Investment Research — General Market Conditions

22 December 2017

Weekly Focus
New Year – same low inflation pressure

Market Movers ahead

 In the US, we expect the labour market report for December to be strong, due partly to
some catch-up effects from previous months.
 In the minutes from the December FOMC meeting, we will look for clues as to whether
other members other than Charles Evans and Neel Kashkari came close to dissenting.
 We expect euro-area headline inflation to decline in December on weaker energy price
inflation, while core inflation is expected to increase only slightly. We expect headline
inflation to remain in the range of 1.1-1.4% throughout 2018, as long as underlying
inflation pressure remains muted.
 In Scandinavia, the housing market remains in focus, particularly in Sweden where
property prices are now falling. In Norway, households have remained resilient to
uncertainty on the housing market and we expect retail sales to rebound somewhat.
Contents
Market movers .....................................................2
Global Macro and Market Themes ..........6
Scandi Update.......................................................9
Latest research from Danske Bank
Markets ................................................................ 10
Macroeconomic forecast .......................... 11
Financial forecast ........................................... 12
Calendar ............................................................... 13

Global macro and market themes Financial views

 With the US tax reform, they have adopted an expansionary fiscal policy for next year Major indices
at a time when the economy is operating close to full employment. 22-Dec 3M 12M
10yr EUR swap 0.79 0.90 1.20
 The US is using up limited fiscal ammunition in good times instead of saving it until EUR/USD 118 116 125
ICE Brent oil 65 62 64
the economic cycle turns.
Source: Danske Bank
 Relatively strong US economic growth and a further boost from the tax reform
underscores our overweight US equities and creates upside risk for our forecast for US
10-year rates.
Follow us on Twitter
Focus
@Danske_Research
 Euro Area Research: ECB inflation gap persists in 2019.

Trend growth in non-farm payrolls has Euro inflation set to moderate in 2018
fallen

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

Bank
Editor

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

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

Market movers
Global
 In the US, the coming week brings no market movers. The week after New Year’s Eve,
however, brings several interesting releases. On Wednesday, ISM manufacturing for Trend growth in non-farm payrolls has
fallen
December and FOMC minutes from the December FOMC meeting are due for release.
As the statement from the meeting was broadly unchanged, we also expect the minutes
to reveal no significant news, but we look out for clues as to whether other than Evans
and Kashkari were close to dissenting. For more information on the December FOMC
meeting, see FOMC review: Broadly unchanged Fed signal, 13 December. The gap
between ISM and manufacturing has started narrowing and we expect this to continue.
We estimate ISM fell slightly to 57.7 in December. Friday brings the labour market
report for December. We expect a relatively strong labour market report (compared to
previous months’ reports), due partly to some catch-up effects from previous months. Sources: BLS, Macrobond Financial
Although trend jobs growth has fallen to around 175,000, PMIs point to jobs growth
above 200,000. We estimate non-farm payrolls increased 185,000 with the service
sector as the main contributor. Furthermore, we estimate average hourly earnings
increased 0.3% m/m (2.5% y/y versus 2.5% y/y in November) and an unchanged
unemployment rate at 4.1%.

 In the euro area, we are expecting the German inflation figures for December on
Friday. After breaking above 2% in February 2017, German headline inflation Euro inflation set to moderate in 2018
decreased to 1.5% y/y in October. In November, it somewhat bounced back to 1.8%
y/y primarily driven by energy prices and so we expect it to moderate again to 1.6% y/y
in December.

The euro area inflation figures for December are due for release 5 January 2018. We
expect headline inflation to decline to 1.4% y/y in December due to weaker energy
price inflation, while core inflation is expected to increase only slightly to 1.0% y/y in
December as the strong economic momentum has yet to feed through to higher wages
Source: Eurostat, Macrobond Financial, Danske
to push service price inflation higher. Overall, we expect headline inflation to remain Bank
in the range of 1.1-1.4% y/y on a monthly basis throughout 2018, as long as underlying
inflation pressure remain muted (see Euro Area Research: ECB inflation gap persists
in 2019, 4 December 2017).
UK manufacturing supported by
increasing activity in rest of Europe
 In the UK, the coming two weeks are quiet. The most important release is the PMI
manufacturing for December due out on 2 January. As the equivalent euro area index
has risen in December, we expect another increase in the UK index (although it is more
volatile). While growth in the service sector has slowed, manufacturing production
growth has increased, supported by the global uptick in manufacturing. We forecast an
increase to 58.8. PMI service is due out on 4 January and we expect it to remain broadly
unchanged at 53.8. However, Brexit remains in focus, as transition talks are likely to
start early next year. The aim (hope?) is to reach an agreement on transition before the
EU summit on 22-23 March and to start negotiating the future relationship afterwards. Source: IHS Markit, Macrobond Financial

