2018Q3 Macro –Quarterly update: Trump’s highway to hell? · 2018Q3 Macro –Quarterly update: Trump’s highway to hell? Please see important disclosures and disclaimers on page

2018 Q31

2018 Q3 Macro – Quarterly update: Trump’s highway to hell?

Please see important disclosures and disclaimers on page 25

2018 Q32

Index1. Executive summary2. Current economic topics3. Global macro

• GDP, unemployment & inflation• Leading indicators• Commodities

4. Nordic region• GDP, unemployment, consumer confidence & inflation• Car registrations & employment• Construction & business confidence • Bankruptcies & construction costs• Currencies & interest rates

5. AppendixPlease contact content providers for inquiries:Søren Steenstrup, [email protected] Winther, [email protected]

2018 Q33

Executive summaryTrump’s Highway to hell?• The growth momentum currently indicates Global economic borderline downturn. The US and

EU are expected to continue growing healthily and inflation pressure is slowly building. Emerging markets (EM) and especially Chinese growth is stabilizing after years of deceleration, but is still high compared to the US and EU

• President Trump’s trade dispute is heating up and edging closer to an all-out trade war as the initial Global tariffs on steel and aluminium were accompanied with further tariffs on 50bUSD worth of Chinese exports. China has promised to retaliate 1:1 and Trump has counter-threatened to do the same if the Chinese retaliate. EU has retaliated after European cars will be hit by new American tariff, and the same story goes for Canada, Mexico, Japan and Russia to name a few. If this trend continues, Global growth will be on a “highway to hell” and can in its most severe form end as a self-inflicted Global recession. It is still a far out scenario, but watch this space

• As both the US and Eurozone have started to shift their monetary policy from easing to tightening mode, Bank of Japan is still a bit hesitant. While the economy is now running above its capacity and unemployment rate is at a multi-year low, inflation is still far from the 2% target and is not looking to reach this level any time soon. On top of this, a VAT-increase will be implemented next year and the risk of further Trump tariffs, so it seems like a good idea to wait a bit with the tightening

• After a couple of good years, Emerging Markets turmoil is surfacing again. As US interest rates have risen and money are flowing away from Emerging Markets, which is hurting their currencies. Furthermore, as EM countries generally are very open economies the prospect of a trade war with the US is not calming the mood

• Nordic countries are doing well although the economic momentum between them differ. Sweden is experiencing negative momentum as housing prices have fallen and the manufacturing sector has shown weakness. The Swedish Krona has consequently depreciated against EUR. Contrary, Norway is experiencing positive momentum as especially the high oil price is spurring investment, especially in the energy sector. Denmark is least interesting in this regard as momentum seems neutral and Denmark’s negative GDP growth in Q1 2018 is due to statistical technicalities rather than actual economic challenges. Across the Nordics employment growth and unemployment rates are healthy, while inflation remains stable. The fall in car registrations in Denmark and Sweden have eased, while Norway’s registrations still grow. Construction confidence in Denmark and Norway remains high, while waning in Sweden

2018 Q34

Current Economic Topics

2018 Q35

Current topics – Trump’s Global trade war • What started as tariffs on steel and aluminium imports to the US, is slowly edging closer to a far more serious trade war as President Trump finds new tariffs and the rest of the world responds with counter-tariffs

• China has responded with tariffs on airplanes, cars and soybeans and vows to impose 1:1 tariffs against the US. By mid-June the US released a new tariff list of 25% for Chinese exports totalling 50 bUSD effective on July 6th. China has yet to retaliate, but said it “has to fight back strongly”

• Europe tried to get exempted from the steel and aluminium tariffs without success and is now actively imposing counter-tariffs on selected American products such as pork, jeans, bourbon and Harley-Davidson’s US produced motorcycles. The latter has caused the motorcycle company to shift more production to its European factory to avoid the European tariffs, but also to avoid the American metal tariffs, which has increased US production cost. Quite symbolical of how trade wars often backfire

• Many other countries have also warned or retaliated against the US. Japan, Russia and Turkey have warned the US, while Canada, Mexico and India have imposed retaliatory tariffs

• If this spiral continues, the effect will be felt across the Global economy and could in the worst case cause a self-inflicted Global recession. Let’s hope president Trump doesn’t see the lower figure, where the lowest US trade deficits coincide with major recessions, and concludes he is on the right way

5

US monthly trade balance (bUSD)

