Important disclosures and certifications are contained from page 16 of this report. www.danskeresearch.com

Investment Research — General Market Conditions

Market Movers ahead

In the US, we expect the labour market report for December to be strong, due partly to

some catch-up effects from previous months.

In the minutes from the December FOMC meeting, we will look for clues as to whether

other members other than Charles Evans and Neel Kashkari came close to dissenting.

We expect euro-area headline inflation to decline in December on weaker energy price

inflation, while core inflation is expected to increase only slightly. We expect headline

inflation to remain in the range of 1.1-1.4% throughout 2018, as long as underlying

inflation pressure remains muted.

In Scandinavia, the housing market remains in focus, particularly in Sweden where

property prices are now falling. In Norway, households have remained resilient to

uncertainty on the housing market and we expect retail sales to rebound somewhat.

Global macro and market themes

With the US tax reform, they have adopted an expansionary fiscal policy for next year

at a time when the economy is operating close to full employment.

The US is using up limited fiscal ammunition in good times instead of saving it until

the economic cycle turns.

Relatively strong US economic growth and a further boost from the tax reform

underscores our overweight US equities and creates upside risk for our forecast for US

10-year rates.

Focus

Euro Area Research: ECB inflation gap persists in 2019.

Trend growth in non-farm payrolls has

fallen

Euro inflation set to moderate in 2018

Source: BLS, Macrobond Financial Source: Eurostat, Macrobond Financial, Danske

Bank

Weekly Focus Sweden

New Year – same low inflation pressure

22 December 2017

Editor

Senior Analyst Louise Aggerstrøm Hansen +45 45 12 85 31 louhan@danskebank.dk

Contents

Market movers ..................................................... 2

Global Macro and Market Themes .......... 6

Scandi Update....................................................... 9

Latest research from Danske Bank Markets ................................................................ 10

Macroeconomic forecast .......................... 11

Financial forecast ........................................... 12

Calendar ............................................................... 13

Financial views

Source: Danske Bank

Follow us on Twitter

@Danske_Research

Major indices

22-Dec 3M 12M

10yr EUR swap 0.79 0.90 1.20

EUR/USD 118 116 125

ICE Brent oil 65 62 64

2 | 22 December 2017 www.danskeresearch.com

Weekly Focus

Market movers

Global

In the US, the coming week brings no market movers. The week after New Year’s Eve,

however, brings several interesting releases. On Wednesday, ISM manufacturing for

December and FOMC minutes from the December FOMC meeting are due for release.

As the statement from the meeting was broadly unchanged, we also expect the minutes

to reveal no significant news, but we look out for clues as to whether other than Evans

and Kashkari were close to dissenting. For more information on the December FOMC

meeting, see FOMC review: Broadly unchanged Fed signal, 13 December. The gap

between ISM and manufacturing has started narrowing and we expect this to continue.

We estimate ISM fell slightly to 57.7 in December. Friday brings the labour market

report for December. We expect a relatively strong labour market report (compared to

previous months’ reports), due partly to some catch-up effects from previous months.

Although trend jobs growth has fallen to around 175,000, PMIs point to jobs growth

above 200,000. We estimate non-farm payrolls increased 185,000 with the service

sector as the main contributor. Furthermore, we estimate average hourly earnings

increased 0.3% m/m (2.5% y/y versus 2.5% y/y in November) and an unchanged

unemployment rate at 4.1%.

In the euro area, we are expecting the German inflation figures for December on

Friday. After breaking above 2% in February 2017, German headline inflation

decreased to 1.5% y/y in October. In November, it somewhat bounced back to 1.8%

y/y primarily driven by energy prices and so we expect it to moderate again to 1.6% y/y

in December.

The euro area inflation figures for December are due for release 5 January 2018. We

expect headline inflation to decline to 1.4% y/y in December due to weaker energy

price inflation, while core inflation is expected to increase only slightly to 1.0% y/y in

December as the strong economic momentum has yet to feed through to higher wages

to push service price inflation higher. Overall, we expect headline inflation to remain

in the range of 1.1-1.4% y/y on a monthly basis throughout 2018, as long as underlying

inflation pressure remain muted (see Euro Area Research: ECB inflation gap persists

in 2019, 4 December 2017).

In the UK, the coming two weeks are quiet. The most important release is the PMI

manufacturing for December due out on 2 January. As the equivalent euro area index

has risen in December, we expect another increase in the UK index (although it is more

volatile). While growth in the service sector has slowed, manufacturing production

growth has increased, supported by the global uptick in manufacturing. We forecast an

increase to 58.8. PMI service is due out on 4 January and we expect it to remain broadly

unchanged at 53.8. However, Brexit remains in focus, as transition talks are likely to

start early next year. The aim (hope?) is to reach an agreement on transition before the

EU summit on 22-23 March and to start negotiating the future relationship afterwards.

Trend growth in non-farm payrolls has

fallen

Sources: BLS, Macrobond Financial

Euro inflation set to moderate in 2018

Source: Eurostat, Macrobond Financial, Danske

Bank

UK manufacturing supported by

increasing activity in rest of Europe

Source: IHS Markit, Macrobond Financial

3 | 22 December 2017 www.danskeresearch.com

Weekly Focus

In Japan, next week is heavy on key economic figures. On Tuesday, November

inflation figures are due. Inflation has been ticking upwards this year but it has been

driven primarily by energy prices. The underlying price pressure in Japan is still very

low. We will also get an indication of what Q4 private consumption will look like as

the November household spending survey and retail sales tick in on Tuesday and

Thursday, respectively. The October figures were quite disappointing and a pickup here

is key in the process of reflating the Japanese economy. On Thursday, we also get

November industrial production figures. The manufacturing sector has been looking

strong so far this year and PMIs point to continued progress.