2| 22 December 2017 www.danskeresearch.com

Weekly Focus

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

inflation figures are due. Inflation has been ticking upwards this year but it has been Underlying price pressure still very
low
driven primarily by energy prices. The underlying price pressure in Japan is still very
low. We will also get an indication of what Q4 private consumption will look like as
the November household spending survey and retail sales tick in on Tuesday and
Thursday, respectively. The October figures were quite disappointing and a pickup here
is key in the process of reflating the Japanese economy. On Thursday, we also get
November industrial production figures. The manufacturing sector has been looking
strong so far this year and PMIs point to continued progress.

 The main release in China over the next two weeks will be PMI manufacturing (Official Source: Japan Statistics Bureau, Macrobond
released on 31 December and Caixin released on 2 January). We look for a moderate Financial

decline as policy tightening and production curbs on steel, aluminium and construction
in the North East of China will weigh on manufacturing activity, see also China Leading We look for PMI to move lower as
Indicators: Bearish signal from commodities, 18 December 2017. Industrial profits are signalled by lower metal price growth
also released. Growth has been very strong this year due to rising producer prices and
rising activity. We look for profit growth in November to stay strong at around 20%
(25.1% in October).

Source: Markit, Macrobond Financial, Danske

Bank

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Weekly Focus

Scandi
 In Denmark, there are no significant releases between Christmas and New Year, but
DKK has been strong against EUR
the first Wednesday of 2018 brings currency reserves data for December. The
EUR/DKK cross has been above 7.4400 throughout the month and thus some way off
the levels where the Nationalbank intervened in February and March this year. The
bank has presumably therefore not felt any need to intervene for a ninth successive
month, the longest period without intervention since early 2014. Business confidence
data is due to be released the following day. Manufacturing sentiment was unchanged
in November and is generally above the level of recent years, which does not make it
any easier to understand the recent weak industrial production statistics. It will be
interesting to see if there is any change in December. Friday 5 January then brings Source: Statistics Denmark

unemployment, foreign portfolio investments and securities statistics for November,

and bankruptcies and repossessions for December.

 Over the next two weeks, there will be a few data points in Sweden worth keeping an
eye on. First, there is the November trade balance. Many observers, not least the Retail sales down after strong growth
government and the Riksbank, point to exports gaining speed, adding positively to GDP
growth and, hence, bolstering a potentially negative impact of falling property prices.
Clearly, we need to see some improvement here.

Second, household lending growth has been accelerating but given the drop property
prices, a likely slowdown in residential construction activity going forward and
possibly slightly more restrictive bank lending, growth is set to decelerate again. It may,
however, be too soon to expect this to have happened in November as lending is quite
slow to respond. Source: Macrobond Financial, Danske Bank

 In Norway, retail sales performed very poorly during the autumn after growing strongly
up until the summer. It is tempting to assume that this has to do with increased
PMI likely to drop slightly
uncertainty about the housing market, since both real wages and employment are going
great guns. On the other hand, the national accounts revealed that consumption of
services is holding up well, and strong growth in new car sales shows that households
have not lost their cool. The downturn in retail sales may therefore be the result of a
structural change, with consumption of goods losing ground to consumption of services
as standards of living increase. Nevertheless, we expect a solid correction in November
after several weak months and so predict an increase of 0.8% m/m. Also coming up is
LFS unemployment data for October (September-November). We have already seen
the NAV’s jobless measure fall during this period, but the LFS measure is still a fair bit Source: NIER, Swedbanksss
higher. We expect an unchanged LFS unemployment rate of 4.0%, but as usual we
would stress that we place more importance on the more stable statistics from the NAV.

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Weekly Focus

Market movers ahead

Global movers Event Period Danske Consensus Previous
Mon 25-Dec 6:00 JPY Leading economic index, final Index Oct 106.1
Wed 27-Dec 2:30 CNY Industrial profits y/y Nov 25.1%
Thurs 28-Dec 0:50 JPY Industrial production, preliminary m/m|y/y Nov 0.5%|3.6% 0.5%|5.9%
0:50 JPY Retail trade m/m|y/y Nov 0.7%|1.0% -0.1%|-0.2%
Fri 29-Dec 14:00 DEM HICP, preliminary m/m|y/y Dec …|1.6% 0.6%|1.4% 0.3%|1.8%