Sources: Frank C. Müller (upper right), Bloomberg and Tryg Invest

Harley-Davidson: Made in the US of A…and EU

-80

-70

-60

-50

-40

-30

-20

2000 2002 2004 2007 2009 2011 2014 2016

2018 Q36

Current topics – Japan is still not ready to tighten • With both the US and Eurozone in monetary tightening mode (also known as Quantitative Tightening or QT), Bank of Japan is still hesitant to join this club as risks lurk

• Since “Abenomics” began in 2012 with higher fiscal spending, loose monetary policy and structural reforms, the policy has at least been partially successful as the economy is growing faster than its natural rate and unemployment is low (see lower figure and s. 10)

• While this type of economic overheating would usually result in higher inflation in most other economies, Japan is much different; while inflation has turned positive, it is still running far below the 2% target (see s. 10)

• Now, in order to tame Japan’s massive public debt and public budget deficit a dreaded VAT increase from 8% to 10% is expected to become effective in October 2019. It is therefore feared that this could mute growth

• Combining this with the risk of an escalating trade war, which would be devastating for an export driven economy such as the Japanese (see upper figure), and the political uncertainty of Abe losing the September election

6

Output gap (% of Japan’s GDP)

Sources: Danske Markets (upper), Bloomberg(lower) and Tryg Invest

Japan GDP growth decompostion

-7-6-5-4-3-2-10123

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018Too slow growth vs economic potential

Too fast growth vs economic potential

2018 Q37

Current topics – Fragile EM countries under pressure• In 2013 when the US FED hinted the end of quantitative easing, many Emerging Market countries with large debt and current account deficits looked fragile as higher US interest rates would make money flow out of these countries and into higher yielding US bonds and their currencies plummeted

• This year looks like a repeat as the US 10yr interest rate reached the “magic” 3% level in May and the FED is now expected to hike the target interest rate 4 times instead of 3. And with many Emerging Market countries dependent on external financing, this is bad news for their currencies (see figures)

• Adding Trump’s brewing trade war to the mix, only make matters worse as these countries also are highly dependent on trade

• While the positive story is hard to find, at least the figures can inspire cheap holiday destinations for the summer break

7

Selected Emerging Market Currencies vs. US Dollar (Ult 2017 = 100)

Sources: Bloomberg and Tryg Invest

60

70

80

90

100

110

jan-18 feb-18 mar-18 apr-18 maj-18 jun-18

South African Rand Brazilian Real Turkish LiraIndian Rupee Indonesian Rupee Argentinian PesoMexican Peso

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

Brazil Mexico India Indonesia SouthAfrica

Argentina Turkey

Selected Emerging Market Current Account Deficits (% of GDP)

External financing need

2018 Q38

Current topics – Nordic Divergence • While all three Nordic countries’ economies are doing well, the growth momentum has begun to diverge between them in the recentyear

• Sweden is currently coping with headwinds from falling property prices, especially in the Stockholm-region, and falling optimism in the industrial sector (see Swedish PMI s. 16) as export conditions seems to have become less favorable

• Norway has really begun to benefit from the rising oil prices and investment spending, especially in energy related sectors, is pulling this trend. This is also helping consumer confidence, which will likely lift private consumption

• Denmark is perhaps the least interesting of the Nordic economies right now as no major imbalances are seems to have accumulated; the housing market, debt growth and wage pressure seem balanced, which leads to a fairly neutral growth momentum.The negative GDP growth in Q1 2018 (see s. 16) is due to statistical technicalities rather than actual economic challenges

8

OECD Composite Leading Indicator: Growth momentum

Sources: Bloomberg and Tryg Invest

98

99

100

101

102

2010 2011 2012 2013 2014 2015 2016 2017 2018

Denmark Norway Sweden

<100: Negative economic momentum

>100: Positive economic momentum

2018 Q39

Global Macro

2018 Q310

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

Inflation rate, % Interest rate, 10yr, %

Figure sources: Bloomberg Finance L.P. and Tryg

-15%

-10%

-5%

0%

5%

10%

15%

2010 2012 2014 2016 2018

USA EU Japan

Last Observation: 2018Q1

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

2010 2012 2014 2016 2018

USA EU Japan

Last Observation: 2018M5

0%

2%

4%

6%

8%

10%

12%

14%

2010 2012 2014 2016 2018

USA EU Japan


-1%

0%

1%

2%

3%

4%

5%

2010 2012 2014 2016 2018

USA Germany Japan

2018 Q311

Global macro - Leading indicatorsPMI/ISM Consumer Confidence, US

IFO, Germany


Index description

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

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

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

0

20

40

60

80

100

120

140

2010 2012 2014 2016 2018

Conference Board UoM, Consumer Confidence UoM, Consumer Expectation


70

80

90

100

110

120

130

2010 2012 2014 2016 2018

IFO Business Climate IFO Expectations IFO Current Assessment


30

35

40

45

50

55

60

65

2010 2012 2014 2016 2018

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


2018 Q312

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

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

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

95 96 97 98 99 100 101 102 103 104 105

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

Downturn

Upturn Expansion

Slowdown

CLI

Chan

ge in

CLI

Last observation: April/2018


2018 Q313

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

*The IFO-indicators measures German companies’ assessment of their business situation currently and expectations 6 month forward. A value above 100 indicates positive economic momentum.

