Important disclosures and certifications are contained from page 14 of this report. www.danskeresearch.com

Investment Research — General Market Conditions

Market Movers ahead

The most important event in the Nordics is the Riksbank’s announcement on Tuesday

at 09:30 CET. Although we expect the Riksbank to stay on hold, we expect it remove

the small rate cut probability in the updated rate path.

In Denmark, the FX reserves data for June is due out on Tuesday, which we expect to

show that Danmarks Nationalbank did not intervene.

In Norway, it will be interesting to see whether house prices continued to fall in June

given that they fell the most since the financial crisis in May.

In the US, several important releases are due out. Most important are the jobs report for

June, ISM manufacturing, the FOMC meeting minutes and FOMC speeches.

In the euro area, the unemployment rate for May is due out on Monday.

Global macro and market themes

Central banks are beginning to discuss ‘when to leave the party’.

Interestingly, both Mark Carney and Mario Draghi argue that a constant monetary

policy is becoming more accommodative as the economy continues to recover.

There is a risk that central banks are too optimistic, as inflation expectations remain

low.

Mario Draghi let the stimulus exit genie out of the bottle and we expect EUR/USD to

move higher in 12M.

Focus

Emerging Markets Briefer: June 2017

FX Strategy: ECB has let EUR/USD out the bottle

Weekly Focus will be taking a break until Friday 4 August.

30 June 2017

Editor Mikael Olai Milhøj +45 45 12 76 07 milh@danskebank.dk

Weekly Focus

Will Riksbank follow suit and remove rate cut probability?

Contents

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

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

Scandi update ....................................................... 8

Latest research from Danske Bank

Markets .................................................................... 9

Macroeconomic forecast ........................... 10

Financial forecast ............................................ 11

Calendar ................................................................ 12

Financial views

Source: Danske Bank

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@Danske_Research

More hawkish central banks despite

low inflation expectations

Will Riksbank remove its rate cut

probability?

Source: Bloomberg Source: Macrobond Financial

Major indices

30-Jun 3M 12M

10yr EUR swap 0.89 0.85 1.15

EUR/USD 114 113 118

ICE Brent oil 48 53 61

30-Jun 6M 12-24M

S&P500 2420 5 -10% 10-15%

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Market movers

Global

In the US, the most important data release next week will be the labour market report

for June, due to be released on Friday. Progress in the labour market slowed somewhat

in the first five months of 2017 compared to 2016, with an average monthly increase in

non-farm payroll of 162,000 compared to 187,000 in 2016. Whether or not this is a

permanent slowdown in job growth remains to be seen. However, we believe that we

could see a decent number for June as the ADP employment figures showed stronger

job creation in May than the non-farm payroll and there is a tendency for the numbers

to correct for differences. Thus, we estimate that employment rose 180,000 in June with

the service sector as the main contributor with an expected monthly increase of 150,000

and manufacturing contributing 15,000. The unemployment rate has fallen from 4.8%

in January to 4.3% in May. However, a large part of this fall has been driven by falling

labour market participation and as we do not expect this to continue, we estimate the

unemployment remained unchanged at 4.3% in June. Note, however, that if the

participation rate starts increasing again we may see unemployment rise and this should

not be interpreted as labour market weakness. Finally, we expect average hourly

earnings increased 0.3% m/m, which would imply an increase of 2.6% y/y. Note that

we will get a first impression of labour market strength on Thursday when we receive

the ADP employment figures for June.

On Monday, ISM manufacturing for June is due to be released. Manufacturing PMI

suggests further decreases in ISM, which is also still too high in our view. Thus, we

estimate ISM manufacturing fell to 54.0 in June. Finally, the minutes from the FOMC

meeting in June are due out on Wednesday. We will pay attention to these as they may

shed some light on when the Fed is planning to start quantitative tightening.

The coming week also brings a number of speeches by FOMC members.

In the euro area, the first release of interest will be the unemployment rate for May on

Monday. The figure declined further to 9.3% in April, which is the lowest level since

2009. However, the actual unemployment rate is still above the estimate of its structural

level (NAIRU) and wage growth in the euro area remains very subdued. This reflects a

large amount of labour market slack, which the ECB has argued amounts to around

18% of the extended labour force. Hence, although the actual unemployment rate is set

to continue to decline in coming months it is likely to take some time before wage

growth picks up.

On Wednesday, the euro area retail sales figures for May are due to be released. In

monthly terms, retail sales have increased for four consecutive months, implying that

the yearly growth rate remains at a fairly high level. This is consistent with the low

unemployment rate and high consumer confidence in the euro area but in contrast with

the decline in real wage growth, which turned negative in Q1 due to a sharp rise in

inflation. We expect the higher inflation to weigh on consumers’ wallets and hence

growth in private consumption should become a less important growth driver.

Thursday will bring the account of the ECB meeting in June, when the ECB changed

its forward guidance on policy rates as it no longer expects these to go to ‘lower levels’.