Scandi movers
Fri 29-Dec 9:30 SEK Household lending y/y Nov 7.0% 7.1%
Global movers Event Period Danske Consensus Previous
During the week Sun 31 CNY PMI manufacturing Index Dec 51.7 51.8
Tue 02-Jan 2:45 CNY Caixin PMI manufacturing Index Dec 50.7 50.8
10:30 GBP PMI manufacturing Index Dec 58.8 57.8 58.2
Wed 03-Jan 16:00 USD ISM manufacturing Index Dec 57.7 58.0 58.2
20:00 USD FOMC minutes
Thurs 04-Jan 10:30 GBP PMI services Index Dec 53.8 54.1 53.8
Fri 05-Jan 11:00 EUR HICP - core inflation, preliminary y/y Dec 1.0% 1.0% 0.9%
11:00 EUR HICP inflation, preliminary y/y Dec 1.4% 1.4% 1.5%
14:30 USD Unemployment % Dec 4.1% 4.0% 4.1%
14:30 USD Non farm payrolls 1000 Dec 185 185 228

Scandi movers
Tue 02-Jan 8:30 SEK PMI manufacturing Index Dec 63.0 63.3
9:00 NOK PMI manufacturing Index Dec 57.1
Wed 03-Jan 8:00 NOK Unemployment (LFS) % Oct 4.0% 4.0%
16:00 DKK Currency reserves DKK bn Dec 464.2 464.2
Thurs 04-Jan 11:00 NOK House price report m/m Dec 4.0% 4.0%
Source: Bloomberg, Danske Bank

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Weekly Focus

Global Macro and Market Themes

What the US and Denmark had in common this week and what it
means for global financial markets

Denmark and US adopt expansionary fiscal policies late in the economic

cycle… Today’s key points
Normally the week ahead of Christmas is characterised by holiday peace setting in over
 Both Denmark and the US have
politics and financial markets alike. At this time, government budget deals for the next year
adopted expansionary fiscal
are typically safely sealed and investors have closed their positions awaiting the new
policies for next year, with both
investment year. However, this year, two countries, Denmark and the US, stood out as their
operating close to full
politicians frantically scrambled to get fiscal packages through their parliaments.
employment.
In the US, the Republican Party achieved a major political boost by getting tax reform
 The US is using up limited fiscal
approved by both chambers of congress. The tax reform, costing an estimated USD1,500trn
ammunition in good times instead
over the next 10 years, lowers corporate income tax from 31% to 21% and cuts the top
of saving it until the economic
marginal personal income tax rate from 39.6% to 37.0% while offering incentives for US
cycle turns.
companies to repatriate foreign income.
 The combination of rather strong
In Denmark, the Danish government managed to find agreement on a new budget for 2017.
US economic growth and a further
Similarly to the US republican party, the Danish government also attempted to push
boost from a tax reform
through tax cuts but failed in the end due to a lack of parliamentary support but plans to
underscores our overweight US
make another attempt to get the reform through in January.
equities.
So, apart from the political drama, what did these events have in common in the two
 The US tax reform creates some
countries? Well, the US tax reform and the Danish budget mean that fiscal policies in both
upside risk for our forecast for US
countries will be expansionary next year (in Denmark, admittedly on a rather limited scale).
10-year rates.
Admittedly, other countries, such as Germany, Sweden and Estonia, may also be in such a
situation (judging from IMF WEO data).  The EUR/USD should still move
higher in 2018.
Fiscal policy set to be pro-cyclical in several advanced economies in 2018
 The US tax reform could be a
Output gaps and fiscal policy effects in 2018 mixed bag for emerging markets.
1.5 %

0.5

-0.5

-1

-1.5
Japan Euro Area France Italy Germany Estonia Denmark United Sweden
States

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

Note: The fiscal policy stance is measured by the change in the structural primary balance using IMF WEO
October 2017 data except for Denmark, which is based on the recently budget document for 2018
Source: IMF WEO October 2017, Denmark’s Ministry of Finance, Danske Bank calculations

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Weekly Focus

While such expansionary policy may make sense politically (especially for the Republicans
in the US ahead of next year’s mid-term elections), it is difficult to see the economic
rationale, as both countries are operating very close to full employment and have estimated
positive output gaps in 2017 (see chart below). Under these circumstances, fiscal policies
should ideally be used to temper domestic demand, not add further fuel to the fire.

