Macro & FICC research

Week Ahead Friday, 27 August 2021

Nordic Outlook and payrolls in the aftermath of Jackson Hole

Global outlook: Markets’ growth anxiety has continued to increase in the past weeks on the back of a surging Delta strain, fading fiscal support, weaker US data and negative signals from China. Upbeat growth forecasts have also made it more difficult for data to continue exceeding expectations. This is especially true in the US, where growth surprise indicators suggest that a long period of positive surprises has come to an end, but also to a lesser extent in the euro area. Supported by central bank stimulus and extremely low real yields, stock markets have, however, seen only minor corrections. We discuss our financial market outlook in the latest SEB FI & FX Strategy: Foggy autumn weather, concluding that it will likely take a while for growth concerns to fade. The near-term sentiment will crucially depend on Fed Chair Powell’s speech at the Jackson Hole conference today (27 August). We think it is too early for Mr Powell to announce a tapering decision or suggest that the Fed is reversing its course. Our main scenario is still that tapering will happen this year and we expect this to be the message from Chair Powell too, albeit with the appropriate caveats. On the macro front, the US labour market report for August will be very important for the message at the 21-22 September FOMC meeting. A modest slowdown in line with our forecast should keep tapering plans alive. Other indicators that bear watching in the coming week are US ISM (Mon), and the euro area ESI (Mon), inflation (Tuesday), unemployment (Wed) and retail sales. The euro aread inflation is expected to rise sharply to peak at around 3.5% y/y in the coming months, but it is not expected to be enough for the ECB to change its policy stance as any excess inflation on the back of the re-opening phace will at this point be seen as mainly transitory. On Tuesday morning, SEB will publish the quarterly Nordic Outlook.

Nordic outlook: Swedish indicators have continued to surprise on the upside, in many cases reaching new all-time highs during the summer, and Friday’s final Q2 GDP confirmed the strong Swedish recovery. After three consecutive months with new all-time highs, the Swedish economic sentiment declined marginally in August but the decline was smaller than expected. Swedish PMI manufacturing (Wed) and services (Thu) are also expected to give up some of their recent gains but the starting level is very high. Sentiment indicators close to all-time high supports our optimistic growth forecast predicting that the Swedish GDP will return to its pre-pandemic trend by the middle of next year. Slowing international growth and increasing virus infections are downside risks to growth in H2. In Norway, the recovery took hold in Q2 after a weak start to the year and is now being led by strong households with support from fiscal stimulus. The coming week will offer a bunch of Norwegian data with registered unemployment and existing home prices (Fri) for August gaining most attention. Increased uncertainty related to the pandemic has so far had limited impact on the labour market and weekly data suggest that the labour market has continued to improve. The housing market slowdown appears to happen a little faster than Norges Bank had predicted, but we expect it to have a limited impact on Norges Bank’s rate hike trajectory as the bank is already predicting slowing home prices going forward on the back of higher interest rates, a normalisation of consumption patterns and an increase in residential construction.

SEB Macro & FICC Research Editor: Jussi Hiljanen Phone: +46 70 7723167 jussi.hiljanen@seb.se

US: Approaching the "substantial further progress" criterion

Norway: A little faster than expected housing market slowdown

Macro & FICC research: Week Ahead Friday, 27 August 2021 2

Key Economic Indicators & Events: 30 Aug – 3 Sep, 2021 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 30 Auctions: U.S. To Sell 13- & 26-Week Bills (17:30) Speeches: Hungary Foreign Minister, Gazprom CEO Meet on Gas Contract Other: PES Sweden unemployment (12:00). UK bank holiday.

01:50 JAP Retail sales Jul 0.4/2.1 3.1/0.1 09:30 SWE Wages Non-Manual Workers YoY Jun -- 3.3 11:00 EA Consumer | Economic | Industrial Confidence Aug -- | 118 | 19.2 -5.3 | 119 | 14.6 14:00 GER CPI Aug P -0.1/3.8 0.9/3.8 GER Retail Sales MoM | NSA YoY Jul -1.0 | 4.2 4.5 | 6.5 Tue 31 Auctions: Japan to Sell 2-Year Bonds (05:35) Speeches: ECB's Holzmann, Knot, Denmark's Callesen speak at conference (11:00) Riksbanks Floden