The main release in China over the next two weeks will be PMI manufacturing (Official

released on 31 December and Caixin released on 2 January). We look for a moderate

decline as policy tightening and production curbs on steel, aluminium and construction

in the North East of China will weigh on manufacturing activity, see also China Leading

Indicators: Bearish signal from commodities, 18 December 2017. Industrial profits are

also released. Growth has been very strong this year due to rising producer prices and

rising activity. We look for profit growth in November to stay strong at around 20%

(25.1% in October).

Underlying price pressure still very

low

Source: Japan Statistics Bureau, Macrobond

Financial

We look for PMI to move lower as

signalled by lower metal price growth

Source: Markit, Macrobond Financial, Danske

Bank

4 | 22 December 2017 www.danskeresearch.com

Weekly Focus

Scandi

In Denmark, there are no significant releases between Christmas and New Year, but

the first Wednesday of 2018 brings currency reserves data for December. The

EUR/DKK cross has been above 7.4400 throughout the month and thus some way off

the levels where the Nationalbank intervened in February and March this year. The

bank has presumably therefore not felt any need to intervene for a ninth successive

month, the longest period without intervention since early 2014. Business confidence

data is due to be released the following day. Manufacturing sentiment was unchanged

in November and is generally above the level of recent years, which does not make it

any easier to understand the recent weak industrial production statistics. It will be

interesting to see if there is any change in December. Friday 5 January then brings

unemployment, foreign portfolio investments and securities statistics for November,

and bankruptcies and repossessions for December.

Over the next two weeks, there will be a few data points in Sweden worth keeping an

eye on. First, there is the November trade balance. Many observers, not least the

government and the Riksbank, point to exports gaining speed, adding positively to GDP

growth and, hence, bolstering a potentially negative impact of falling property prices.

Clearly, we need to see some improvement here.

Second, household lending growth has been accelerating but given the drop property

prices, a likely slowdown in residential construction activity going forward and

possibly slightly more restrictive bank lending, growth is set to decelerate again. It may,

however, be too soon to expect this to have happened in November as lending is quite

slow to respond.

In Norway, retail sales performed very poorly during the autumn after growing strongly

up until the summer. It is tempting to assume that this has to do with increased

uncertainty about the housing market, since both real wages and employment are going

great guns. On the other hand, the national accounts revealed that consumption of

services is holding up well, and strong growth in new car sales shows that households

have not lost their cool. The downturn in retail sales may therefore be the result of a

structural change, with consumption of goods losing ground to consumption of services

as standards of living increase. Nevertheless, we expect a solid correction in November

after several weak months and so predict an increase of 0.8% m/m. Also coming up is

LFS unemployment data for October (September-November). We have already seen

the NAV’s jobless measure fall during this period, but the LFS measure is still a fair bit

higher. We expect an unchanged LFS unemployment rate of 4.0%, but as usual we

would stress that we place more importance on the more stable statistics from the NAV.

DKK has been strong against EUR

Source: Statistics Denmark

Retail sales down after strong growth

Source: Macrobond Financial, Danske Bank

PMI likely to drop slightly

Source: NIER, Swedbanksss

5 | 22 December 2017 www.danskeresearch.com

Weekly Focus

Market movers ahead

Source: Bloomberg, Danske Bank

Global movers Event Period Danske Consensus Previous

Mon 25-Dec 6:00 JPY Leading economic index, final Index Oct 106.1

Wed 27-Dec 2:30 CNY Industrial profits y/y Nov 25.1%

Thurs 28-Dec 0:50 JPY Industrial production, preliminary m/m|y/y Nov 0.5%|3.6% 0.5%|5.9%

0:50 JPY Retail trade m/m|y/y Nov 0.7%|1.0% -0.1%|-0.2%

Fri 29-Dec 14:00 DEM HICP, preliminary m/m|y/y Dec …|1.6% 0.6%|1.4% 0.3%|1.8%

Scandi movers

Fri 29-Dec 9:30 SEK Household lending y/y Nov 7.0% 7.1%

Global movers Event Period Danske Consensus Previous

During the week Sun 31 CNY PMI manufacturing Index Dec 51.7 51.8

Tue 02-Jan 2:45 CNY Caixin PMI manufacturing Index Dec 50.7 50.8

10:30 GBP PMI manufacturing Index Dec 58.8 57.8 58.2

Wed 03-Jan 16:00 USD ISM manufacturing Index Dec 57.7 58.0 58.2

20:00 USD FOMC minutes

Thurs 04-Jan 10:30 GBP PMI services Index Dec 53.8 54.1 53.8

Fri 05-Jan 11:00 EUR HICP - core inflation, preliminary y/y Dec 1.0% 1.0% 0.9%

11:00 EUR HICP inflation, preliminary y/y Dec 1.4% 1.4% 1.5%

14:30 USD Unemployment % Dec 4.1% 4.0% 4.1%

14:30 USD Non farm payrolls 1000 Dec 185 185 228

Scandi movers

Tue 02-Jan 8:30 SEK PMI manufacturing Index Dec 63.0 63.3

9:00 NOK PMI manufacturing Index Dec 57.1

Wed 03-Jan 8:00 NOK Unemployment (LFS) % Oct 4.0% 4.0%

16:00 DKK Currency reserves DKK bn Dec 464.2 464.2

Thurs 04-Jan 11:00 NOK House price report m/m Dec 4.0% 4.0%

6 | 22 December 2017 www.danskeresearch.com

Weekly Focus

Global Macro and Market Themes

What the US and Denmark had in common this week and what it

means for global financial markets

Denmark and US adopt expansionary fiscal policies late in the economic

cycle…

Normally the week ahead of Christmas is characterised by holiday peace setting in over