Another issue, mainly for the US, is that the tax cuts use up limited fiscal ammunition in
good times instead of saving it until the economic cycle turns. The underlying US fiscal Net US public debt set to reach 100%
of GDP in mid-2020s
situation is already quite vulnerable, as public net debt amounts to almost 80% of GDP (in
gross terms almost 110% of GDP) and the public deficit accounts for more than 4% of
GDP. Given the forthcoming spending pressure from pension and healthcare obligations,
the congressional budget office projects US net public debt will rise to 90% of GDP over
the next decade, even before the tax cuts. With the tax cuts, the Committee for Responsible
Federal Budget (CRFB) projects this net debt burden will rise even further to 100% of GDP
by 2027. While US interest payment on this rather large debt stock is pretty small at the
moment due to the low interest rates, the IMF projects the debt service burden to grow quite
Source: CBO, Committee for a Responsible Federal
strongly as interest rates climb. Luckily, Denmark does not face the same fiscal challenges Budget, Macrobond Financial
because the public debt is fairly low and the pension system is fully funded.

The key uncertainty for investors is what, in particular, the US tax reform (given Denmark
is rather small in the grand scheme of things) will mean for investors.

Higher US equities and interest rates – uncertain USD effects

In our view, the tax reform should have a positive impact on US economic growth and
US equities and short-term rates have
therefore US equities. We have already seen a move higher over the fall as markets moved higher with the tax reform
increased their expectations of the tax reform. The combination of rather strong US
economic growth and a further boost from tax reform underscores our overweight US
equities.

However, the additional growth effects of the US tax cuts for the US economy may be more
limited than normal. First, the income tax cuts are targeted mainly at high income earners,
who have a low marginal propensity to consume. Second, investments may not increase
significantly despite the possibility of deducting investment costs, as credit has been cheap
and easy in recent years. Third, fiscal multipliers (i.e. how much additional economic Source: Bloomberg, Macrobond Financials

growth can fiscal expansion generate?) tend to be low when the output gap is almost closed,
as is the case in the US right now. In aggregate, we expect the reform to lift US GDP growth
by around 0.2-0.3pp in 2018.

In theory, the combination of looser fiscal and tighter monetary policies (which will be the
case with the Fed hiking rates and reducing its balance sheet next year) should push up US
interest rates, which in turn should aide the USD. Indeed, we have seen short-term interest
rates in the US move higher as the likelihood of the tax reform increased. The impact on
the long-end of the US curve has been more limited but 10-year US yields did jump around
11bp over the past week. However, we do not expect a major sell-off in fixed income, such
as after the election of Donald Trump. Given the rather limited growth impact and the still
muted inflation pressures (which we see continuing in 2018), we maintain our call that the
Fed will hike rates only two to three times next year. However, there may be slight upside
risk to our forecast for 10-year US yields of 2.7% in 2018.

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Weekly Focus

Despite the boost to US interest rates and the possible US corporate repatriation flows back
Weak US fiscal situation tend to imply
into the US, the impact on the USD has been rather limited. What is at play? Well first of
a weak USD
all, the scale of repatriation flows may be constrained by two factors compared with 2005
when such a feature was in place. First, it is likely a significant portion of reinvested
earnings held abroad for tax purposes is already denominated in USD to avoid balance
sheet volatility given the substantial USD strength in recent years. In addition, the USD
now also seems overvalued against EUR and GBP (see table below). This could further
lower repatriation volumes. Finally, judging from history, the USD tends to perform
relatively poorly when the US fiscal situation is weaker, as the current account weakens.
Hence, we maintain our view that EUR/USD should move up to about 1.25 over the next Source: Intercontinental Exchange (ICE), U.S.
year. Congressional Budget Office (CBO) and
Macrobond Financial.
Emerging markets – US tax reform is a mixed bag
After a very good 2017 for emerging markets, they are again back on investors’ wish lists.
The uncertainty is what the US tax reform means for emerging markets and, more broadly, Bullish on Eastern Europe, bearish on
TRY
what the outlook is for emerging in 2018. On US tax reform, we think it could be a mixed
bag for emerging markets. While they generally thrive on higher US and global growth
given their export dependence, the impact of the tax reform should be fairly limited.
However, if the tax reform should push US interest rates materially higher (which is not
our base case), it would be likely to ignite capital outflows from emerging markets and put
pressure on countries with large current account deficits or USD debt, such as Turkey.

However, overall we still see general good prospects for emerging markets in 2018,
although there are clearly some risks to watch out for (for more details see Emerging Source: Bloomberg and Danske Bank
Markets Briefer: Slowing down to single-digit growth, 20 December). In our view, the
biggest risk to emerging markets comes from China and the likely slowdown in
construction activity, which, in particular, is likely to hit commodity prices and therefore
commodity-producing countries, such as Chile, with large exposure to China. Geopolitical
and domestic risks, with presidential elections in Brazil, Russia, Colombia and Mexico, are
likely to cause some volatility in 2018. On emerging market FX, we remain bullish on CEE
currencies as well as on the RUB.

