Macro & FICC research

Week Ahead Friday, 24 Apr 2020

Central bank week: More Riksbank QE, but no cuts Global outlook: Collapsing oil prices added new market strain this week as some investors had to quickly get out of May WTI contracts to avoid physical deliveries (more here). On the virus front, there were further signs of flattening curves which together with signals of lockdown fatigue will increase pressure for a gradual reopening. Global PMI:s for April highlighted the grim economic effects of restrictions in place, though the US manufacturing sector managed to stay slightly above the GFC trough. More information on the state of US industry will be found in the upcoming ISM report. Otherwise, focus will be on Q1 GDP data for the US and Euro area and central bank decisions from the Fed and the ECB. For the US, we see downside risks to Q1 growth compared to consensus given the collapse in activity in the last two weeks of the quarter. Admittedly, correctly capturing developments that late in the quarter may be a challenge for statistical bureaus which means that the full extent of the damage may only turn up in revised data. As regards the Fed, there is no need for the central bank to present new measures given that it is now rolling out new policy as needed and already operates with unlimited QE. The press conference may still force Chairman Powell to give some clarity on the intentions going forward. We expect the Fed to continue to reduce the size of its QE purchases, but see it as too early for the Fed to indicate a size for its monthly purchases. Still, the Fed’s balance sheet will continue to expand to over 10tn USD by the end of the year or around 50% of GDP. The ECB will repeat that purchases can be increased if needed, but it is unlikely that the bank will specify an explicit increase already now. The ECB will get questions regarding the rapid rise in Euribor fixings and what the bank will do about them. Without extending asset purchases to unsecured bank credit, the ECB does not seem to have an easy way to fix the problem. Easiest way to support the market would be to move to buy the short term government debt and reduce the duration of its government bond portfolio.

Nordic outlook: Focus in Sweden will be on the Riksbank rate decision, Tuesday. We expect the Riksbank to double its QE program to SEK 600bn in 2020 and keeping the program open-ended, with purchases to continue for as long as necessary. We also expect the board to remove the 20bps higher rate in its repo rate path. However, the repo rate will be left unchanged at zero (more here). According to the SEB Investor survey most participants (59%) expect the next step to be a hike, with FI investors more skewed to a cut (47%) in line with market pricing. As regards QE, a clear majority of FX respondents expect more QE, while FI investors do no (more here). In Norway, the registered jobless rate seemingly peaked by the end of March and the rate will gradually fall when people currently laid off are being re-employed as activity picks up.

Elisabet Kopelman Economist Tel: +46-70-655 3017 Elisabet.kopelman@seb.se

The Fed’s balance sheet is skyrocketing

SEB investor survey split on more QE

Macro & FICC research: Week Ahead Friday, 24 April 2020 2

Key Economic Indicators & Events: 27 Apr – 3 May, 2020 Due to US government shutdown many US calender events are cancelled. If the shutdown ends. US indicators not included in this calender could be presented.

Date CEST Country Event Period SEB forecast* Consensus* Last*

Mon 27 Auctions: U.S. to sell 2y notes (19:00), U.S. to sell 5y notes (19:00). Reports: SSAB, Bayer, Swedish Match. Other: Riksbank weekly extraordinary market operation.

03:30 CHI Industrial profits yoy Mar --- --- 12:00 SWE PES weekly notice data 0.0 0.0 16:30 US Dallas Fed manf. activity Apr -75.0 -70.0 TBD JAP BOJ policy balance rate -0.1 -0.1 Tue 28 Auctions: U.K. to sell 9y bonds (11:00), U.K. to sell 8y linkers (11:30), U.K. to sell 8y bonds (12:30), U.S. to sell 2y FRNs (17:30), U.S to sell 7y notes (19:00).