politics and financial markets alike. At this time, government budget deals for the next year

are typically safely sealed and investors have closed their positions awaiting the new

investment year. However, this year, two countries, Denmark and the US, stood out as their

politicians frantically scrambled to get fiscal packages through their parliaments.

In the US, the Republican Party achieved a major political boost by getting tax reform

approved by both chambers of congress. The tax reform, costing an estimated USD1,500trn

over the next 10 years, lowers corporate income tax from 31% to 21% and cuts the top

marginal personal income tax rate from 39.6% to 37.0% while offering incentives for US

companies to repatriate foreign income.

In Denmark, the Danish government managed to find agreement on a new budget for 2017.

Similarly to the US republican party, the Danish government also attempted to push

through tax cuts but failed in the end due to a lack of parliamentary support but plans to

make another attempt to get the reform through in January.

So, apart from the political drama, what did these events have in common in the two

countries? Well, the US tax reform and the Danish budget mean that fiscal policies in both

countries will be expansionary next year (in Denmark, admittedly on a rather limited scale).

Admittedly, other countries, such as Germany, Sweden and Estonia, may also be in such a

situation (judging from IMF WEO data).

Fiscal policy set to be pro-cyclical in several advanced economies in 2018

Note: The fiscal policy stance is measured by the change in the structural primary balance using IMF WEO

October 2017 data except for Denmark, which is based on the recently budget document for 2018

Source: IMF WEO October 2017, Denmark’s Ministry of Finance, Danske Bank calculations

-1.5

-1

-0.5

0

0.5

1

1.5

Japan Euro Area France Italy Germany Estonia Denmark UnitedStates

Sweden

Output gaps and fiscal policy effects in 2018

Output gap Fiscal policy stance (+ = expansionary fiscal policy)

%

Today’s key points

Both Denmark and the US have

adopted expansionary fiscal

policies for next year, with both

operating close to full

employment.

The US is using up limited fiscal

ammunition in good times instead

of saving it until the economic

cycle turns.

The combination of rather strong

US economic growth and a further

boost from a tax reform

underscores our overweight US

equities.

The US tax reform creates some

upside risk for our forecast for US

10-year rates.

The EUR/USD should still move

higher in 2018.

The US tax reform could be a

mixed bag for emerging markets.

7 | 22 December 2017 www.danskeresearch.com

Weekly Focus

While such expansionary policy may make sense politically (especially for the Republicans

in the US ahead of next year’s mid-term elections), it is difficult to see the economic

rationale, as both countries are operating very close to full employment and have estimated

positive output gaps in 2017 (see chart below). Under these circumstances, fiscal policies

should ideally be used to temper domestic demand, not add further fuel to the fire.

Another issue, mainly for the US, is that the tax cuts use up limited fiscal ammunition in

good times instead of saving it until the economic cycle turns. The underlying US fiscal

situation is already quite vulnerable, as public net debt amounts to almost 80% of GDP (in

gross terms almost 110% of GDP) and the public deficit accounts for more than 4% of

GDP. Given the forthcoming spending pressure from pension and healthcare obligations,

the congressional budget office projects US net public debt will rise to 90% of GDP over

the next decade, even before the tax cuts. With the tax cuts, the Committee for Responsible

Federal Budget (CRFB) projects this net debt burden will rise even further to 100% of GDP

by 2027. While US interest payment on this rather large debt stock is pretty small at the

moment due to the low interest rates, the IMF projects the debt service burden to grow quite

strongly as interest rates climb. Luckily, Denmark does not face the same fiscal challenges

because the public debt is fairly low and the pension system is fully funded.

The key uncertainty for investors is what, in particular, the US tax reform (given Denmark

is rather small in the grand scheme of things) will mean for investors.

Higher US equities and interest rates – uncertain USD effects

In our view, the tax reform should have a positive impact on US economic growth and

therefore US equities. We have already seen a move higher over the fall as markets

increased their expectations of the tax reform. The combination of rather strong US

economic growth and a further boost from tax reform underscores our overweight US

equities.

However, the additional growth effects of the US tax cuts for the US economy may be more

limited than normal. First, the income tax cuts are targeted mainly at high income earners,

who have a low marginal propensity to consume. Second, investments may not increase

significantly despite the possibility of deducting investment costs, as credit has been cheap

and easy in recent years. Third, fiscal multipliers (i.e. how much additional economic

growth can fiscal expansion generate?) tend to be low when the output gap is almost closed,

as is the case in the US right now. In aggregate, we expect the reform to lift US GDP growth

by around 0.2-0.3pp in 2018.