These accounts have sometimes contained some interesting information but this time it

is likely to be a bit outdated. This is due to Mario Draghi’s hawkish comments earlier

this week where his focus was on stronger growth instead of a lack of underlying

inflation pressure, and where he suggested that in order to keep the effective policy

Labour market progress has slowed

Source: BLS

Negative real wage growth weighs on

consumers’ wallets

Source: ECB, Eurostat, EU Commission, Danske

Bank Markets

Draghi focused on strong GDP growth

– not lack of underlying price pressure

Source: Eurostat, Danske Bank Markets

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stance unchanged, policy measures could not stay constant as the economy picks up.

Later on Thursday, two of the hawkish ECB members, Jens Weidmann and Ewald

Nowotny, are due to discuss the future of the euro.

German factory orders and industrial production for May are due to be released on

Thursday and Friday, respectively. German orders have not shown the same strength as

the survey-based economic indicators and it remains to be seen whether the big gap

between ‘hard’ and ‘soft’ data will be closed by a pickup in hard data or a correction in

the survey-based figures. We believe that the weakness witnessed in the US and China

will soon spill over to the euro area, resulting in a slowdown in the survey-based

economic indicators.

In the UK, focus remains on Brexit and the political situation, but the coming week also

brings a few important data releases. On Wednesday, service PMI for June is due out.

Given the small decline in the confidence indicator for the service, we may see a small

decline in the service PMI as well. We estimate a fall to 53.2 from 53.8. Manufacturing

production for May is due to be released on Friday. Manufacturing production been

weak recently, which is a cause for concern given that we may also see headwinds for

the service sector due to the falling real wages. These headwinds are already beginning

to make their way into GDP growth, according to the NIESR GDP estimate, which is

usually a good indicator of actual GDP growth. On Friday, the June numbers are due

out and unless we get a very strong print, GDP growth is likely to have remained weak

in Q2.

In China, we estimate the PMI will be largely unchanged after two months of

significant falls. The general trend is down, however, so it is possible that there will be

a further drop in June. Friday’s currency reserves data will presumably also show little

change, as there has been no notable intervention in June.

GDP growth most likely weak in Q2

Source: ONS Database, NIESR

Manufacturing PMI falling since

February

Source: Macrobond Financial

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Scandi

In Denmark, currency reserves data are due to be released on Tuesday. The krone has

been strong against the euro in June, but is not back to the levels that triggered

intervention in the FX market in February and March. The Nationalbank has probably

not therefore had to act in June. Friday will bring industrial production and

unemployment for May. We estimate the jobless rate dropped to 4.2% from 4.3% in

April. Also coming up are housing prices for April on Wednesday and bankruptcies

and repossessions for June on Thursday.

In Sweden, the week ahead will be dominated by political circumstances as the

Almedalen week plays out. Given that we are sort of approaching the next parliamentary

elections (September 2018) and the recent combative rhetoric from both the opposition

parties and the (minority) government, there is scope for increased political angst. That

said, the main event is nonetheless the Riksbank monetary policy decision (due to be

published on Tuesday, 09:30 CEST) where all market pundits agree on a’ no change’

decision. There is, admittedly, some market discussion on what the Riksbank will do

with its small downside bias in its near-term interest rate path. We can also see some

advantage in removing the 2-3bps, but it does little or nothing to change our view on

the Riksbank from a longer-term perspective. A day later (Wednesday, 09:30 CEST),

Statistics Sweden is due to release a new round of industrial data (production and

orders), where we expect to see a resumption of earlier, optimistic trends. On Friday,

the Household Consumption Indicator and the Business Production Index for May (at

09.30 CEST) are both due out – both important when weighing up GDP growth for Q2.

In addition, the Swedish National Debt Office is due to publish the Government’s Net

Borrowing Requirements for June simultaneously.

In Norway, housing prices dropped 0.7% m/m in May, the biggest monthly decrease

since the financial crisis, after several years of strong growth. The reason for the market

cooling off is probably a combination of higher homebuilding activity and tighter credit

practices since the new mortgage regulation came in. As long as interest rates remain

relatively low and unemployment is falling, we think the risk of a serious correction in

the housing market is limited. High prices, especially in Oslo, have nevertheless made

the market vulnerable. So, we cannot rule out the possibility of the correction being

enough to have an impact on the real economy through reduced housing investment and

moderate spending growth as a result of higher saving. As Norges Bank largely shared

this risk assessment in the June monetary policy report, the market will be keeping a

sharp eye out for signs of a more serious decline in the property market. Based on

signals from estate agents and banks’ lending activity, we reckon prices will fall 0.7%

m/m again in June, which could well prompt speculation that Norges Bank will need to

provide further stimulus.

Krone stronger against the euro in

June

Source: Statistics Denmark

Come autumn, familiar developments

reappear. Will the Riksbank act?

Source: Statistics Sweden, Riksbank, Macrobond

Financial. Danske Bank calculations.