Reports: ABB, JM, Alphabet, Ford Motor, Banco Santander Spain, BP, Starbucks, Merck & Co, Telenor, UBS group, Novartis. 01:30 JAP Job-to-applicant ratio | jobless rate Mar 1.4 | 2.5 1.45 | 2.4 08.00 NOR Retail sales ex. autos | Goods consumption Mar -6.3/-8.0 | -5.2 ---/--- | --- 2.0/2.1 | 1.8 08:45 FRA Consumer confidence Apr --- 103.0 09:30 SWE Riksbank interest rate I QE Apr 28 0.00 | SEK 600bn 0.00 0.00 | SEK 300bn 09:30 SWE Trade balance Mar SEK -2.0bn --- SEK 13.2bn 09:30 SWE Retail sales Mar -3.0/-1.0 --- 0.2/2.8 14:30 US Advance goods trade balance Mar USD -55.0bn USD -59.9bn 14:30 US Wholesale inventories mom Mar P --- -0.7 15:00 US S&P CoreLogic CS 20-city Feb 0.4/--- 0.3/3.08 16:00 US Conf. board consumer conf. | expect. | present sit. Apr 80.0 | --- | --- 87.8 | --- | --- 120.0 | 88.2 | 167.7 16:00 US Richmond Fed manufact. index Apr -35.0 2.0 Wed 29 Auctions: U.K. to sell 4y bonds (11:00), Norway sells bonds (11:00), Germany to sell 0% 2030, U.K to sell 29y bonds (12:30). Speeches: Riksbank's Breman

to speak on monetary policy and corona crisis (10:00). Powell holds post-FOMC meeting press conference (20:30). Reports: SEB, Nordea, ICA Gruppen, Skanska, Hexagon, AstraZeneca, Millicom, Volkswagen, Deutsche Bank, Sydbank, Finnair, Airbus, Facebook, General Electric, Spotify Technology, Tesla, GlaxoSmithKline. Other: Norges Bank’s Regional Network Report, phone survey (10.00), DOE U.S. crude oil inventories (16:30), EA: consumer confidence (final).

09:15 SWE NIER forecast, update of Economic Tendency Survey 0.0 0.0 09:30 SWE Household lending yoy Mar 5.1 --- 5.2 09:30 SWE Wages non-manual workers yoy Feb --- 2.8 10:00 EA M3 money supply yoy Mar 5.5 5.5 11:00 EA Economic confidence | industrial |services Apr 75.0 | -20.0 | --- 75.0 | -25.0 | -26.5 94.5 | -10.8 | -2.2 13:00 US MBA mortgage applications --- -0.3 14:00 GER CPI | CPI EU harmonized Apr P 0.1/0.6 | 0.1/0.5 0.1/1.4 | 0.1/1.3 14:30 US GDP annualized qoq | GDP price index Q1 A -8.0 | --- -3.7 | 0.9 2.1 | 1.3 14:30 US Personal consumption | core PCE qoq Q1 A -1.3 | --- 1.8 | 1.3 16:00 US Pending home sales Mar -12.5/--- 2.4/11.5 20:00 US FOMC rate decision upper bound | lower bound 0.25 | 0.0 0.25 | 0.0 0.25| 0.0 Thu 30 Auctions: Sweden to buy SGB1061 and SGB1056. Reports: Amazon, Apple, Twitter, Visa, Kellogg, Gilead Sciences, Norwegian Finans Holding, Total, Danske