participates in a conversation about the financial situation (14:00) Other: France final GDP for Q2 (08:45), SEB’s Nordic Outlook released (07:00) 01:50 JAP Industrial Production Jul P -2.4/11.2 6.5/23.0 03:00 CHI PMI Non-manufacturing | Manufacturing | Composite Aug -- 53.3 | 50.4 | 52.4 07:00 FI GDP QoQ | YoY 2Q -- 0.0 | -1.4 08:00 NOR Credit growth | Households | Businesses Jul -- 5.3 | 5.2 | 4.6 08:00 DEN GDP SA QoQ | YoY 2Q P -- -1.0 | 0.8 08:45 FRA CPI Aug P 0.5/1.7 0.1/1.2 09:55 GER Unemployment Change | Claims Rate SA Aug -30.0k | 5.6 -91.0k | 5.7 10:00 NOR Norges Bank’s daily FX purchases Sep NOK -1800mn -- NOK -1700mn 10:00 POL CPI Aug P 0.1/5.1 0.4/5.0 11:00 EA CPI Estimate YoY | CPI MoM | Core CPI YoY Aug, P 2.6 | 0.0 | 1.4 2.2 | -0.1 | 0.7 14:30 CAN GDP MoM | YoY | Quarterly GDP Annualized Jun, 2Q -- -0.3 | 14.6 | 5.6 15:00 US FHFA House Price Index MoM Jun 1.9 1.7 15:00 US House Price Purchase Index QoQ 2Q -- 3.5 16:00 US Conf. Board Consumer Confidence Aug 124 129.1 Wed 01 Auctions: U.K. to Sell 2029 Bonds (11:00), Germany to Sell 2026 Bonds (11:30), Russia to Sell Bonds (13:00), Denmark to Sell Bonds (10:30), Sweden to sell

bills (11:00) Speeches: ECB's Weidmann Speaks at Bundesbank Bank Symposium, Fed’s Bostic Discusses Bringing About an Inclusive Economy. Other: Swedish bankruptcy data from credit reference agency UC, DOE U.S. Crude Oil Inventories (16:30), US MBA Mortgage Applications (13:00)

02:30 JAP PMI manufacturing (Jibun Bank) Aug F -- 52.4 03:30 AUS GDP SA QoQ | GDP YoY 2Q 0.5 | 9.2 1.8 | 1.1 03:45 CHI PMI manufacturing (Caixin) Aug 50.1 50.3 08:00 NOR Current account balance Q2 -- NOK 94.3bn 08:00 NOR LFS unemployment Jun -- 5.2 08:00 RU PMI manufacturing (Markit) Aug 48.8 47.5 08:30 SWE PMI manufacturing (Swedbank/silf) Aug 61.0 -- 65.3 09:00 POL PMI manufacturing (Swedbank/silf) Aug 75 90 09:55 GER PMI manufacturing (Markit/BME) Aug F 62.7 62.7 10:00 NOR Manufacturing PMI Aug -- 60.8 10:00 EA PMI manufacturing Eurozone (Markit) Aug 61.5 61.5 10:30 UK PMI manufacturing SA (Markit) Aug F 60.1 60.1 11:00 DEN PMI Survey Aug -- 69.8 11:00 EA Unemplotment rate Jul 7.6 7.6 7.7 14:15 US ADP Employment Change Aug 650k 330k 15:30 CAN PMI manufacturing (Markit) Aug -- 56.2 15:45 US PMI manufacturing (Markit) Aug F 61.2 61.2 16:00 US Construction Spending MoM Jul 0.3 0.1 16:00 US ISM Mfg | Prices Paid | New Orders | Employment Aug 58.7 | -- | -- | -- 58.7 | -- | -- | -- 59.5 | 85.7 | 64.9 | 52.9 Thu 02 Auctions: Japan to Sell 10-Year Bonds (05:35), France to Sell 2050, 2031 & 2044 Bonds (10:50), Sweden to tap 2027 linker and to launch a new 2039 linker

(11:00) Speaches: Fed’s Bostic Discusses Creating Economic Opportunity, Riksbank’s Ingves: Economic outlook (14:30) Other: Eurozone PPI July(11:00) 13:30 US Challenger Job Cuts YoY Aug -92.8 14:30 US Initial Jobless Claims 28 Aug 353k 14:30 US Trade Balance Jul -$74.5b -$75.7b 16:00 US Factory Orders | Ex Trans Jul 0.3 | -- 1.5 | 1.4 Fri 03 Auctions: Sweden to switch linkers (11:00), Sweden to sell inflation-linked bonds Other: Final composite, services PMI for Japan (02:30), France (09:50),