Housing prices down further

Source: Macrobond Financial, Danske Bank

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Market movers ahead

Source: Bloomberg, Danske Bank Markets

Global movers Event Period Danske Consensus Previous

During the week Fri 07 - 08 G7 G20 leaders meet in Hamburg, Germany

Mon 03-Jul 3:45 CNY Caixin PMI manufacturing Index Jun 49.8 49.6

10:30 GBP PMI manufacturing Index Jun 56.3 56.7

16:00 USD ISM manufacturing Index Jun 54.0 55.0 54.9

Tue 04-Jul 6:30 AUD Reserve Bank of Australia rate decision % 1.50% 1.50% 1.50%

Wed 05-Jul - PLN Polish central bank rate decision % 1.50% 1.50% 1.50%

10:30 GBP PMI services Index Jun 53.2 53.5 53.8

20:00 USD FOMC minutes from June 14 meeting

Thurs 06-Jul 13:30 EUR ECB account of the monetary policy meeting

Fri 07-Jul - G7 G20 meeting starts

- CNY Foreign exchange reserves USD bn Jun 3062.0 3053.6

14:30 USD Unemployment % Jun 4.3% 4.3% 4.3%

14:30 USD Average hourly earnings, non-farm m/m|y/y Jun 0.3%|2.6% 0.3%|2.6% 0.2%|2.5%

14:30 USD Non farm payrolls 1000 Jun 180 179 138

Scandi movers

Mon 03-Jul 8:30 SEK PMI manufacturing Index Jun 59.0 58.8

9:00 NOK PMI manufacturing Index Jun 54.5 54.3

Tue 04-Jul 9:30 SEK Riksbank, rate decision % -0.50% -0.50% -0.50%

16:00 DKK Currency reserves DKK bn Jun 463.9 463.9

Wed 05-Jul 11:00 NOK June house price report m/m Jun -0.7% -0.7%

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Global Macro and Market Themes

Central banks consider leaving the party

More and more central banks are beginning to discuss ‘when to leave the party’ by

removing easing biases and some are even talking about tightening. This has been

fuelled this week by what seems like a coordinated move by ECB President Mario Draghi

and Bank of England Governor Mark Carney, which sent yields on EUR and GBP higher.

It seems like both the ECB and BoE have joined the Fed in its faith in the Phillips Curve,

as Draghi argued that ‘deflationary forces have been replaced by reflationary ones’. This

is also the case in Scandinavia, as Norges Bank removed its rate cut probability entirely

last week (see Norges Bank Review: Cautiously hawkish – steeper FRA curve, limited NOK

upside, 22 June) and we think the Riksbank could follow suit at its upcoming meeting.

Interestingly, both Carney and Draghi argue that a constant monetary policy is

becoming more accommodative, as the economy continues to recover. Theoretically,

they are arguing that they think the so-called natural interest rate (also called ‘r star’ in

economic models) has increased, meaning that the current real interest rate gap (which

determines how easy monetary policy is in modern economic models) has widened. This

means that the central banks need to tighten in order to keep the policy stance unchanged.

However, as we argued as late as in last week’s strategy piece, the risk is that central

banks are too optimistic on inflation. It is not because the Phillips curve is dead but the

tightness of the labour market is not the only factor determining wage growth. While the

labour market continues to tighten, nominal wage growth has not moved much higher,

possibly due to second-round effects. When employees expect inflation to remain low, they

can live with low wage growth, as real wage growth may still be solid. Inflation

expectations are low, especially in the US and the euro area, and we think this is at least

due partly to central banks losing their credibility after having missed their inflation targets

for years. We still believe the ECB is too optimistic on its forecasts for wage growth and

core inflation, which explains why we still believe that the ECB will extend QE but most

likely lower the pace from EUR60bn to EUR40bn. Markets are now pricing in the first

10bp ECB rate hike for autumn next year, which is broadly ‘fair’, in our view.

Low inflation expectations

Source: Bloomberg

Today’s key points

Central banks are beginning to

discuss ‘when to leave the party’.

Interestingly, both Mark Carney and

Mario Draghi argue that a constant

monetary policy is becoming more

accommodative as the economy

continues to recover.

There is a risk that central banks

are too optimistic, as inflation

expectations remain low.

Draghi let the stimulus exit genie out

of the bottle and we expect

EUR/USD to move higher in 12M.

Norges Bank has removed rate cut

probability entirely

Source: Norges Bank, Danske Bank

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The Fed also seems very keen on continuing its hiking cycle despite low actual inflation.

At the latest meeting, Chair of the Fed Janet Yellen said repeatedly that the tighter labour

market will push up wage growth eventually and hence underlying inflationary pressure.

As the Fed seems to be focusing more on the unemployment rate and to some extent easy

financial conditions (driven by higher equity prices), we expect more details on the Fed’s

plan to shrink its balance sheet in September and another rate hike in December.

However, we still think there is a chance the Fed will be forced on pause due to low inflation

(expectations) and wage growth. See FOMC review: Hawkish Yellen ignores inflation and

weaker data, 15 June 2017.

The story is different for the BoE, as inflation is now close to 3% and the unemployment

rate at 4.3%. While our base case remains that it will stay on hold, as we are more

pessimistic on GDP growth and the wage growth outlook than the BoE, the probability of

a rate hike in the second half of the year (most likely in November) has increased. In any

case, the BoE has started tightening already by increasing the counter-cyclical capital buffer

to 0.5% (expected to be raised further to 1.0% in November) and we think the BoE will end

its Term Funding Scheme (effective from February 2018) at the August meeting.