Bank, Nokia, Deutsche Lufthansa, Southern Energy, BASF, Nemetschek SE. Other: Swedish markets close at noon. 01:50 JAP Retail sales | industrial production Mar -4.3/-4.6 | -5.0/-7.3 0.6/1.7 | -0.3/-5.7 03:00 CHI PMI composite | manufacturing | non-manufacturing Apr --- | 51.0 | 52.8 53.0 | 52.0 | 52.3 07:00 JAP Housing starts yoy Mar -16.3 -12.3 07:00 JAP Consumer confidence index Apr 31.5 30.9 07:30 FRA GDP qoq/yoy Q1 P -4.0/-3.1 -0.1/0.9 08:00 GER Retail sales Mar -10.5/-5.0 1.2/6.4 08.00 NOR Credit growth | households | businesses Mar --- --- 4.8 | 4.9 | 4.0 08:45 FRA CPI | CPI EU harmonized Apr P -0.2/0.2 | -0.2/0.1 0.1/0.7 | 0.1/0.8 09:55 GER Unemployment change (000's) | claims rate SA Apr 50k | 5.2 1.0k | 5.0 10.00 NOR Norges Bank’s daily FX purchases May NOK -2000mn --- NOK -2000mn 11:00 EA Unemployment rate Mar 7.6 7.7 7.3 11:00 EA GDP SA qoq/yoy Q1 A -4.0/-3.5 -3.8/-3.3 0.1/1.0 11:00 EA CPI mom | CPI core yoy Apr P 0.0 | 0.7 0.1 | 0.7 0.7 | 1.0 13:45 EA ECB rate decision main | marginal lending | depo 0.0 | 0.25 | -0.5 0.0 | 0.25 | -0.5 0.0 |0.25 | -0.5 14.00 NOR Registered unemployment rate, NSA Apr 10.0 --- 10.7 14:30 CAN GDP Feb 0.0/1.7 0.1/1.8 14:30 US Personal income | spending | real spending Mar -1.3 | -4.2 | -1.8 0.6 | 0.2 | 0.1 14:30 US PCE deflator | PCE core deflator Mar -0.4/1.2 | -0.2/1.5 0.1/1.8 | 0.2/1.8 14:30 US Initial jobless claims | continuing claims 3250k | --- 4427k | 15976k 14:30 US Employment cost index Q1 0.7 0.7 15:45 US MNI Chicago PMI Apr 40.0 47.8 Fri 1 Reports: Honeywell International. Other: JAP: PMI manuf. (final), UK: PMI manuf. (final), Swedish markets closed, Norwegian markets closed.

01:30 JAP CPI yoy | ex. fresh food | ex. fresh food energy Apr 0.2 | 0.1 | 0.5 0.4 | 0.4 | 0.7 15:45 US PMI manufacturing (Markit) Apr F --- 36.9 16:00 US Construction spending mom Mar -3.6 -1.3 16:00 US ISM manuf. | new orders | employment Apr 35.0 | --- | --- 36.7 | --- | --- 49.1 | 42.2 | 43.8 * % MoM/YoY unless otherwise stated. Lara.mohtadi@seb.se

Macro & FICC research: Week Ahead Friday, 24 April 2020 3

NOR: Retail sales (Mar) Tuesday 28, 08.00

%mm/yy SEB Cons. Prev.

Retail sales ex. autos (vol) -6.3/-8.0 ---/--- 2.0/2.1 Household goods consumption -5.2 --- 1.8 • The containment measures implemented on March 12 resulted

in an almost instant shutdown of the economy, and household consumption is likely to have dropped significantly as people has stayed at home voluntarily or due to quartantines.

• Data from shopping malls shows growth dropped more than 30% y/y in the final two weeks in March. Clothes and shoes sales fell most in addition to goods related to house and home, while food and beverages were broadly unchanged.

• We forecast a monthly drop in retail sales ex. autos of slightly more than 6% in March.

• Statistics Norway’s preliminary data for Q1 shows that household consumption is estimated to have dropped 12% m/m in March, with services -13% and goods consumption -5%. Full-year growth in household consumption is estimated to have plunged 9.8% in 2020.

SWE: Riksbank rate decision (Apr) Tuesday 28, 09.30

% SEB Cons. Prev.

Repo rate 0.00 0.00 0.00 • The Riksbank is going to make massive downward revisions to

the growth and labour market forecasts. The Riksbank will predict a firm rebound but highlight risks for more persistent effects on the economy.

• The inflation forecast will be lowered significantly, but the Riksbank will continue to predict that inflation will return to target at the end of the forecasting period.

• Main scenario (60%): Riksbank keeps repo rate unchanged but announces an expansion of the QE program to SEK 600bn. Also, the Riksbank will commit to extend the programme for as long that is needed.