Germany (09:55), Eurozone (10:00), UK (10:30), US (15:45) 03:45 CHI PMI composite (Caixin) | services Aug -- | 52 53.1 | 54.9 08:00 RU PMI composite (Markit) | services Aug -- | 52.3 51.7 | 53.5 08:30 SWE PMI composite (Swedbank/Silf) | services Aug 65.2 | 67.0 68.0 | 69.1 09:30 SWE Current Account Balance 2Q 78.3b 10:00 NOR Registered unemployment SA | NSA | Total Jul --| 3.0 | --- 3.0 | 3.1 | 5.3 11:00 NOR Existing home prices | SA Aug -1.1/8.5 | -0.2 11:00 EA Retail sales Jul -0.4 / 1.5 1.5 / 5.0 14:30 US Change in Payrolls Nonfarm | Private | Mfg Aug 787k | 700k | 35k 943k | 703k | 27k 14:30 US Unemployment Rate | Hourly wage growth Aug 5.1 | 0.4/3.9 5.2 | 0.3/4.0 5.4 | 0.4/4.0 16:00 US ISM Services Index Aug 62 64.1 * % MoM/YoY unless otherwise state Filip Carlsson, Filip.carlsson@seb.se

Macro & FICC research: Week Ahead Friday, 27 August 2021 3

Euro area: ESI (Aug) Monday 30, 11.00

% mom / yoy SEB Cons. Prev.

Economic sentiment --- 119.0 Industrial sentiment 13.3 14.6

Service sentiment --- 19.3 • Sentiment according to EU’s Economic Sentiment Indicator is at

a very strong level, in line with what other surveys are indicating.

• PMI edged lower in August for both the manufacturing and service sector. For manufacturing, orders still look strong but supply side problems and to some extent easing demand contributes. The service sector has recovered strongly as countries ease restrictions but is still led by expectations as actual production is still lagging and the spread of the Delta-variant will put downward pressure on sentiment.

NOR: Credit growth (Jul) Tuesday 31, 08.00

% yy SEB Cons. Prev.

Credit growth --- --- 5.3 Households | Businesses --- | --- --- | --- 5.2 | 4.6 • Credit growth to households increased by another 0.1%-point

in June to 5.2% y/y, while credit growth to non-financial corporations increased to 4.6% y/y. Overall Norwegian credit growth increased from 5.2 to 5.3%.

• After been surprisingly stable during the start of the year, credit growth has accelerated in recent months. In the Jun21 MPR, Norges Bank lowered its forecast marginally but still predicted growth to households to increase to 5.2% y/y in June before starting to slow somewhat during the forecast period. A somewhat calmer development in the housing market suggest that growth should stabilise and start to trend lower in coming months.

NOR: Norges Bank’s FX purchases (Sep) Tuesday 31, 10.00

NOK mn SEB Cons. Prev.

Daily FX purchases -1900 --- -1700 • The government increased fiscal spending in 2021 when it

presented a revised budget in May. Spending of petroleum revenues in relation to the Government Pension Fund Global (GPFG) will be unchanged compared to 2020 at 3.7%.

• However, despite a relatively large upward revision of the non-oil budget deficit, higher petroleum revenues indicate that the need to increase daily NOK purchases is relatively small. For 2021 we calculate that purchase will average NOK 1.7bn/day, which is a small increase from our calculation in January of NOK 1.6bn/day.

• Given what Norges Bank has already bought so far this year, we see the average for the remainder of the year at NOK 1.85bn/day. Hence, after a period of lowering the purchases during the summer, we expect Norges Bank to increase the pace in coming months.

Macro & FICC research: Week Ahead Friday, 27 August 2021 4

Euro area: HICP, flash estimate (Aug) Tuesday 31, 11.00 % yy SEB Cons. Prev.

HICP 2.9 2.7 2.2

Core 1.7 1.5 0.9

• Last year, the August price movements was by far outliers

compared with regular seasonal patterns with indeed very low readings in many countries. This creates large base effects pushing inflation rate markedly higher, both for the headline and the core measures.