Much more one-sided trading in EUR/USD going forward

In our view, Draghi’s hawkish speech has let the stimulus exit genie out of the bottle.

See FX Strategy: ECB has let EUR/USD out the bottle, 29 June. Whether the ECB extends

QE or whether the first hike is postponed again should matter less for the big picture: Draghi

and co have now delivered the catalyst for the fundamental gravitational pull to kick in.

We no longer expect any material dip in the cross over the summer, and we have

upped our 1M and 3M forecasts to stand at 1.13 (previously 1.11 and 1.09, respectively)

as we see the cross in a range around this level in coming months. For the longer term, our

call remains unchanged and we still expect the cross to edge towards 1.18 in 12M. We have

upped our 6M forecast to 1.15 (previously 1.12) to reflect our belief that the higher ranges

are here to stay.

Financial market views

Source: Danske Bank

Asset class Main factors

Equities

Our short-term trading opportunity stance (0-1 month): Sell on rallies

Our strategy stance (3-6M): Neutral on equities vs cash

Bond market

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

European bond yields will be range trading over the summer and thus we do not expect the sell-off to continue. W e have a signif icant reinvestment need from redemptions in the

European government bond market during July and early August, which will lend support to the European government bond market. Furthermore, we do not expect inflation to rise

into the autumn, and even though GDP growth has surprised on the upside in a number of EU countries, we still expect the ECB to continue the QE into 2018 but at a slower pace.

EU curve – 2Y10Y set to steepen when long yields rise againThe ECB is still keeping a tight leash on the short end of the curve and with 10Y yields stable, the curve should change little on a 3-6M horizon. Risk is skewed towards a steeper

curve earlier than we forecast.

US-euro spread set to widen marginally

The Fed raised rates by 25bp as expected by the market and announced the initial steeps for a QT programme, where the balance sheet is being reduced at a very gradual pace.

Hence, the impact on the Treasury market is expected to be benign. Inflation and inflation expectations are falling in the US and the market is priced for very modest hiking pace. W e

see risk on the upside for the latter.

Peripheral spreads – tightening but still some factors to watch

FX

EUR/USD – no more material dips expected, set to test new highs in H2 The ECB has unlocked upside EUR/USD potential; we no longer look for any substantial downside in the cross. Range around 1.13 near term, but set to move towards 1.20 further out.

EUR/GBP – range-bound but risks tilted for GBP support Sterling caught in undervalued territory during Brexit negotiations but rising risk of an earlier-than-expected BoE hike, which could provoke GBP strength.

USD/JPY – gradually higher longer term BoJ sidelined in central bank exit talk should cap JPY upside for an extended period. The Fed's and the ECB's eagerness to tighten is set to support EUR/JPY and USD/JPY near term.

EUR/SEK – range near term, then gradually lower Gradually lower on fundamentals and valuation longer term but near-term SEK potential limited by the Riksbank.

EUR/NOK – range near term, then gradually lower Headwinds near term due to global weakness and low oil prices but longer term NOK should rebound on valuation, growth and real-rate differentials normalising.

Commodities

Oil price – range-bound, downside risk Downside pressure from bearish fundamentals and stronger USD. Approaching a natural f loor where US producers are forced to scale back on future production increases

Metal prices – range-bound, downside risk Underlying support from consolidation in mining industry, industrial cycle nearing a peak. Downside risk from slowdown in global growth.

Gold price – range-bound Tug of war between geopolitical uncertainty and stronger USD.

Agriculturals – rising again Dry weather creating supply concerns. Shrugging off negative impact of lower oil prices and higher USD.

Economic recovery, ECB stimuli, better fundamentals, particularly in Portugal and Spain and the French elections will lead to further tightening despite the recent strong move. The

EU commision and the Italian Finance Minister have reached an agreement in princple on MPS, and thus a model for banking recapitalisation plans in Italy has been presented.

Furthermore. the risk of an early Italian election has also diminished. Hence, we are entering a summer with stable to tighter spreads between the core and periphery.

After riding high on the Trump trade, we turned more cautious in early April. W e reiterate that position in this update, with a Neutral stance on equities. W e put most cyclical sectors

on Neutral or Underweight and many defensives on Overweight, and we reiterate this as well.

Wage growth is low in the US despite

tighter labour market

Source: BLS

Draghi let EUR/USD out of the bottle

Source: Bloomberg

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Scandi update

Denmark – manufacturers more upbeat

The business tendency surveys for June revealed that Danish manufacturers are more

optimistic than for some time, although the indicator is still far from stratospheric. There

was also an improvement in the construction sector, where confidence is at its highest since

March 2008. Retail sales, meanwhile, were unchanged from April to May. It would

therefore seem that private consumption has made a rather sluggish start to Q2 given that

consumer confidence has been strong and consumer finances have generally been pretty

sound.