• Risk scenario (30%): Riksbank cuts rate by 25bps. • Risk scenario (10%): The Riksbank does not present any new

monetary policy measures, but says it stands ready to do more if needed.

• We expect the 20bps chance for a rate hike will be removed from the repo rate forecast.

SWE: Trade balance (Mar) Tuesday 28, 09.30 SEK bn SEB Cons. Prev.

Trade balance -2.0bn --- 13.2bn • The trade balance has been strong in the beginning of the

year with firm exports growth in January and February. • The corona crisis most likely started to have an impact in

March, but the extent of the downturn will not become evident until in April and May.

• The trade balance is likely to drop with very large declines for both exports and imports.

Macro & FICC research: Week Ahead Friday, 24 April 2020 4

SWE: Retail sales (Mar) Tuesday 28, 09.30 % mom/yoy SEB Cons. Prev.

Retail sales -3.0/-1.0 --- 0.2/2.8 • Sentiment in the retail sector plunged in April to slightly

above the lowest level since the financial crisis. Sentiment for retailers of food increased to a new all-time high, while sentiment among other retailers declined to a new all-time low.

• The corona crisis seems to have had a significant impact on retail sales already in March with sales of clothes and shoes reportedly declining by 39% and 47% y/y respectively.

• Food sales are likely to work in the opposite direction with foods sales increasing by 10% y/y according to food chains.

• There are also reports that sales of goods for home improvement have increased.

• Retail sales are predicted to decline by 3% in March with significantly more downward pressure probable in April.

NOR: Registered unemployment Tuesday 28, 14.00

% of labor force, monthly/latest weekly SEB Cons. Prev.

Registered unemployment, NSA 10.0 --- 10.7/10.2 Incl. government schemes and part-time --- --- 14.7/15.5 • Since the March data was published there has been two

weekly releases of unemployment data. The registered jobless rate seemingly peaked on Mar 31 and the latest data showed a second consecutive weekly decline to 10.2%. Applications for unemployment benefits has declined further over the past week, suggesting another slight drop in the jobless rate. We forecast a jobless rate of 10.0% (NSA).

• The overall jobless rate, which includes people on government shcemes and those part-time unemployed, was 14.7% in March. The unemployment rate rose further to 15.5% on Apr 7 before sliding to 15.3% on Apr 21.

• Almost 90% of the rise in unemployment reflects layoffs. Many of those are expected to be re-employed when the restrictions are reduced, leading to a reversal in the jobless rate.

• NAV did not publish any seasonal-adjusted data in March.

US: Conf. Board, Consumer confid. (Apr) Tuesday 28, 16.00

Index SEB Cons. Prev.

Consumer confidence 80 87.8 120 • The March CCI did not really capture what is happening to the

economy, as the survey period ended before job losses (as measured by jobless claims) started to spike. The preliminary Michigan sentiment survey for April, which was released in the beginning of the month, fell at a record fast pace. This is likely to be mirrored in the CCI as well and given that conditions have continued to deteriorate we expect the fall in the CCI to be even larger, driven by deteriorating labour market expectations.

• Declining confidence will make consumers cautious to increase spending when the economy gradually starts to open up again, prolonging the recession.

Macro & FICC research: Week Ahead Friday, 24 April 2020 5

SWE: Household lending (Mar) Wednesday 29, 09.30 % yoy SEB Cons. Prev.

to households 5.1 --- 5.2 to non-financial corporations --- --- 4.6

• Household lending has trended lower since the beginning of

2018 but has been stable since the middle of last year. • We predict home prices to decline by -5 - -10% (clear

downside risks) this year and lower turnover in the housing markets will exert downward pressure on lending. Lower amortisations will work in the opposite direction.

• Our main forecast is that lending growth will slow to 2-3% y/y, but uncertainty is large and risks are on the downside.

Euro area: ESI (Mar) Thursday 29, 11.00

% mom / yoy SEB Cons. Prev.