75

80

85

90

95

100

105

110

115

120

125

70 80 90 100 110 120 130

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

Downturn

Upturn Expansion

Slowdown

IFO Current Assessment

IFO

Expe

ctat

ions

Last observation: June/2018


2018 Q314

Global macro - CommoditiesBroad Commodity Index and Food Index* Agriculture

Metals* Oil


*Broad Commodity Index consists of following futures: Cotton, Orange Juice, RBOB Gasoline, Heating Oil, Wheat, Corn, Soybeans, Coffee, Live Cattle, Crude Oil, Cocoa, Gold, Aluminum, Silver, Nickel, Lean Hogs, Sugar, Copper and Natural Gas. Food Index: Hogs, Steers, Lard, Butter, Soybean oil, Cocoa, Corn, Wheat and Sugar. Metal Index: Copper, Lead, Steel, Tin and Zinc.

100

150

200

250

300

350

400

450

500

550

2010 2012 2014 2016 2018

Broad Commodity Index Food Index

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2010 2012 2014 2016 2018

Corn Wheat Soybeans$/bushel

0

200

400

600

800

1,000

1,200

0

2,000

4,000

6,000

8,000

10,000

12,000

2010 2012 2014 2016 2018

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

0

20

40

60

80

100

120

140

2010 2012 2014 2016 2018

Brent Nymex$/barrel

15

Nordic Region

2018 Q3

2018 Q316

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

Inflation rate, % Unemployment rate, %


70

85

100

115

130

145

160

-20

-15

-10

-5

0

5

10

15

20

25

30

35

2010 2012 2014 2016 2018

Denmark Norway Sweden (right)


-1%

0%

1%

2%

3%

4%

5%

2010 2012 2014 2016 2018


Last Observation: 2018M50%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

2010 2012 2014 2016 2018



-4%

-2%

0%

2%

4%

6%

8%

10%

2010 2012 2014 2016 2018


Last Observation: 2018Q1

2018 Q317

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

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


-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%


Q2 2017 Q3 2017 Q4 2017 Q1 2018

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2010 2012 2014 2016 2018



-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%


Q2 2017 Q3 2017 Q4 2017 Q1 2018

-3%

-2%

-1%

0%

1%

2%

3%

4%

2010 2012 2014 2016



2018 Q318

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

Nordic confidence surveys …


Index description• Construction confidence and order book assessment

measures construction companies’ current expectations for the activity compared to a “normal level”, where values above 0 indicates optimism and vice versa

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

• Economic Sentiment Indicator measures companies and consumers’ expectations to the Danish economy, where values above 100 indicates economic expansion and vice versa

-70

-60

-50

-40

-30

-20

-10

0

10

2010 2012 2014 2016 2018

DK Construction Confidence DK Order Book Assessment

Last Observation: 2018M5-100

-80

-60

-40

-20

0

20

40

60

2010 2012 2014 2016 2018

SE Construction Confidence SE Order Book Assessment


30

35

40

45

50

55

60

65

70

60

70

80

90

100

110

120

130

140

2010 2012 2014 2016 2018

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


2018 Q319

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

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


0

200

400

600

800

1,000

1,200

1,400

2006 2008 2010 2012 2014 2016 2018

DK Bankruptcies NO Bankruptcies

Last Observation: 2018M5-5%

0%

5%

10%

2006 2008 2010 2012 2014 2016

NO Residential Building Costs


0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

2007 2009 2011 2013 2015 2017

NO Multi-Dwelling Building Costs NO Detatched House Building Costs

Last Observation: 2018M5 0%

1%

2%

3%

4%

5%

6%

7%

8%

2006 2008 2010 2012 2014 2016

NO Construction Wage Index


2018 Q320

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

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


0.60

0.70

0.80

0.90

1.00

1.10

2010 2012 2014 2016 2018

NOK/DKK SEK/DKK

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

2010 2012 2014 2016 2018

1yr 3yr 5yr 7yr 10yr

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

2010 2012 2014 2016 2018


-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

2010 2012 2014 2016 2018


2018 Q321

Appendix

2018 Q322

Bloomberg consensus table – GDP GrowthGDP growth 2018 2019 2020US 2.89% 2.41% 1.87%