Global market views

Asset class Main factors
Equities
Positive on 3-12 month horizon. Strong business cycle and near double digit earnings growth in most major regions. Low rates and bond yields drive demand for risk assets.

Bond market
German/Scandi yields – set to stay in recent range for now, higher on
12M horizon
EU curve – 2Y10Y set to steepen when long yields rise again. Flattening ofThe
US-euro spread - set to widen marginally
Peripheral spreads – tightening but still some factors to watch
Inflation set to stay subdued despite decent growth. Stronger euro keeps euro inflation outlook down. ECB to normalise gradually only, due to lack of wage pressure and
stronger euro. ECB on hold for a long time.
USECB
2Y10Y
keeps
curve
a tight
to continue
leash on the short end of the curve. With 10Y yields stable, the curve should change little on a 3-6M horizon. Risk is skewed towards a steeper
curve but that is a 6M to 12M forecast.
The Fed's QT programme (balance sheet reduction) is set to happen at a very gradual pace and the effect on the Treasury market should be benign. Yet, market pricing
for Fed hikes is still dovish for 2019 and yields should edge higher on a 12M horizon.
We expect economic recovery, ECB stimuli, better fundamentals, particularly in Portugal and Spain, an improved political picture and rating upgrades to lead to further
tightening despite the recent strong moves. Italy is the big risk factor but it is very expensive to be short Italian bonds.

FX
EUR/USD – consolidating near term but upside risks in 2018
EUR/GBP – in range near term but GBP to strengthen eventually
USD/JPY – gradually higher longer term but challenged near term
EUR/SEK – risk to the topside on housing market, Riksbank pricing
EUR/NOK – lower but watch out for year-end NOK-seasonality
EUR/USD to be rangebound near term. We still see the cross moving firmly into mid-1.20s supported by valuation and debt-flow reversal in 2018.
We still see EUR/GBP within 0.8650-0.90 in coming months as the Brexit risk premium is likely to persist despite progress in negotiations. Longer term, GBP should
strenghten.
Policy normalisation at the Fed and eventually at the ECB, while the Bank of Japan is staying dovish, means support for EUR/JPY and USD/JPY alike on a 12M horizon.
Housing market risk premium to keep SEK under pressure alongside too aggressive Riksbank market pricing. Eventually lower but not story in coming quarters.
NOK headwinds towards year end but longer term we expect the NOK to rebound on valuation, growth and real-rate differentials.

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

Source: Danske Bank

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Weekly Focus

Scandi Update
Denmark – consumer confidence down slightly in December
The consumer confidence indicator edged down to 6.5 in December, somewhat below our
forecast of 8.2. The decrease was due mainly to consumers taking a less positive view of Slight dip in consumer confidence
how their personal finances have fared over the past year. On the other hand, they are more
optimistic about the outlook for their personal finances. Generally speaking, consumer
confidence has been higher this year than it was in 2016.

Retail sales increased 1.3% m/m in November after a relatively sharp fall in October, with
sales of clothing in particular picking up. The increase does, of course, need to be seen in
the light of Black Friday, which fell at the end of November and may have led to a shift in
spending patterns.
Source: Statistics Denmark

Finally, the week’s employment figures for October showed an increase of 4,200 people
m/m. This further solid job growth heading into Q4 firmly underlines that the upswing in
Denmark is very much alive and kicking. We expect employment to continue to climb
during the rest of 2017 and into the New Year.

Sweden – Riksbank bond holding rises despite end of QE

Much in line with expectations, the Riksbank decided to keep the repo rate unchanged, the
repo rate forecast intact (saying rate hikes starting Q3 18) and to end government bond CPIF – Danske Bank and RB forecasts
purchases (QE) – at least on paper. Why on paper? The answer is the fact that there is a
redemption of a bond (SGB1052) in March 2019, while the RB decided to smooth the re-
investment of the redemption (RB owns SEK50bn of the bond) starting in January next
year and continuing through June 2019. In addition the RB will re-invest coupons. In effect
this means that its bond portfolio will increase further until the actual redemption takes
place, in spite of the fact that QE has formally ended. So the downward pressure on Swedish
bond yields stemming from RB purchases will remain for quite some time. Other than that,
the message was very much the same as before. Inflation has reached the target, but a Source: Danske Bank, Riksbank
substantial amount of stimulus is still warranted to ensure that inflation stays close to the
target.