Economic confidence 75.0 75.0 94.5 Industrial confidence -20.0 -25.0 -10.8 Sevices confidence -26.5 -2.2 • The Europe wide sentiment survey will not give any news,

rather confirming how bad things will be. Indeed, the Istat have suspended its regular survey so some parts may be missing.

• Our main take here will be to focus on mainly country specific differences and secondly sectoral differences. However, the nature of the questions, i.e. if things are expected or assessed to be worse, better or the same surely will point in only one direction. But at the same time, it is difficult to assess the quantitative impact on for example GDP from the responses.

US: GDP Q1 Wednesday 29, 14.30

% SEB Cons. Prev.

GDP annualised q/q -8 -3.7 2.1 Personal consumption -- -1.3 1.8

• The growth effects of the coronacrisis will be most visible in

Q2 GDP, which may contract by a near record 40% AR. • Q1 got off to a strong start as sentiment recovered from

trade uncertainty and with a strong rebound in construction activity while business investments has remained weak. The sharp halt in the latter part of March, when restrictions began to roll out, will however weigh already on Q1. We expect this to result in a decline almost on par with the worst quarters in the 2008-2009 recession.

• Retail sales fell by a record pace in March, driven by collapsing sales of services and autos, while other goods consumption was supported by rising food sales. Plunging imports will contribute positively to net trade.

Macro & FICC research: Week Ahead Friday, 24 April 2020 6

US: FOMC meeting Wednesday 29, 20.00

% SEB Cons. Prev.

Fed funds rate (upper bound) 0.25 0.25 0.25 • During the coronacrisis the Fed has taken unparallelled steps

to support the economy: Cut rates to near zero, launched unlimited QE, boosted USD liquidity and initiated programs worth 2.3tn USD to support the flow of credit incl. buying CP/ corporate bonds and financing lending to businesses, state/local government.

• Given this there is no need for decisions at the regular policy meeting. However, at the press conference Powell will get questions on QE, details on its lending programs and possible further steps. We expect the Fed’s balance sheet to exceed USD 10tn (50% of GDP) by YE 2020. The Fed has gradually cut the size of its purchases, with treasuries down from USD 75bn/day to USD 15bn (around USD 300bn/month excl. agencies). We expect Fed to slow the pace of QE in H2, but believe it is too early to indicate a size for monthly purchases.

NOR: Credit growth (Mar) Thursday 30, 08.00

% yy SEB Cons. Prev.

Credit growth --- --- 4.8 Households | Businesses --- | --- --- | --- 4.9 | 4.0 • Household credit growth has trended lower since the start of

2017 and has been close to 5% y/y since mid-2019. • In Norges Bank’s lending survey banks reported that

household credit demand fell somewhat in Q1, and banks expect a record-large fall in demand in Q2.

• The mortgage lending regulation has temporarily been eased, allow 20% of banks’ lending to deviate from the regulation. However, this is related to households who are struggling due to e.g. layoffs rather than new loans. An extention of the higher flexibility quota is under consideration.

• Credit demand from non-financial corporations declined in late 2019. According to the lending survey, demand for new loans have declined but there has been a substantial increase in corporate borrowing against existing credit lines.

Nor: Norges Bank FX purchases (May) Thursday 30, 10.00

SEB Cons. Prev.

Daily FX purchases (NOK mn) -2000 --- -2000 • As a consequence of the coronavirus Norges Bank has rapidly

expanded NOK-purchases in March and April from NOK 500mn/day to NOK 2000mn/day in April.

• This is because lower revenues and higher spending has increased the budget deficit significantly.

• Most likely NOK-purchases are frontloaded and we expect them to be temporary.

• Our calculations suggest that purchases are lowered to NOK 1 500mn/day from Sept and to NOK 1 000mn/day in Dec.

• Although calculations may suggest that government spending may exceed the return on the oil fund, for the first time ever, we believe this is not the case yet. The NOK weakness since the corona crisis erupted has probably boosted the NOK-value of the income flows from the oil fund enough for it to cover the current deficit.

• However, would the budget deficit widen further this increase will probably be fully funded by divestment of the oil fund.