• Our forecast implies price dynamics to return to regular seasonal patterns. The timing of reversal price dynamics adds to the overall uncertainty. Also, short term upward pressure based on imbalance between supply and demand might affect the numbers. However, in the overall assessment the exact readings on the top is in our view of minor importance.

SWE: PMI manufacturing (Aug) Wednesday 1, 08:30 Index SEB Cons. Prev.

PMI manufacturing 61.0 --- 65.3

• Manufacturing PMI increased to the highest level since 1994 in

April and only marginally below the all-time high. Thereafter PMI has edged lower.

• German manufacturing PMI declined in August and we predict Swedish PMI to follow. Restrictions and lockdowns in Asia seem to have triggered a sharp slowdown in export to this region and there are also signs that of slower growth in the US.

• Manufacturing sentiment according to the NIER survey also increased to a new all-time high but this is driven by higher expectations, while current situation questions that resembles the questions in PMI is at slightly lower levels. NIER confidence also turned lower in August.

• Swedish growth indicators continue to look strong but declines in international indicators are likely to be reflected in Sweden.

NOR: PMI Manufacturing (Aug) Wednesday 1, 10.00

Index SEB Cons. Prev.

PMI Manufacturing --- --- 63.3 • Norwegian manufacturing PMI continued to increase in July

from 60.8 to 63.3. This is a new cyclical high and close to the record high from July 2017.

• The increase was relatively broad-based, but especially driven by an increase in new orders that increased to 63.6. Also, employment and production rose above the 60-leve, while the index for delivery times declined slightly after marked an all-time high at 83.5 in June. Still, with a level at 80.1, the index continues to highlight that bottlenecks and a lack of components pose a risk also for the Norwegian industry.

• However, after somewhat weaker production in Q2, both PMI and the Business Tendency Survey for Q2 indicate stronger momentum in coming months. The latest drop in international PMIs related to increased uncertainty due to the Delta variant of the virus pose a risk also for the Norwegian PMI in August.

Macro & FICC research: Week Ahead Friday, 27 August 2021 5

Euro area: Unemployment (Jul) Wednesday 1, 11.00

% SEB Cons. Prev.

Unemployment 7.6 7.6 7.7 • Since peaking at 8.7% in Aug-Sep last year, unemployment has

steadily fallen. Changes in the framework affecting compilation of the survey, pandemic support programmes and lower labour market participation adds uncertainty to the interpretations of the current numbers. Also, revisions of previous outcomes have been large in the last year, often contributing to larger changes than the actual m/m-development.

• According to indicators, companies continue to hire and the opening up of the service sector contributes. The outlook going forward is tied to a large extent to the service sector and what headwind the Delta-variant creates.

US: ISM manufacturing (Aug) Wednesday 1, 16.00

SEB Cons. Prev.

ISM manufacturing Prices paid New orders Employment

58.5 --

-- --

58.7 -- -- --

59.5 85.7 64.9 52.9

• The ISM manufacturing PMI has continued to decline from a

peak in March. The index remains at levels consistent with a rapid expansion in manufacturing and the general economy.

• High orders index show strong demand, but output is held back by a lack of labour and components, which is reflected in lengthy delivery times, high prices and limited hiring. We will look out for any signs that this situation is improving.

• Regional surveys have moved lower in August, which suggests that manufacturing is losing some momentum.

• We expect the ISM manufacturing PMI to decline further in August but to remain at expansionary levels.

SWE: PMI services (Aug) Thursday 3, 08:30 Index SEB Cons. Prev.

PMI services 67.0 --- 69.1

PMI composite 65.2 --- 68.0

• Service PMI increased to a new all-time high in May (time series

starts in 2006). Despite declining slightly during the summer PMI continues to be higher than all historical peaks.

• Service sector confidence according to the NIER survey is also recovering strongly but declined slightly in August.

• Sentiment indicators close to all-time high supports our optimistic growth forecast predicting that GDP will return to its pre-pandemic trend by the middle of next year.

• Slowing international growth and increasing virus infection are downside risks to growth in the second half of 2021.

Macro & FICC research: Week Ahead Friday, 27 August 2021 6

NOR: Registered unemployment (Aug) Friday 3, 10.00

% of labour force SEB Cons. Prev.