Norway – unemployment continues to fall

Registered unemployment was unchanged in seasonally adjusted terms at 2.5% in
December. Gross unemployment, our preferred jobless measure, fell by 400 people m/m, Unemployment at three-year low
which is a slightly smaller decrease than we had anticipated, but unemployment is still
coming down, with 14,000 fewer people now out of work than in December last year.
Falling unemployment is the best crosscheck for whether economic growth is above trend
and capacity utilisation is rising. These levels are exactly what Norges Bank predicted in
its monetary policy report and will not affect the outlook.

Source: Macrobond Financial, Danske Bank

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Weekly Focus

Latest research from Danske Bank

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

The Chinese Central Economic Work Conference ended yesterday. It spells out economic
priorities for coming years and, as we expected, it put fighting financial risks at the top of
the economic policy agenda.

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

Main takeaways. The Riksbank kept the repo rate and the repo rate path unchanged as
expected. Also as expected, it ended the QE programme.

20/12 Emerging Markets Briefer - December 2017

Emerging markets (EM) are set to close the year on a very positive note despite numerous
headwinds from local political uncertainties to geopolitical woes and continuing monetary
tightening in developed economies.

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

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

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

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

We have revised our forecast slightly higher for 2018 and expect Finnish GDP to grow
2.3% in 2018 and 1.9% in 2019.

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

Monthly FX Forecast Update

10 | 22 December 2017 www.danskeresearch.com

Weekly Focus

Macroeconomic forecast
Macro forecast, Scandinavia
Private Public Fixed Stock Ex- Im- Infla- Unem- Public Public Current
Year GDP 1 cons.1 cons.1 inv.1 build.2 ports1 ports1 tion1 ploym.3 budget4 debt4 acc.4

Denmark 2016 2.0 2.3 0.3 6.0 0.0 2.8 3.8 0.3 4.2 -0.6 37.7 7.3
2017 2.4 1.9 1.0 2.6 0.1 5.0 4.7 1.1 4.4 -0.9 35.6 8.3
2018 2.0 2.3 0.5 4.3 0.0 2.8 3.6 1.1 4.3 -0.7 34.4 7.8
Sweden 2016 3.3 2.2 3.4 5.6 0.0 3.3 3.4 1.0 6.9 1.1 42.4 1.1
2017 3.1 2.3 0.6 8.0 0.0 3.4 5.0 1.9 6.7 0.3 39.5 4.8
2018 2.0 1.4 1.6 3.1 0.0 3.3 3.3 1.7 6.6 0.0 39.3 5.2
Norway 2016 1.0 1.5 2.1 -0.2 1.4 -1.8 2.3 3.6 3.0 - - -
2017 2.0 2.5 1.8 3.6 0.2 1.0 4.5 2.0 2.7 - - -
2018 2.3 2.4 2.1 2.0 -0.1 1.5 0.7 1.6 2.5 - - -

Macro forecast, Euroland

Private Public Fixed Stock Ex- Im- Infla- Unem- Public Public Current
Year GDP 1 cons.1 cons.1 inv.1 build.2 ports1 ports1 tion1 ploym.3 budget4 debt4 acc.4

Euroland 2016 1.8 2.0 1.7 4.5 - 3.3 4.7 0.2 10.0 -1.5 88.9 3.3
2017 2.4 1.8 1.1 4.1 - 4.8 4.7 1.5 9.1 -1.1 88.1 3.0
2018 2.0 1.9 1.3 4.9 - 3.7 4.9 1.3 8.4 -0.9 87.2 3.0
Germany 2016 1.9 1.9 3.7 2.9 - 2.4 3.8 0.4 4.2 0.8 68.1 8.3
2017 2.6 2.4 1.2 4.4 - 4.8 5.2 1.7 3.8 0.9 64.8 7.8
2018 2.4 2.4 2.0 4.2 - 3.6 5.2 1.4 3.5 1.0 61.2 7.5
France 2016 1.1 2.1 1.2 2.7 - 1.9 4.2 0.3 10.0 -3.4 96.5 -0.9
2017 1.9 1.3 1.6 3.6 - 3.1 4.8 1.2 9.5 -2.9 96.9 -1.0
2018 2.2 2.3 1.5 4.5 - 3.6 4.8 1.2 9.3 -2.9 96.9 -0.9
Italy 2016 1.1 1.5 0.5 3.0 - 2.6 3.3 -0.1 11.7 -2.5 132.0 2.7
2017 1.5 1.5 0.9 3.2 - 5.1 5.5 1.3 11.3 -2.1 132.1 2.5
2018 1.4 1.2 0.7 4.4 - 3.4 4.0 0.9 10.9 -1.8 130.8 2.5
Spain 2016 3.3 3.0 0.8 3.3 - 4.8 2.7 -0.3 19.6 -4.5 99.0 1.9
2017 3.1 2.5 1.2 4.8 - 5.0 3.9 2.0 17.3 -3.1 98.4 1.7
2018 2.7 2.9 1.2 3.7 - 3.0 3.3 1.2 15.7 -2.4 96.9 1.9
Finland 2016 1.9 1.8 1.2 7.2 - 1.3 4.4 0.4 8.8 -1.8 63.1 -1.4
2017 2.8 2.0 -0.2 8.5 - 8.0 5.0 0.7 8.5 -2.1 63.0 -0.4
2018 1.8 1.5 0.2 3.0 - 4.0 3.0 1.1 8.0 -1.1 62.4 -0.4