Sweden – sloppy analysis, but decent outcomes

We must first ask pardon from our readers since we committed a capital offence in

forecasting, sloppy analysis, in our trade balance forecast last week. Instead of taking into

account the recoil effect in trade in the month following Easter, we assumed – erroneously

– that normal seasonal patterns would apply. Our bad. And we are sorry. That said, it is not

all about the calendar in last week’s data. ‘Underlying’ exports growth has indeed firmed,

something we have been waiting to see for a long time. In addition, retail sales made some

kind of rebound while household credit growth decelerated somewhat. All in all, a bout of

decent outcomes, but still short of having a meaningful impact on our view of the Riksbank.

Norway – spending buoyed by increased purchasing power

After moving more or less sideways since summer 2014, it seems that retail sales are now

picking up. Along with falling unemployment and a general improvement in sentiment, it

is probably increased purchasing power via lower inflation that has been the catalyst for

this upturn. Retail sales climbed 1.3% m/m in May, and while this was probably partly a

rebound from weak Easter numbers, it does seem that the tide has turned. This is very good

news for our forecasts, which are based on private consumption, along with private

investment and mainland exports, compensating for weaker growth contributions from oil

investment and government demand. Private consumption now looks set to make a solid

contribution to GDP growth in Q2.

The labour market is also continuing to tighten. Gross unemployment, our preferred jobless

measure, fell by 1,100 people m/m in June to its lowest since June 2015. A registered

unemployment rate of 2.6% in June means that joblessness in Q2 has panned out more or

less as anticipated by Norges Bank in the June monetary policy report. This indicates that

growth is above trend and capacity utilisation is rising.

Manufacturing confidence back in

positive territory

Source: Statistics Denmark

Sweden – basking in the sun!

Source: Macrobond Financial

Spending on the up

Source: Macrobond Financial, Danske Bank

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Latest research from Danske Bank Markets

29/6 Emerging Markets Briefer: June 2017

Faded reflation story is cooling the EM prospects

23/6 Flash Comment - Trump likely to announce tariffs on steel soon

A change to the US steel policy is likely be announced soon. The announcement will be

important, as it will show whether Trump is siding with his protectionist advisers or the

pragmatic camp in his administration.

10 | 30 June 2017 www.danskeresearch.com

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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 1.3 1.9 -0.1 5.2 -0.4 1.7 2.4 0.3 4.2 -0.9 37.8 7.92017 1.9 2.2 0.9 0.2 0.3 3.7 2.4 1.1 4.3 -1.1 36.4 8.32018 1.7 2.1 0.8 4.1 -0.2 2.4 3.0 1.4 4.3 -0.3 35.0 8.1

Sweden 2016 3.2 2.4 2.9 5.3 0.0 3.5 3.8 1.0 6.9 0.9 41.3 5.12017 1.8 1.5 0.3 4.6 -0.4 3.2 2.8 1.7 6.7 0.3 39.5 5.32018 1.9 1.4 1.6 3.1 0.0 3.3 3.3 1.4 6.6 0.0 39.3 5.2

Norway 2016 0.9 1.6 2.3 0.3 0.3 3.5 -8.2 3.6 3.0 - - -2017 2.0 2.0 2.0 2.6 -0.2 3.5 0.9 2.2 2.7 - - -2018 2.3 2.3 2.0 2.8 -0.1 3.5 2.5 2.0 2.6 - - -

Macro forecast, Euroland

Euroland 2016 1.7 1.9 1.8 3.5 - 2.9 4.0 0.2 10.0 -1.5 89.2 3.32017 1.7 1.4 1.2 4.3 - 4.0 5.5 1.5 9.3 -1.4 90.4 3.02018 1.6 1.2 1.1 3.6 - 3.6 4.0 1.1 8.7 -1.4 89.2 2.9

Germany 2016 1.8 1.8 4.0 2.1 - 2.4 3.6 0.4 4.2 0.8 68.3 8.52017 1.9 1.2 2.4 2.7 - 4.1 5.0 1.7 3.8 0.5 65.8 8.02018 1.9 1.4 1.9 4.4 - 4.0 4.8 1.5 3.8 0.3 63.3 7.6

France 2016 1.1 1.8 1.4 2.7 - 1.2 3.5 0.3 10.1 -3.4 96.0 -2.32017 1.1 1.1 1.2 2.4 - 1.9 4.4 1.2 9.9 -3.0 96.4 -2.42018 1.2 1.0 1.1 3.0 - 3.0 3.5 1.3 9.7 -3.2 96.7 -2.5

Italy 2016 1.0 1.3 0.6 3.1 - 2.6 3.1 -0.1 11.7 -2.4 132.6 2.62017 1.0 0.8 0.7 3.3 - 4.3 4.8 1.6 11.5 -2.2 133.1 1.92018 1.3 0.8 0.7 3.6 - 3.5 3.5 1.2 11.4 -2.3 132.5 1.7

Spain 2016 3.2 3.2 0.8 3.1 - 4.4 3.3 -0.3 19.6 -4.5 99.4 1.92017 2.7 2.4 0.8 3.0 - 4.0 2.9 2.0 17.7 -3.2 99.2 1.62018 2.2 2.0 1.2 4.7 - 3.6 4.6 1.0 16.1 -2.6 98.5 1.6