EU 2.20% 1.90% 1.60%

Japan 1.10% 1.00% 0.40%

France 2.00% 1.80% 1.60%

Germany 2.10% 1.90% 1.60%

United Kingdom 1.40% 1.60% 1.80%

Spain 2.75% 2.30% 2.00%

Italy 1.30% 1.20% 1.10%

China 6.50% 6.30% 6.20%

Brazil 2.45% 2.78% 2.82%

Russia 1.80% 1.70% 1.65%

India 6.60% 7.40% 7.50%

Denmark 2.00% 1.90% 1.80%

Norway 2.30% 2.20% 1.80%

Sweden 2.55% 2.10% 2.00%

Finland 2.50% 2.10% 1.20%

Consensus expectations

Table sources: Bloomberg Finance L.P. and Tryg

2018 Q323

Bloomberg consensus table – Unemployment Unemployment rate 2018 2019 2020US 3.86% 3.63% 3.77%

EU 8.40% 7.90% 7.70%

Japan 2.50% 2.44% 2.54%

France 8.85% 8.55% 8.30%

Germany 5.20% 5.10% 4.95%


Spain 15.50% 14.00% 13.50%

Italy 10.85% 10.50% 10.20%

China 4.00% 4.00% 4.00%

Brazil 12.00% 11.00% 11.18%

Russia 5.00% 5.00% 4.95%

India ... ... ...

Denmark 4.05% 3.90% ...

Norway 3.75% 3.50% 3.30%

Sweden 6.30% 6.15% ...

Finland 8.10% 7.75% ...



2018 Q324

Bloomberg consensus table - InflationInflation (CPI) 2018 2019 2020US 2.56% 2.26% 2.20%

EU 1.60% 1.60% 1.70%

Japan 1.00% 1.00% 1.50%

France 1.80% 1.50% 1.70%

Germany 1.80% 1.80% 1.80%


Spain 1.60% 1.60% 1.65%

Italy 1.20% 1.35% 1.55%

China 2.20% 2.20% 2.30%

Brazil 3.32% 4.10% 4.00%

Russia 2.90% 4.00% 4.00%

India 3.70% 4.70% 4.60%

Denmark 1.00% 1.50% 1.60%

Norway 2.00% 1.80% 2.00%

Sweden 1.90% 1.90% 2.00%

Finland 1.00% 1.40% 1.50%



2018 Q325

Disclosure & disclaimerOrigin of the publicationThis publication originates from Tryg Invest A/S Content of the publication or reportThis publication has been prepared solely by Tryg Invest A/S.Validity of the publication All opinions and estimates in this publication or report are, regardless of source, given in good faith, and may only be valid as of the stated date of this publication and are subject to change without notice.No individual investment or tax adviceThe publication is intended only to provide general and preliminary information to customers and shall not be construed as the basis for any investment decision. This publication has been prepared by Tryg Invest A/S as general information for private use of customers to whom the publication hasbeen distributed.Before acting on any information in this publication, it is recommendable to consult one’s financial advisor.This publication may be based on or contain information, such as opinions, recommendations, estimates and valuations which emanate from:Tryg Invest A/S’ analysts or representatives, Publicly available information, orOther named sources.To the extent this publication is based on or contain information emanating from other sources (“Other Sources”) than Tryg Invest A/S (“External Information”), Tryg Invest A/S has deemed the Other Sources to be reliable but neither Tryg Invest A/S, others associated or affiliated with Tryg Invest A/S nor any other person, do guarantee the accuracy, adequacy or completeness of the External Information.Limitation of liabilityTryg Invest A/S assume no liability as regards to any investment, divestment or retention decision taken by the customer on the basis of this publication. In no event will Tryg Invest A/S be liable for direct, indirect or incidental, special or consequential damages resulting from the information in this publication.Distribution restrictionRecipients of this publication should inform themselves about and observe all applicable legal requirements in their jurisdictions. The securities referred to in this publication of report may not be eligible for sale in some jurisdictions. This publication is not intended for, and must not be distributed to customers in the US.This publication or report may not be mechanically duplicated, photocopied or otherwise reproduced, in full or in part, under applicable copyright laws. This publication or any information made available in connection with it may not be disclosed or otherwise made available to any third party without the express written consent of Tryg Invest A/S.

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2018Q3 Macro –Quarterly update: Trump’s highway to hell? · 2018Q3 Macro –Quarterly update: Trump’s highway to hell? Please see important disclosures and disclaimers on page