In theory, the combination of looser fiscal and tighter monetary policies (which will be the

case with the Fed hiking rates and reducing its balance sheet next year) should push up US

interest rates, which in turn should aide the USD. Indeed, we have seen short-term interest

rates in the US move higher as the likelihood of the tax reform increased. The impact on

the long-end of the US curve has been more limited but 10-year US yields did jump around

11bp over the past week. However, we do not expect a major sell-off in fixed income, such

as after the election of Donald Trump. Given the rather limited growth impact and the still

muted inflation pressures (which we see continuing in 2018), we maintain our call that the

Fed will hike rates only two to three times next year. However, there may be slight upside

risk to our forecast for 10-year US yields of 2.7% in 2018.

US equities and short-term rates have

moved higher with the tax reform

Source: Bloomberg, Macrobond Financials

Net US public debt set to reach 100%

of GDP in mid-2020s

Source: CBO, Committee for a Responsible Federal

Budget, Macrobond Financial

8 | 22 December 2017 www.danskeresearch.com

Weekly Focus

Despite the boost to US interest rates and the possible US corporate repatriation flows back

into the US, the impact on the USD has been rather limited. What is at play? Well first of

all, the scale of repatriation flows may be constrained by two factors compared with 2005

when such a feature was in place. First, it is likely a significant portion of reinvested

earnings held abroad for tax purposes is already denominated in USD to avoid balance

sheet volatility given the substantial USD strength in recent years. In addition, the USD

now also seems overvalued against EUR and GBP (see table below). This could further

lower repatriation volumes. Finally, judging from history, the USD tends to perform

relatively poorly when the US fiscal situation is weaker, as the current account weakens.

Hence, we maintain our view that EUR/USD should move up to about 1.25 over the next

year.

Emerging markets – US tax reform is a mixed bag

After a very good 2017 for emerging markets, they are again back on investors’ wish lists.

The uncertainty is what the US tax reform means for emerging markets and, more broadly,

what the outlook is for emerging in 2018. On US tax reform, we think it could be a mixed

bag for emerging markets. While they generally thrive on higher US and global growth

given their export dependence, the impact of the tax reform should be fairly limited.

However, if the tax reform should push US interest rates materially higher (which is not

our base case), it would be likely to ignite capital outflows from emerging markets and put

pressure on countries with large current account deficits or USD debt, such as Turkey.

However, overall we still see general good prospects for emerging markets in 2018,

although there are clearly some risks to watch out for (for more details see Emerging

Markets Briefer: Slowing down to single-digit growth, 20 December). In our view, the

biggest risk to emerging markets comes from China and the likely slowdown in

construction activity, which, in particular, is likely to hit commodity prices and therefore

commodity-producing countries, such as Chile, with large exposure to China. Geopolitical

and domestic risks, with presidential elections in Brazil, Russia, Colombia and Mexico, are

likely to cause some volatility in 2018. On emerging market FX, we remain bullish on CEE

currencies as well as on the RUB.

Global market views

Source: Danske Bank

Asset class Main factors

Equities

Positive on 3-12 month horizon.

Bond market

German/Scandi yields – set to stay in recent range for now, higher on 12M horizon

Inflation set to stay subdued despite decent growth. Stronger euro keeps euro inflation outlook down. ECB to normalise gradually only, due to lack of wage pressure and stronger euro. ECB on hold for a long time.

EU curve – 2Y10Y set to steepen when long yields rise again. Flattening of US 2Y10Y curve to continue The ECB keeps a tight leash on the short end of the curve. With 10Y yields stable, the curve should change little on a 3-6M horizon. Risk is skewed towards a steeper curve but that is a 6M to 12M forecast.

US-euro spread - set to widen marginally The Fed's QT programme (balance sheet reduction) is set to happen at a very gradual pace and the effect on the Treasury market should be benign. Yet, market pricing for Fed hikes is still dovish for 2019 and yields should edge higher on a 12M horizon.

Peripheral spreads – tightening but still some factors to watch We expect economic recovery, ECB stimuli, better fundamentals, particularly in Portugal and Spain, an improved political picture and rating upgrades to lead to further tightening despite the recent strong moves. Italy is the big risk factor but it is very expensive to be short Italian bonds.

FX

EUR/USD – consolidating near term but upside risks in 2018 EUR/USD to be rangebound near term. We still see the cross moving firmly into mid-1.20s supported by valuation and debt-flow reversal in 2018.

EUR/GBP – in range near term but GBP to strengthen eventually We still see EUR/GBP within 0.8650-0.90 in coming months as the Brexit risk premium is likely to persist despite progress in negotiations. Longer term, GBP should strenghten. USD/JPY – gradually higher longer term but challenged near term Policy normalisation at the Fed and eventually at the ECB, while the Bank of Japan is staying dovish, means support for EUR/JPY and USD/JPY alike on a 12M horizon.

EUR/SEK – risk to the topside on housing market, Riksbank pricing Housing market risk premium to keep SEK under pressure alongside too aggressive Riksbank market pricing. Eventually lower but not story in coming quarters.

EUR/NOK – lower but watch out for year-end NOK-seasonality NOK headwinds towards year end but longer term we expect the NOK to rebound on valuation, growth and real-rate differentials.

Commodities

Oil price – range trading June review weakens impact of extension of OPEC+ output cuts. Geopolitical tensions around Saudi Arabia and Iran on the rise. Temporary disruption on Forties pipeline.