Finland 2016 1.4 2.0 0.5 5.2 - 0.5 2.5 0.4 8.8 -1.9 63.6 -1.12017 2.8 2.0 -0.2 6.0 - 7.0 5.0 0.9 8.4 -2.1 64.0 -1.12018 1.5 1.0 0.2 2.5 - 3.0 2.5 1.0 7.9 -1.8 64.2 -0.9

Macro forecast, Global

USA 2016 1.6 2.7 0.8 0.7 -0.4 0.4 1.1 1.3 4.9 -3.2 106 -2.62017 2.0 2.2 0.1 5.0 -0.1 2.8 4.0 2.2 4.5 -2.9 106 -2.72018 1.9 1.7 1.0 4.5 0.0 2.4 3.0 1.9 4.3 -2.7 107 -3.3

China 2016 6.7 - - - - - - 2.0 4.1 -3.0 46.3 2.42017 6.3 - - - - - - 2.0 4.3 -3.3 49.9 2.12018 6.0 - - - - - - 2.0 4.3 -3.0 53.3 1.5

UK 2016 2.0 2.8 0.8 0.9 0.5 1.0 2.7 0.7 4.9 -3.6 88.7 -5.02017 1.2 1.7 0.2 0.3 0.3 1.7 2.4 2.3 5.0 -2.9 89.2 -4.92018 1.0 1.0 0.4 0.7 0.0 2.8 2.0 2.6 5.3 -2.2 88.7 -3.3

Year GDP 1

Private

cons.1

Public

cons.1

Fixed

inv.1

Stock

build.2

Current

acc.4

Im-

ports1

Public

debt4

Public

budget4

Ex-

ports1

Infla-

tion1

Unem-

ploym.3

Ex-

ports1

Im-

ports1

Infla-

tion1

Unem-

ploym.3

Public

budget4

Current

acc.4

Public

debt4

Unem-

ploym.3

Public

budget4

Public

debt4

Year

Year GDP 1

Private

cons.1

Public

cons.1

Fixed

inv.1

Stock

build.2

Current

acc.4

GDP 1

Private

cons.1

Public

cons.1

Fixed

inv.1

Stock

build.2

Ex-

ports1

Im-

ports1

Infla-

tion1

11 | 30 June 2017 www.danskeresearch.com

Weekly Fo

cus

Weekly Focus

Financial forecast

Source: Danske Bank Markets

Bond and money markets

Currencyvs USD

Currencyvs DKK

USD 30-Jun - 650.3

+3m - 658.4

+6m - 647.0+12m - 630.5

EUR 30-Jun 114.4 743.7

+3m 113.0 744.0

+6m 115.0 744.0+12m 118.0 744.0

JPY 30-Jun 111.9 5.81

+3m 112.0 5.88

+6m 116.0 5.58+12m 116.0 5.44

GBP 30-Jun 130.1 846.1

+3m 129.9 855.2

+6m 132.2 855.2+12m 135.6 855.2

CHF 30-Jun 95.7 679.7

+3m 97.3 676.4

+6m 97.4 664.3+12m 97.5 647.0

DKK 30-Jun 650.3 -

+3m 658.4 -

+6m 647.0 -+12m 630.5 -

SEK 30-Jun 846.5 76.8

+3m 849.6 77.5

+6m 826.1 78.3+12m 788.1 80.0

NOK 30-Jun 837.3 77.7

+3m 823.0 80.0

+6m 791.3 81.8+12m 762.7 82.7

Equity Markets

Regional

Price trend12 mth

Regional recommen-dations

USA (USD) Growth boost: fisc. expansion, tax cuts, infl./growth-impulse 10-15% Overweight

Emerging markets (local ccy) Hurt by stronger USD and increased protectionism -5-+5% Underweight

Japan (JPY) Valuation and currency support 10-15% Overweight

Euro area (EUR) Stronger EPS and GDP momentum 0-5% Underweight

UK (GBP) Currency support, stronger infl. exp. o ff-set Brexit negativity 5-10% NeutralNordics (local ccy) Currency support on earnings, continued domestis demand 5-10% Neutral

Commodities

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2017 2018

NYMEX WTI 52 48 48 52 55 57 58 59 50 57

ICE Brent 55 51 50 54 56 57 58 59 52 58

Copper 5,855 5,670 5,700 5,800 5,900 6,000 6,050 6,100 5,756 6,013

Zinc 2,789 2,580 2,500 2,400 2,300 2,300 2,300 2,300 2,567 2,300

Nickel 10,321 9,230 9,500 10,000 10,500 10,750 11,000 11,000 9,763 10,813

Aluminium 1,858 1,910 1,800 1,800 1,800 1,800 1,810 1,820 1,842 1,808

Gold 1,219 1,260 1,200 1,210 1,220 1,230 1,240 1,250 1,222 1,235

Matif Mill Wheat (€/t) 170 168 168 170 169 167 168 168 169 168

Rapeseed (€/t) 415 375 390 410 410 400 400 390 397 400

CBOT Wheat (USd/bushel) 429 435 475 500 510 520 530 540 460 525CBOT Soybeans (USd/bushel) 1,021 944 1,000 1,000 1,025 1,025 1,050 1,050 991 1,038917