Macro forecast, Global

Private Public Fixed Stock Ex- Im- Infla- Unem- Public Public Current
Year GDP 1 cons.1 cons.1 inv.1 build.2 ports1 ports1 tion1 ploym.3 budget4 debt4 acc.4

USA 2016 1.5 2.7 0.8 0.7 -0.4 -0.3 1.3 1.3 4.9 -3.2 106.0 -2.4
2017 2.2 2.7 -0.2 3.8 -0.1 3.2 3.3 2.2 4.4 -3.6 106.0 -2.4
2018 2.4 2.2 0.0 5.1 0.0 3.6 2.6 2.5 4.0 -3.5 107.0 -3.0
China 2016 6.7 - - - - - - 2.0 4.1 -3.0 46.3 2.4
2017 6.8 - - - - - - 2.0 4.3 -3.3 49.9 2.1
2018 6.3 - - - - - - 2.0 4.3 -3.0 53.3 1.5
UK 2016 1.8 2.9 1.1 1.3 0.5 1.1 4.3 0.7 4.9 -2.9 88.3 -4.4
2017 1.5 1.8 0.6 2.4 -0.4 4.5 3.0 2.6 4.4 -2.4 87.0 -4.6
2018 1.3 1.3 0.5 1.9 0.1 2.4 2.2 2.2 4.1 -2.0 87.3 -4.7
Source: OECD and Danske Bank. 1) % y/y. 2) % contribution to GDP growth. 3) % of labour force. 4) % of GDP.

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Financial forecast
Bond and money markets
Key int. Currency Currency Currency
3m interest rate 2-yr swap yield 10-yr swap yield
rate vs EUR vs USD vs DKK
USD 22-Dec 1.50 1.59 2.01 2.35 117.9 - 631.4
+3m 1.50 1.58 2.15 2.35 116.0 - 641.6
+6m 1.75 1.75 2.25 2.40 120.0 - 620.2
+12m 1.75 2.04 2.55 2.70 125.0 - 595.6
EUR 22-Dec 0.00 -0.33 -0.19 0.79 - 117.9 744.4
+3m 0.00 -0.33 -0.10 0.90 - 116.0 744.3
+6m 0.00 -0.33 -0.05 1.00 - 120.0 744.3
+12m 0.00 -0.33 -0.05 1.20 - 125.0 744.5
JPY 22-Dec -0.10 -0.02 0.04 0.24 132.3 112.2 5.63
+3m -0.10 - - - 131.1 113.0 5.68
+6m -0.10 - - - 136.8 114.0 5.44
+12m -0.10 - - - 142.5 114.0 5.22
GBP 22-Dec 0.50 0.52 0.79 1.26 87.7 134.4 848.8
+3m 0.50 0.53 0.85 1.35 88.0 131.8 845.7
+6m 0.50 0.53 0.90 1.50 87.0 137.9 855.5
+12m 0.50 0.64 1.10 1.75 86.0 145.3 865.7
CHF 22-Dec -0.75 -0.75 -0.51 0.21 116.4 98.8 639.4
+3m -0.75 - - - 116.0 100.0 641.6
+6m -0.75 - - - 120.0 100.0 620.2
+12m -0.75 - - - 123.0 98.4 605.3
DKK 22-Dec 0.05 -0.30 -0.07 0.97 744.4 631.4 -
+3m 0.05 -0.30 0.05 1.10 744.3 641.6 -
+6m 0.05 -0.30 0.10 1.20 744.3 620.2 -
+12m 0.05 -0.30 0.15 1.45 744.5 595.6 -
SEK 22-Dec -0.50 -0.59 -0.22 1.10 993.9 843.1 74.9
+3m -0.50 -0.50 -0.05 1.15 1010.0 870.7 73.7
+6m -0.50 -0.45 -0.05 1.15 990.0 825.0 75.2
+12m -0.50 -0.45 -0.05 1.25 980.0 784.0 76.0
NOK 22-Dec 0.50 0.83 1.10 1.87 975.9 827.8 76.3
+3m 0.50 0.80 1.10 2.00 940.0 810.3 79.2
+6m 0.50 0.80 1.15 2.10 920.0 766.7 80.9
+12m 0.75 1.10 1.35 2.45 910.0 728.0 81.8