Strong business cycle and near double digit earnings growth in most major regions. Low rates and bond yields drive demand for risk assets.

Weak US fiscal situation tend to imply

a weak USD

Source: Intercontinental Exchange (ICE), U.S.

Congressional Budget Office (CBO) and

Macrobond Financial.

Bullish on Eastern Europe, bearish on

TRY

Source: Bloomberg and Danske Bank

9 | 22 December 2017 www.danskeresearch.com

Weekly Focus

Scandi Update

Denmark – consumer confidence down slightly in December

The consumer confidence indicator edged down to 6.5 in December, somewhat below our

forecast of 8.2. The decrease was due mainly to consumers taking a less positive view of

how their personal finances have fared over the past year. On the other hand, they are more

optimistic about the outlook for their personal finances. Generally speaking, consumer

confidence has been higher this year than it was in 2016.

Retail sales increased 1.3% m/m in November after a relatively sharp fall in October, with

sales of clothing in particular picking up. The increase does, of course, need to be seen in

the light of Black Friday, which fell at the end of November and may have led to a shift in

spending patterns.

Finally, the week’s employment figures for October showed an increase of 4,200 people

m/m. This further solid job growth heading into Q4 firmly underlines that the upswing in

Denmark is very much alive and kicking. We expect employment to continue to climb

during the rest of 2017 and into the New Year.

Sweden – Riksbank bond holding rises despite end of QE

Much in line with expectations, the Riksbank decided to keep the repo rate unchanged, the

repo rate forecast intact (saying rate hikes starting Q3 18) and to end government bond

purchases (QE) – at least on paper. Why on paper? The answer is the fact that there is a

redemption of a bond (SGB1052) in March 2019, while the RB decided to smooth the re-

investment of the redemption (RB owns SEK50bn of the bond) starting in January next

year and continuing through June 2019. In addition the RB will re-invest coupons. In effect

this means that its bond portfolio will increase further until the actual redemption takes

place, in spite of the fact that QE has formally ended. So the downward pressure on Swedish

bond yields stemming from RB purchases will remain for quite some time. Other than that,

the message was very much the same as before. Inflation has reached the target, but a

substantial amount of stimulus is still warranted to ensure that inflation stays close to the

target.

Norway – unemployment continues to fall

Registered unemployment was unchanged in seasonally adjusted terms at 2.5% in

December. Gross unemployment, our preferred jobless measure, fell by 400 people m/m,

which is a slightly smaller decrease than we had anticipated, but unemployment is still

coming down, with 14,000 fewer people now out of work than in December last year.

Falling unemployment is the best crosscheck for whether economic growth is above trend

and capacity utilisation is rising. These levels are exactly what Norges Bank predicted in

its monetary policy report and will not affect the outlook.

Slight dip in consumer confidence

Source: Statistics Denmark

CPIF – Danske Bank and RB forecasts

Source: Danske Bank, Riksbank

Unemployment at three-year low

Source: Macrobond Financial, Danske Bank

10 | 22 December 2017 www.danskeresearch.com

Weekly Focus

Latest research from Danske Bank

21/12 Flash Comment - Fighting financial risks at the top of China's agenda

The Chinese Central Economic Work Conference ended yesterday. It spells out economic

priorities for coming years and, as we expected, it put fighting financial risks at the top of

the economic policy agenda.

20/12 Flash Comment - Sweden: Riksbank frontloads QE reinvestments

Main takeaways. The Riksbank kept the repo rate and the repo rate path unchanged as

expected. Also as expected, it ended the QE programme.

20/12 Emerging Markets Briefer - December 2017

Emerging markets (EM) are set to close the year on a very positive note despite numerous

headwinds from local political uncertainties to geopolitical woes and continuing monetary

tightening in developed economies.

19/12 Flash Comment - US-China relations on a concerning path

Following a much-celebrated visit to China by US President Donald Trump in early

November, the US-China relationship has gone steeply downhill.

19/12 Finland Research - Growth means smaller deficit, ageing still a challenge

We have revised our forecast slightly higher for 2018 and expect Finnish GDP to grow

2.3% in 2018 and 1.9% in 2019.

18/12 FX Forecast Update: NOK relief in sight - but USD still fragile in 2018

Monthly FX Forecast Update

11 | 22 December 2017 www.danskeresearch.com

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 2016 2.0 2.3 0.3 6.0 0.0 2.8 3.8 0.3 4.2 -0.6 37.7 7.32017 2.4 1.9 1.0 2.6 0.1 5.0 4.7 1.1 4.4 -0.9 35.6 8.32018 2.0 2.3 0.5 4.3 0.0 2.8 3.6 1.1 4.3 -0.7 34.4 7.8

Sweden 2016 3.3 2.2 3.4 5.6 0.0 3.3 3.4 1.0 6.9 1.1 42.4 1.12017 3.1 2.3 0.6 8.0 0.0 3.4 5.0 1.9 6.7 0.3 39.5 4.82018 2.0 1.4 1.6 3.1 0.0 3.3 3.3 1.7 6.6 0.0 39.3 5.2

Norway 2016 1.0 1.5 2.1 -0.2 1.4 -1.8 2.3 3.6 3.0 - - -2017 2.0 2.5 1.8 3.6 0.2 1.0 4.5 2.0 2.7 - - -2018 2.3 2.4 2.1 2.0 -0.1 1.5 0.7 1.6 2.5 - - -