492

0.89

1.301.50

1.93

1.95

2.00

1.351.75

0.22

-

--

2.30

1.151.40

1.10

1.19

1.10

1.13

0.85

0.901.15

-

--

1.33

1.25

0.26

45

9,290

5,940

2,756

2018

Medium

Medium

Medium 5 -10%

Medium 5 -10%

-5 -0%

0 -5%

Medium 3-8%Medium 3 -8%

1,245

173

48

1,915

2017

30-Jun

Currencyvs EUR

2-yr swap yield

Risk profile3 mth

Price trend3 mth

2.25

2.26

2.35

1.60

-0.13

0.05

0.69

-0.55

0.05

-0.10

-0.050.00

1.70

87.9

2.70

87.087.0

110.0

112.0115.0

113.0

115.0118.0

126.6

133.4136.9

114.4

-

-

--

128.0

744.0

744.0744.0

968.0

957.5

900.0

960.0

910.0

950.0930.0

930.0

109.4

743.7

87.0

1.35

-0.25

1.120.84

0.90

-0.48

1.852.25

0.55

0.550.55

-

-

1.25

-0.35

-

1.20

0.10

0.150.20

-

--

-0.27

-0.35

10-yr swap yield

-0.51

0.05

0.050.05

3m interest rate

0.90

0.00

-0.10

0.25

-0.75

0.05

-0.35

0.31

0.310.31

0.50

0.50

0.90

-0.75-0.75

-0.50

-0.10

-0.24

-

Key int.rate

1.25

1.25

1.501.75

0.50

-0.75

0.00

0.00

-0.10-0.10

0.25

0.50

-0.50

0.25

-0.50-0.50

0.00

0.25

-

-0.48

Average

1.30

-0.33

0.01

0.30

360

-0.48

-0.73

-

--

-0.20

-0.20

-0.20

1.38

1.601.90

-0.35

-0.35

-

12 | 30 June 2017 www.danskeresearch.com

Weekly Fo

cus

Weekly Focus

Calendar

Source: Danske Bank Markets

Key Data and Events in Week 27

During the week Period Danske Bank Consensus Previous

Sat 01 EUR ECB's Weidmann speaks in Frankfurt

Sat 01 EUR ECB's Mersch speaks in Germany

Sun 02 EUR ECB's Weidmann speaks in Frankfurt

Sun 02 - 09 SEK Almedalen week

Sun 02 EUR ECB's Mersch speaks in Frankfurt

Fri 07 - 08 G7 G20 leaders meet in Hamburg, Germany

Monday, July 3, 2017 Period Danske Bank Consensus Previous

- USD Total vechicle sales m Jun 16.55 16.58

1:50 JPY Tankan large manufacturers index (outlook) Index 2nd quarter 15.0 12.0|11.0

1:50 JPY Tankan large non-manufacturers index (outlook) Index 2nd quarter 23.0 20.0|16.0

2:30 JPY Nikkei Manufacturing PMI, final Index Jun 52.0

3:45 CNY Caixin PMI manufacturing Index Jun 49.8 49.6

7:00 JPY Consumer confidence Index Jun 43.9 43.6

8:30 SEK PMI manufacturing Index Jun 59.0 58.8

9:00 NOK PMI manufacturing Index Jun 54.5 54.3

9:15 ESP PMI manufacturing Index Jun 55.6 55.4

9:45 ITL PMI manufacturing Index Jun 55.2 55.1

9:50 FRF PMI manufacturing, final Index Jun 55.0 55.0

9:55 DEM PMI manufacturing, final Index Jun 59.3 59.3

10:00 EUR PMI manufacturing, final Index Jun 57.3 57.3

10:30 USD Fed's Bullard (non-voter, dove) speaks

10:30 GBP PMI manufacturing Index Jun 56.3 56.7

11:00 EUR Unemployment % May 9.3% 9.3% 9.3%

15:45 USD Markit PMI manufacturing, final Index Jun 52.1

16:00 USD Construction spending m/m May 0.3% -1.4%

16:00 USD ISM manufacturing Index Jun 54.0 55.0 54.9

Tuesday, July 4, 2017 Period Danske Bank Consensus Previous

6:30 AUD Reserve Bank of Australia rate decision % 1.50% 1.50% 1.50%

9:30 SEK Riksbank, rate decision % -0.50% -0.50% -0.50%

10:30 GBP PMI construction Index Jun 55.0 56.0

11:00 EUR PPI m/m|y/y May 3.5%|-0.1% 4.3%|0.0%

14:30 EUR ECB's Praet speaks in Rome

15:30 CAD RBC manufacturing PMI Index Jun 55.1

16:00 DKK Currency reserves DKK bn Jun 463.9 463.9

13 | 30 June 2017 www.danskeresearch.com

Weekly Fo

cus

Weekly Focus

Calendar (continued)

