007 2008 2009 20102011 2012 2013 2014 2015 2016 2017 2018

Downturn

Upturn Expansion

Slowdown

IFO Current Assessment

IFO

Expe

ctat

ions

Last observation: August/2018


2018 Q414

Global macro - CommoditiesBroad Commodity Index and Food Index* Agriculture

Metals* Oil


*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.

100

150

200

250

300

350

400

450

500

550

2010 2012 2014 2016 2018

Broad Commodity Index Food Index

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2010 2012 2014 2016 2018

Corn Wheat Soybeans$/bushel

0

200

400

600

800

1,000

1,200

0

2,000

4,000

6,000

8,000

10,000

12,000

2010 2012 2014 2016 2018

Aluminum (left) Copper (left) Metal Index (right)$/tonne

0

20

40

60

80

100

120

140

2010 2012 2014 2016 2018

Brent Nymex$/barrel

15

Nordic Region

2018 Q4

2018 Q416

Nordic region – Economic indicatorsGDP, YoY, % Consumer Confidence (higher value indicates more optimism)

Inflation rate, % Unemployment rate, %


70

85

100

115

130

145

160

-20

-15

-10

-5

0

5

10

15

20

25

30

35

2010 2012 2014 2016 2018

Denmark Norway Sweden (right)


-1%

0%

1%

2%

3%

4%

5%

2010 2012 2014 2016 2018

Denmark Norway Sweden

Last Observation: 2018M80%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

2010 2012 2014 2016 2018



-4%

-2%

0%

2%

4%

6%

8%

10%

2010 2012 2014 2016 2018


Last Observation: 2018Q2

2018 Q417

Nordic region – Car registrations and employment New car registrations (YoY), % New car registrations, # of vehicles

Total employment (YoY), % Total employment (YoY), %


-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%


Q4 2017 Q1 2018 Q2 2018 Q3 2018

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2010 2012 2014 2016 2018



-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%


Q3 2017 Q4 2017 Q1 2018 Q2 2018

-3%

-2%

-1%

0%

1%

2%

3%

4%

2010 2012 2014 2016



2018 Q418

Nordic region – Construction and Business Confidence Denmark construction confidence survey Sweden construction confidence survey

Nordic confidence surveys …


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

-70

-60

-50

-40

-30

-20

-10

0

10

2010 2012 2014 2016 2018

DK Construction Confidence DK Order Book Assessment

Last Observation: 2018M9-100

-80

-60

-40

-20

0

20

40

60

2010 2012 2014 2016 2018

SE Construction Confidence SE Order Book Assessment


30

35

40

45

50

55

60

65

70

60

70

80

90

100

110

120

130

140

2010 2012 2014 2016 2018

DK Economic Sentiment Indicator (left) SE PMI (right) NO PMI (right)


2018 Q419

Nordic region – Bankruptcies and Construction Costs Bankruptcies (#) Building costs (YoY, %)

Norwegian types of residential building costs (YoY, %) Norwegian construction wage cost (YoY, %)


0

200

400

600

800

1,000

1,200

1,400

2006 2008 2010 2012 2014 2016 2018

DK Bankruptcies NO Bankruptcies

Last Observation: 2018M8-5%

0%

5%

10%

2006 2008 2010 2012 2014 2016

NO Residential Building Costs


0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

2007 2009 2011 2013 2015 2017

NO Multi-Dwelling Building Costs NO Detatched House Building Costs

Last Observation: 2018M8 0%

1%

2%

3%

4%

5%

6%

7%

8%

2006 2008 2010 2012 2014 2016

NO Construction Wage Index


2018 Q420

Nordic currencies and interest ratesNordic Currencies Interest rates (swaps), %, Denmark

Interest rates (swaps), %, Norway Interest rates (swaps), %, Sweden


0.60

0.70

0.80

0.90

1.00

1.10

2010 2012 2014 2016 2018

NOK/DKK SEK/DKK

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

2010 2012 2014 2016 2018

1yr 3yr 5yr 7yr 10yr

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

2010 2012 2014 2016 2018


-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

2010 2012 2014 2016 2018


2018 Q421

Appendix

2018 Q422

Bloomberg consensus table – GDP GrowthGDP growth 2018 2019 2020US 2.90% 2.50% 1.90%

EU 2.01% 1.80% 1.70%

Japan 1.10% 1.10% 0.60%

France 1.70% 1.70% 1.60%

Germany 1.90% 1.80% 1.55%

United Kingdom 1.30% 1.50% 1.60%

Spain 2.70% 2.30% 2.00%

Italy 1.20% 1.10% 1.00%

China 6.60% 6.30% 6.00%

Brazil 1.45% 2.44% 2.50%

Russia 1.80% 1.50% 1.70%

India 7.40% 7.40% 7.50%

Denmark 1.80% 2.00% 1.70%

Norway 2.40% 2.20% 1.90%

Sweden 2.70% 2.20% 2.00%

Finland 2.60% 2.00% 1.60%

Consensus expectations

Table sources: Bloomberg Finance L.P. and Tryg

2018 Q423

Bloomberg consensus table – Unemployment Unemployment rate 2018 2019 2020US 3.90% 3.60% 3.80%

EU 8.30% 7.90% 7.60%

Japan 2.40% 2.35% 2.27%

France 9.10% 8.60% 8.00%

Germany 5.20% 4.90% 4.80%


Spain 15.40% 14.00% 13.30%

Italy 10.80% 10.40% 10.35%

China 4.00% 4.00% 4.00%

Brazil 12.19% 11.20% 10.90%

Russia 4.80% 4.90% 5.00%

India ... ... ...

Denmark 4.80% 4.30% ...

Norway 3.70% 3.40% 3.40%

Sweden 6.20% 6.10% 6.00%

Finland 7.80% 7.45% 7.20%



2018 Q424

Bloomberg consensus table - InflationInflation (CPI) 2018 2019 2020US 2.50% 2.30% 2.30%

EU 1.70% 1.70% 1.70%

Japan 1.00% 1.10% 1.50%

France 2.10% 1.70% 1.60%

Germany 1.80% 1.80% 1.80%


Spain 1.70% 1.70% 1.70%

Italy 1.30% 1.40% 1.40%

China 2.10% 2.30% 2.40%

Brazil 3.70% 4.23% 4.10%

Russia 2.90% 4.35% 4.00%

India 5.00% 4.70% 4.77%

Denmark 1.00% 1.45% 1.60%

Norway 2.45% 2.00% 1.85%

Sweden 1.90% 2.15% 2.05%

Finland 1.10% 1.40% 1.60%



2018 Q425

Disclosure & disclaimerOrigin of the publicationThis publication originates from Tryg Invest A/S Content of the publication or reportThis publication has been prepared solely by Tryg Invest 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 adviceThe 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 Invest A/S as general information for private use of customers to whom the publication hasbeen 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 Invest A/S’ analysts or representatives, Publicly available information, orOther named sources.To the extent this publication is based on or contain information emanating from other sources (“Other Sources”) than Tryg Invest A/S (“External Information”), Tryg Invest A/S has deemed the Other Sources to be reliable but neither Tryg Invest A/S, others associated or affiliated with Tryg Invest A/S nor any other person, do guarantee the accuracy, adequacy or completeness of the External Information.Limitation of liabilityTryg Invest 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 Invest A/S be liable for direct, indirect or incidental, special or consequential damages resulting from the information in this publication.Distribution restrictionRecipients 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 Invest A/S.

2018q4 macro –quarterly update: party like it’s 1999€¦ · 14 2018 q4 global macro...

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