Macro forecast, Euroland

Euroland 2016 1.8 2.0 1.7 4.5 - 3.3 4.7 0.2 10.0 -1.5 88.9 3.32017 2.4 1.8 1.1 4.1 - 4.8 4.7 1.5 9.1 -1.1 88.1 3.02018 2.0 1.9 1.3 4.9 - 3.7 4.9 1.3 8.4 -0.9 87.2 3.0

Germany 2016 1.9 1.9 3.7 2.9 - 2.4 3.8 0.4 4.2 0.8 68.1 8.32017 2.6 2.4 1.2 4.4 - 4.8 5.2 1.7 3.8 0.9 64.8 7.82018 2.4 2.4 2.0 4.2 - 3.6 5.2 1.4 3.5 1.0 61.2 7.5

France 2016 1.1 2.1 1.2 2.7 - 1.9 4.2 0.3 10.0 -3.4 96.5 -0.92017 1.9 1.3 1.6 3.6 - 3.1 4.8 1.2 9.5 -2.9 96.9 -1.02018 2.2 2.3 1.5 4.5 - 3.6 4.8 1.2 9.3 -2.9 96.9 -0.9

Italy 2016 1.1 1.5 0.5 3.0 - 2.6 3.3 -0.1 11.7 -2.5 132.0 2.72017 1.5 1.5 0.9 3.2 - 5.1 5.5 1.3 11.3 -2.1 132.1 2.52018 1.4 1.2 0.7 4.4 - 3.4 4.0 0.9 10.9 -1.8 130.8 2.5

Spain 2016 3.3 3.0 0.8 3.3 - 4.8 2.7 -0.3 19.6 -4.5 99.0 1.92017 3.1 2.5 1.2 4.8 - 5.0 3.9 2.0 17.3 -3.1 98.4 1.72018 2.7 2.9 1.2 3.7 - 3.0 3.3 1.2 15.7 -2.4 96.9 1.9

Finland 2016 1.9 1.8 1.2 7.2 - 1.3 4.4 0.4 8.8 -1.8 63.1 -1.42017 2.8 2.0 -0.2 8.5 - 8.0 5.0 0.7 8.5 -2.1 63.0 -0.42018 1.8 1.5 0.2 3.0 - 4.0 3.0 1.1 8.0 -1.1 62.4 -0.4

Macro forecast, Global

USA 2016 1.5 2.7 0.8 0.7 -0.4 -0.3 1.3 1.3 4.9 -3.2 106.0 -2.42017 2.2 2.7 -0.2 3.8 -0.1 3.2 3.3 2.2 4.4 -3.6 106.0 -2.42018 2.4 2.2 0.0 5.1 0.0 3.6 2.6 2.5 4.0 -3.5 107.0 -3.0

China 2016 6.7 - - - - - - 2.0 4.1 -3.0 46.3 2.42017 6.8 - - - - - - 2.0 4.3 -3.3 49.9 2.12018 6.3 - - - - - - 2.0 4.3 -3.0 53.3 1.5

UK 2016 1.8 2.9 1.1 1.3 0.5 1.1 4.3 0.7 4.9 -2.9 88.3 -4.42017 1.5 1.8 0.6 2.4 -0.4 4.5 3.0 2.6 4.4 -2.4 87.0 -4.62018 1.3 1.3 0.5 1.9 0.1 2.4 2.2 2.2 4.1 -2.0 87.3 -4.7