Macro & FICC research: Week Ahead Friday, 24 April 2020 7

Euro area: CPI, flash estimate (Apr) Thursday 30, 11.00 % yy SEB Cons. Prev.

CPI 0.0 0.1 0.7 Core 0.7 0.7 1.0 • The April reading is highly likely to be affected by partial price

collections and, instead, imputed values will have to be included in the HICP measure. If this will make it more difficult to present a flash estimate remains to be seen.

• We believe core inflation will drop somewhat in the near term as the negative demand shock could extend sales and discounts. Food prices could go down, but supply disruptions are likely to create an upward pressure in next few months.

• From a monetary policy perspective focus is solely on fighting the current stage of this crisis, hence inflation numbers will be of second order.

Euro area: Unemployment (Mar) Thursday 30, 11.00

% SEB Cons. Prev.

Unemployment 7.6 7.7 7.4 • The trend we have seen over the past five years is about to

change dramatically. The ongoing corona crisis will have a large impact on the labour market and we see the unemployment rate rising to well above 10% in the next six months.

• From that perspective the March numbers are partly obsolete when they are published, only confirming how much or how little the labour forces survey has been affected by the current crisis. As there is a natural time lag from deteriorating demand and higher unemployment we expect littly to change in the March numbers.

EMU: GDP (Q1) Thursday 30, 11.00

% mom / yoy SEB Cons. Prev.

q/q & y/y -4.0 / -3.5 -3.8/-3.3 0.1 / 1.0 • The flash estimate of GDP will indeed be very uncertain. Not

only is a regular flash estimate only based on a portion of the final underlying data, lacking the this time crucial end of the month. This time end-quarter data is not only weak but also probably more difficult to actually measure.

• We know January and February started well off, and that the unprecedented drop in production and demand happened in the latter half of March. Hence, with few data points available for March, without any methodological magics, the flash estimate should point towards a too strong numbers and thereby be prone to revision (lower).

• Before the euro area number is published we will get French (Oct 30 07.30) and Spanish numbers (Oct 31 09.00). Italian numbers are due Oct 31 (12.00). The German numbers are not published until Nov 14.

Macro & FICC research: Week Ahead Friday, 24 April 2020 8

EA: ECB rate decision (Apr) Thursday 30, 13:45

SEB Cons. Prev.

Main refi-rate I deposit rate 0.0 I -0.5 0.0 I -0.5 0.0 I -0.5

• Under the already announced programmes, the ECB’s net asset purchases total EUR 1110bn in 2020. Assuming a linear distribution, this equals around EUR 112bn / month between mid-March and end-December.

• We expect the ECB to repeat that purchases can be increased if needed but regard it as unlikely that the bank would specify an explicit increase already now.

• The ECB needs to address the rise in Euribor rates, but the solution is more complicated. The easiest way to support banks’ unsecured funding would be to increase government bond purchases in the very short maturities and expand the corporate bond purchase program to include banks.

• Nothing stops the ECB from buying the 1-2y sector already now, but buying bank credit is unlikely. Therefore, the ECB just needs to keep adding liquidity and hope that investors increase the demand for bank credit enough.

US: ISM manufacturing (Apr) Friday 1, 16.00

SEB Cons. Prev.

ISM manufacturing New orders Employment

35.0 -- --

36.7 -- --

49.1 42.2 43.8

• Coronarelated shut-downs have especially hurt the service sector but also activity in industry has been hard hit. Regional manufacturing surveys (Empire and Philadelphia Fed) fell to historical lows in April. However, these regions are among the most affected by the virus, which suggests a somewhat less severe development for national measures.

• The flash PMI manufacturing fell to the lowest levels since Mar 2009, but remained above the GFC trough. We expect a similar outcome for the ISM manufacturing. Supply side restrictions, leading to higher delivery times, contributed positively to the manufacturing PMI in March, thereby masking some of the underlying weakness. This is an upside risk for the headline ISM index as well.

Macro & FICC research: Week Ahead Friday, 24 April 2020 9

Disclaimer

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