Registered unemployment, SA 2.9 3.0 Registered unemployment, NSA --- --- 3.1 Incl. government schemes and part-time --- --- 5.3 • Registered unadjusted unemployment rate stabilised in July

after last months’ clear improvement. In seasonally adjusted terms the rate was unchanged at 3.0%. After having exceeded Norges Bank’s forecast in June, the outcome in July was still in line with the Bank’s estimate from the Jun21 MPR.

• According to NAV, eased restrictions continued to support the labour market in July and the largest drop of jobseekers where seen in the travel and transport sectors. This suggests that the latest development with increased uncertainty related to the pandemic has so far had limited impact on the labour market.

• While tightened entry restrictions into Norway may once again have some negative impact on the labour market, weekly data suggest that the labour market has continued to improve. Both we and Norges Bank’s estimate a decline to 2.9% in August.

Es/Fr/De/EA: Retail sales (Jul) Mon 30 09:00, Tue 31 08:45, Wed 1 08:00, Fri 3 11:00

% mom / yoy SEB Cons. Prev.

Spain y/y 1.4 France m/m 0.3 Germany 4.2 / 6.2 EA 0.0/5.2 1.5 / 5.0 • Retail sales/consumer spending has continued to be volatile on

a month-to-month basis. Compared with the previous year, numbers have been heavily affected by a low comparison base, but that should ease from now on.

• As restrictions have eased and consumers can start spending more heavily on services, we expect some headwind for retail and goods sales. At the same time, some retail sectors might benefit as consumers might enjoy the possibility of actually entering a store. With the spread of the Delta-variant, the return to services will partially be delayed but at the same time mobility indicators show that the negative effect of this wave will not be as severe as previously.

Macro & FICC research: Week Ahead Friday, 27 August 2021 7

NOR: Existing home prices (Aug) Friday 3, 11.00

% mm/yy SEB Cons. Prev.

Existing home prices NSA | SA --- | --- --- | --- -1.1/8.5 | -0.2 • After a very strong development for more than a year, the

housing market has been somewhat calmer in recent months. In July, existing home prices declined by 0.2% (SA) and the year-on-year rate slowed from 10.1% to 8.5%. This was below Norges Bank’s forecast of +0.5% m/m and 10.1% y/y.

• While the slowdown on the housing market appears to happen a little faster than Norges Bank had predicted, we expect it to have limited impact on its rate hike trajectory as the bank is already predicting slowing home prices going forward on the back of higher interest rates, a normalisation of consumption patterns and an increase in residential construction.

• Norges Bank predicts home prices to slow from 9.2% in 2021 to 1.0% in 2022. In August, Norges Bank noted that house price inflation had been lower than projected but continued to put weight on the risk of increasing financial imbalances in its policy assessment.

US: Nonfarm payrolls (Aug) Friday 3, 14.30 • Employment accelerated in June/July, with nearly 1 million new

jobs per month. The current unemployment rate is the lowest since March 2020, while labour force participation remains stuck at low levels and unchanged for the past 12 months.

• Demand for labour has been strong but supply has been held back by factors such as high benefits, closed schools, fears of the virus and mismatching problems during the re-opening. We expect these to be gradually resolved and to support a continued recovery on the labour market during fall. Increased retirements during the pandemic will prevent a full return to pre-crisis levels.

• Efforts to attract workers is putting upward pressure on wages, though partly offset by rapid growth of lower paid service jobs.

• The spread of the Delta variant is a new downside risk. We expect jobs growth to slow in August, but only temporarily.

• The August report will be key for the message at the September 21-22 FOMC meeting. A modest slowdown in line with our forecast should keep tapering plans alive, with asset purchases, in our view, started to being reduced in December.

SEB Cons. Prev.

Total 750k 787k 943k Private | manufacturing -- 700k | 35k 703k|27k Unemployment rate 5.1% 5.2% 5.4% Underemployment rate (U6) -- -- 9.2% Hourly wage growth, mm/yy 0.4/3.9% 0.3/4.0% 0.4/4.0% Average weekly hours 34.8 34.8 34.8 Participation rate -- -- 61.7

Macro & FICC research: Week Ahead Friday, 27 August 2021 8

Disclaimer

This report has been compiled by SEB Large Corporates & Financial Institutions, a division within Skandinaviska Enskilda Banken AB (publ) (“SEB”) to provide background information only.

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