Current

acc.4

GDP 1

Private

cons.1

Public

cons.1

Fixed

inv.1

Stock

build.2

Ex-

ports1

Im-

ports1

Infla-

tion1

Unem-

ploym.3

Public

budget4

Public

debt4

Year

Year GDP 1

Private

cons.1

Public

cons.1

Fixed

inv.1

Stock

build.2

Ex-

ports1

Im-

ports1

Infla-

tion1

Unem-

ploym.3

Public

budget4

Current

acc.4

Public

debt4

Current

acc.4

Im-

ports1

Public

debt4

Public

budget4

Ex-

ports1

Infla-

tion1

Unem-

ploym.3

Year GDP 1

Private

cons.1

Public

cons.1

Fixed

inv.1

Stock

build.2

12 | 22 December 2017 www.danskeresearch.com

Weekly Focus Sweden

Financial forecast

Source: Danske Bank

Bond and money marketsCurrency

vs USDCurrency

vsSEK

USD 22-Dec - 843.1

+3m - 870.7

+6m - 825.0+12m - 784.0

EUR 22-Dec 117.9 993.9

+3m 116.0 1010.0

+6m 120.0 990.0+12m 125.0 980.0

JPY 22-Dec 112.2 7.52

+3m 113.0 7.71

+6m 114.0 7.24+12m 114.0 6.88

GBP 22-Dec 134.4 1133.3

+3m 131.8 1147.7

+6m 137.9 1137.9+12m 145.3 1139.5

CHF 22-Dec 98.8 853.7

+3m 100.0 870.7

+6m 100.0 825.0+12m 98.4 796.7

DKK 22-Dec 631.4 133.5

+3m 641.6 135.7

+6m 620.2 133.0+12m 595.6 131.6

SEK 22-Dec 843.1 100.0

+3m 870.7 -

+6m 825.0 -+12m 784.0 -

NOK 22-Dec 827.8 101.8

+3m 810.3 107.4

+6m 766.7 107.6+12m 728.0 107.7

Commodities

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2017 2018

NYMEX WTI 52 48 48 55 58 58 58 58 51 58ICE Brent 55 51 52 62 62 62 64 64 54 63

5865

2017 2018 Average

22-Dec

0.75 1.10 1.35 2.45 910.0

0.50 0.80 1.10 2.00 940.0

0.50 0.80 1.15 2.10 920.0

-0.50 -0.45 -0.05 1.25 980.0

0.50 0.83 1.10 1.87 975.9

-0.50 -0.50 -0.05 1.15 1010.0

-0.50 -0.45 -0.05 1.15 990.0

0.05 -0.30 0.15 1.45 744.5

-0.50 -0.59 -0.22 1.10 993.9

0.05 -0.30 0.05 1.10 744.3

0.05 -0.30 0.10 1.20 744.3

-0.75 - - - 123.0

0.05 -0.30 -0.07 0.97 744.4

-0.75 - - - 116.0

-0.75 - - - 120.0

0.50 0.64 1.10 1.75 86.0

-0.75 -0.75 -0.51 0.21 116.4

0.50 0.53 0.85 1.35 88.0

0.50 0.53 0.90 1.50 87.0

-0.10 - - - 142.5

0.50 0.52 0.79 1.26 87.7

-0.10 - - - 131.1

-0.10 - - - 136.8

0.00 -0.33 -0.05 1.20 -

-0.10 -0.02 0.04 0.24 132.3

0.00 -0.33 -0.10 0.90 -

0.00 -0.33 -0.05 1.00 -

1.75 2.04 2.55 2.70 125.0

0.00 -0.33 -0.19 0.79 -

1.50 1.58 2.15 2.35 116.0

1.75 1.75 2.25 2.40 120.0

Key int.rate

3m interest rate 2-yr swap yield 10-yr swap yieldCurrency

vs EUR

1.50 1.59 2.01 2.35 117.9

13 | 22 December 2017 www.danskeresearch.com

Weekly Focus

Calendar

Source: Danske Bank

Key Data and Events in Week 52

During the week Period Danske Bank Consensus Previous

Monday, December 25, 2017 Period Danske Bank Consensus Previous

6:00 JPY Leading economic index, final Index Oct 106.1

Tuesday, December 26, 2017 Period Danske Bank Consensus Previous

0:30 JPY CPI - national y/y Nov 0.5% 0.2%

0:30 JPY CPI - national ex. fresh food y/y Nov 0.8% 0.8%

0:30 JPY Unemployment rate % Nov 2.8% 2.8%

0:30 JPY Job-to-applicant ratio Nov 1.56 1.55

0:30 JPY Household Spending Survey Nov

Wednesday, December 27, 2017 Period Danske Bank Consensus Previous

2:30 CNY Industrial profits y/y Nov 25.1%

16:00 USD Pending home sales m/m|y/y Nov -0.5%|… 3.5%|1.2%

16:00 USD Conference Board consumer confidence Index Dec 128.0 129.5

Thursday, December 28, 2017 Period Danske Bank Consensus Previous

0:50 JPY Industrial production, preliminary m/m|y/y Nov 0.5%|3.6% 0.5%|5.9%

0:50 JPY Retail trade m/m|y/y Nov 0.7%|1.0% -0.1%|-0.2%

8:00 NOK Retail sales, s.a. m/m Nov 0.8% 1.0% -0.2%

9:30 SEK Trade balance SEK bn Nov -2.0 -3.1

10:00 EUR ECB Publishes Economic Bulletin

14:30 USD Initial jobless claims 1000 245

14:30 USD Advance goods trade balance USD bn Nov -67.5 -68.1

15:45 USD Chicago PMI Index Dec 61.8 63.9

17:00 USD DOE U.S. crude oil inventories K -6495

Friday, December 29, 2017 Period Danske Bank Consensus Previous

9:00 ESP HICP, preliminary m/m|y/y Dec 0.2%1.5% 0.3%|1.8%

9:30 SEK Wages (blue collars/white collars) y/y Oct 2.3%

9:30 SEK Household lending y/y Nov 7.0% 7.1%

10:00 NOK Norges Bank's daily FX purchases m Jan -900

10:00 EUR Money supply (M3) y/y Nov 4.9% 5.0%

10:00 EUR Loans to households (adj. for sales and sec.) % Nov 4.9% 5.0%

10:00 EUR Loans to NFCs (adj. for sales and sec.) % Nov 4.9% 5.0%

14:00 DEM HICP, preliminary m/m|y/y Dec …|1.6% 0.6%|1.4% 0.3%|1.8%

The editors do not guarantee the accurateness of figures, hours or dates stated above

For furher information, call (+45 ) 45 12 85 22.