Source: Danske Bank Markets

Wednesday, July 5, 2017 Period Danske Bank Consensus Previous

- PLN Polish central bank rate decision % 1.50% 1.50% 1.50%

2:30 JPY Markit PMI services Index Jun 53.0

3:45 CNY Caixin PMI service Index Jun 52.8

8:30 SEK PMI services Index Jun 57.0 57.9

9:00 DKK House and apartment prices m/m|y/y Apr

9:15 ESP PMI services Index Jun 56.5 57.3

9:30 SEK Industrial production s.a. m/m|y/y May n.a.|5.0% 1.0%|… -2.4%|0.8%

9:30 SEK Service production m/m|y/y May n.a.|4.0% 0.0%|3.5%

9:30 SEK Industrial orders m/m|y/y May n.a.|9.0% -4.0%|4.4%

9:45 ITL PMI services Index Jun 54.7 55.1

9:50 FRF PMI services, final Index Jun 55.3 55.3

9:55 DEM PMI services, final Index Jun 53.7 53.7

10:00 EUR PMI composite, final Index Jun 55.7 55.7

10:00 EUR PMI services, final Index Jun 54.7 54.7

10:30 GBP PMI services Index Jun 53.2 53.5 53.8

11:00 EUR Retail sales m/m|y/y May 0.3%|… 0.3%|… 0.1%|2.5%

11:00 NOK June house price report m/m Jun -0.7% -0.7%

16:00 USD Core capital goods orders, final % May -0.2%

20:00 USD FOMC minutes from June 14 meeting

Thursday, July 6, 2017 Period Danske Bank Consensus Previous

8:00 DEM Factory orders m/m|y/y May 1.7%|… 2.0%|5.0% -2.1%|3.5%

9:00 DKK Forced sales (s.a.) Number Jun

9:00 DKK Bankruptcies (s.a.) Number Jun

9:15 CHF CPI m/m|y/y Jun 0.0%|0.3% 0.2%|0.5%

9:30 SEK Average house prices SEK m Jun 2.813

13:30 EUR ECB account of the monetary policy meeting

14:15 USD ADP employment 1000 Jun 178 253

14:30 USD Trade balance USD bn May -46.2 -47.6

14:30 USD Initial jobless claims 1000

15:45 USD Markit PMI service, final Index Jun 53.0

16:00 USD Fed's Powell (voter, neutral) speaks

16:00 USD ISM non-manufacturing Index Jun 56.5 56.9

17:00 USD DOE U.S. crude oil inventories K 118

18:00 EUR ECB's Weidmann and Nowotny discuss the future of the Euro

Friday, July 7, 2017 Period Danske Bank Consensus Previous

- EUR Fitch may publish Ireland's debt rating

- EUR Moody's may publish Netherlands's debt rating

- G7 G20 meeting starts

- CNY Foreign exchange reserves USD bn Jun 3062.0 3053.6

1:30 USD Fed's S.Fischer (voter, neutral) speaks

2:00 JPY Labour cash earnings y/y May 0.4% 0.5%

7:00 JPY Leading economic index, preliminary Index May 104.6 104.2

7:45 CHF Unemployment % Jun 3.2% 3.2%

8:00 DEM Industrial production m/m|y/y May -0.3%|… 0.3%|4.1% 0.8%|2.9%

8:00 NOK Manufacturing production m/m|y/y May -0.2%|… 1.6%|0.4%

8:00 NOK Industrial production m/m|y/y May 0.7%|0.9%

8:45 FRF Industrial production m/m|y/y May 0.5%|1.3% -0.5%|0.6%

9:00 CHF SNB balance sheet, intervention CHF bn Jun 693.7

9:00 DKK Gross unemployment s.a. K (%) May 4.2 % 4.3% 115 (4.3%)

9:00 DKK Industrial production m/m May -3.5%

9:30 SEK Budget balance SEK bn Jun 36.5

9:30 SEK Household consumption m/m|y/y May n.a.|2.3% 1.4%|4.3%

9:30 SEK Business production index May

10:30 GBP Construction output m/m|y/y May 0.4%|0.9% -1.6%|-0.6%

10:30 GBP Industrial production m/m|y/y May 0.2%|-0.8%

10:30 GBP Manufacturing production m/m|y/y May 0.4%|0.9% 0.2%|0.0%

10:30 GBP Trade balance GBP mio. May -2500 -2050

14:00 GBP NIESR GDP estimate q/q Jun 0.2%

14:30 CAD Net change in full time employment 1000 Jun 77

14:30 USD Unemployment % Jun 4.3% 4.3% 4.3%

14:30 USD Average hourly earnings, non-farm m/m|y/y Jun 0.3%|2.6% 0.3%|2.6% 0.2%|2.5%

14:30 USD Non farm payrolls 1000 Jun 180 179 138

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

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

14 | 30 June 2017 www.danskeresearch.com

Weekly Fo

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Weekly Focus

Disclosures This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S (‘Danske Bank’).

The author of the research report is Mikael Olai Milhøj, Senior Analyst.

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