14 | 22 December 2017 www.danskeresearch.com

Weekly Focus

Calendar

Source: Danske Bank

Key Data and Events in Week 1

During the week Period Danske Bank Consensus Previous

Sun 31 CNY PMI manufacturing Index Dec 51.7 51.8

Sun 31 CNY PMI non-manufacturing Index Dec 54.9 54.8

Monday, January 1, 2018 Period Danske Bank Consensus Previous

Tuesday, January 2, 2018 Period Danske Bank Consensus Previous

2:45 CNY Caixin PMI manufacturing Index Dec 50.7 50.8

8:30 SEK PMI manufacturing Index Dec 63.0 63.3

9:00 NOK PMI manufacturing Index Dec 57.1

9:15 ESP PMI manufacturing Index Dec 56.3 56.1

9:45 ITL PMI manufacturing Index Dec 58.5 58.3

9:50 FRF PMI manufacturing, final Index Dec 59.3 59.3

9:55 DEM PMI manufacturing, final Index Dec 63.3 63.3

10:00 EUR PMI manufacturing, final Index Dec 60.6 60.6

10:30 GBP PMI manufacturing Index Dec 58.8 57.8 58.2

15:30 CAD RBC manufacturing PMI Index Dec 54.4

15:45 USD Markit PMI manufacturing, final Index Dec 55.8 55.0

Wednesday, January 3, 2018 Period Danske Bank Consensus Previous

- USD Total vechicle sales m Dec 17.45 17.4

8:00 NOK Unemployment (LFS) % Oct 4.0% 4.0%

9:55 DEM Unemployment % Dec 5.5% 5.6%

10:30 GBP PMI construction Index Dec 53.1 53.1

16:00 DKK Currency reserves DKK bn Dec 464.2 464.2

16:00 USD Construction spending m/m Nov 0.7% 1.4%

16:00 USD ISM manufacturing Index Dec 57.7 58.0 58.2

20:00 USD FOMC minutes

Thursday, January 4, 2018 Period Danske Bank Consensus Previous

1:30 JPY Nikkei Manufacturing PMI, final Index Dec 54.2

2:45 CNY Caixin PMI service Index Dec 51.9

8:00 DKK Confidence indicator, industry, s.a. Net balance Dec 2

8:30 SEK PMI services Index Dec 62.0 61.8

9:15 ESP PMI services Index Dec 54.7 54.4

9:45 ITL PMI services Index Dec 54.7 54.7

9:50 FRF PMI services, final Index Dec 59.4 59.4

9:55 DEM PMI services, final Index Dec 55.8 55.8

10:00 EUR PMI composite, final Index Dec 58.0 58.0

10:00 EUR PMI services, final Index Dec 56.5 56.5

10:30 GBP Mortgage approvals 1000 Nov 64.1 64.6

10:30 GBP PMI services Index Dec 53.8 54.1 53.8

10:30 GBP Broad money M4 m/m|y/y Nov 0.6%|4.1%

11:00 NOK House price report m/m Dec 4.0% 4.0%

14:15 USD ADP employment 1000 Dec 190 190

14:30 USD Initial jobless claims 1000

15:45 USD Markit PMI service, final Index Dec 53.8 52.4

17:00 USD DOE U.S. crude oil inventories K

19:30 USD Fed's Bullard (non-voter, dovish) speaks

15 | 22 December 2017 www.danskeresearch.com

Weekly Focus

Calendar (continued)

Source: Danske Bank

Friday, January 5, 2018 Period Danske Bank Consensus Previous

1:30 JPY Markit PMI services Index Dec 51.2

8:00 DKK CB's securities statistics Nov

8:00 DKK Foriegn portfolio investments Nov

8:00 DKK Forced sales (s.a.) Number Dec

8:00 DKK Bankruptcies (s.a.) Number Dec

8:00 NOK Credit indicator (C2) y/y Nov 5.7%

8:00 DKK Gross unemployment s.a. K (%) Nov 4.3% 116 (4.3%)

8:00 DEM Retail sales m/m|y/y Nov 1.0%|2.2% -1.0%|-1.4%

8:45 FRF Consumer confidence Index Dec 103.0 102.0

8:45 FRF HICP, preliminary m/m|y/y Dec 0.4%|1.3% 0.1%|1.2%

11:00 EUR PPI m/m|y/y Nov 2.5%|0.3% 2.5%|0.4%

11:00 EUR HICP - core inflation, preliminary y/y Dec 1.0% 1.0% 0.9%

11:00 EUR HICP inflation, preliminary y/y Dec 1.4% 1.4% 1.5%

11:00 ITL HICP, preliminary m/m|y/y Dec -0.2%|1.1%

14:30 USD Unemployment % Dec 4.1% 4.0% 4.1%

14:30 USD Average hourly earnings, non-farm m/m|y/y Dec 0.3%|2.5% 0.3%|2.5% 0.2%|2.5%

14:30 USD Non farm payrolls 1000 Dec 185 185 228

14:30 USD Trade balance USD bn Nov -47.4 -48.7

14:30 CAD Net change in full time employment 1000 Dec 29.6

16:00 USD Core capital goods orders, final % Nov

16:00 USD ISM non-manufacturing Index Dec 57.3 57.4

The editors do not guarantee the accurateness of figures, hours or dates stated above

For furher information, call (+45 ) 45 12 85 22.

16 | 22 December 2017 www.danskeresearch.com

Weekly Focus

Disclosures This research report has been prepared by Danske Bank A/S (‘Danske Bank’). The author of this research report is

Louise Aggerstrøm Hansen, Senior Analyst.

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Calculations and presentations in this research report are based on standard econometric tools and methodology as

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See the front page of this research report for the date of first publication.

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17 | 22 December 2017 www.danskeresearch.com

Weekly Focus

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Report completed: 22 December 2017, 12:15 GMT

Report first disseminated: 22 December 2017, 12:30 GMT