Commodities
2017 2018 Average
22-Dec Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2017 2018
NYMEX WTI 58 52 48 48 55 58 58 58 58 51 58
ICE Brent 65 55 51 52 62 62 62 64 64 54 63

Source: Danske Bank

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Calendar
Key Data and Events in Week 52
During the week Period Danske Bank Consensus Previous

Monday, December 25, 2017 Period Danske Bank Consensus Previous

6:00 JPY Leading economic index, final Index Oct 106.1
Tuesday, December 26, 2017 Period Danske Bank Consensus Previous
0:30 JPY CPI - national y/y Nov 0.5% 0.2%
0:30 JPY CPI - national ex. fresh food y/y Nov 0.8% 0.8%
0:30 JPY Unemployment rate % Nov 2.8% 2.8%
0:30 JPY Job-to-applicant ratio Nov 1.56 1.55
0:30 JPY Household Spending Survey Nov
Wednesday, December 27, 2017 Period Danske Bank Consensus Previous
2:30 CNY Industrial profits y/y Nov 25.1%
16:00 USD Pending home sales m/m|y/y Nov -0.5%|… 3.5%|1.2%
16:00 USD Conference Board consumer confidence Index Dec 128.0 129.5
Thursday, December 28, 2017 Period Danske Bank Consensus Previous
0:50 JPY Industrial production, preliminary m/m|y/y Nov 0.5%|3.6% 0.5%|5.9%
0:50 JPY Retail trade m/m|y/y Nov 0.7%|1.0% -0.1%|-0.2%
8:00 NOK Retail sales, s.a. m/m Nov 0.8% 1.0% -0.2%
9:30 SEK Trade balance SEK bn Nov -2.0 -3.1
10:00 EUR ECB Publishes Economic Bulletin
14:30 USD Initial jobless claims 1000 245
14:30 USD Advance goods trade balance USD bn Nov -67.5 -68.1
15:45 USD Chicago PMI Index Dec 61.8 63.9
17:00 USD DOE U.S. crude oil inventories K -6495
Friday, December 29, 2017 Period Danske Bank Consensus Previous
9:00 ESP HICP, preliminary m/m|y/y Dec 0.2%1.5% 0.3%|1.8%
9:30 SEK Wages (blue collars/white collars) y/y Oct 2.3%
9:30 SEK Household lending y/y Nov 7.0% 7.1%
10:00 NOK Norges Bank's daily FX purchases m Jan -900
10:00 EUR Money supply (M3) y/y Nov 4.9% 5.0%
10:00 EUR Loans to households (adj. for sales and sec.) % Nov 4.9% 5.0%
10:00 EUR Loans to NFCs (adj. for sales and sec.) % Nov 4.9% 5.0%
14:00 DEM HICP, preliminary m/m|y/y Dec …|1.6% 0.6%|1.4% 0.3%|1.8%
The editors do not guarantee the accurateness of figures, hours or dates stated above
For furher information, call (+45 ) 45 12 85 22.
Source: Danske Bank

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Calendar
Key Data and Events in Week 1
During the week Period Danske Bank Consensus Previous
Sun 31 CNY PMI manufacturing Index Dec 51.7 51.8
Sun 31 CNY PMI non-manufacturing Index Dec 54.9 54.8
Monday, January 1, 2018 Period Danske Bank Consensus Previous

Tuesday, January 2, 2018 Period Danske Bank Consensus Previous

2:45 CNY Caixin PMI manufacturing Index Dec 50.7 50.8
8:30 SEK PMI manufacturing Index Dec 63.0 63.3
9:00 NOK PMI manufacturing Index Dec 57.1
9:15 ESP PMI manufacturing Index Dec 56.3 56.1
9:45 ITL PMI manufacturing Index Dec 58.5 58.3
9:50 FRF PMI manufacturing, final Index Dec 59.3 59.3
9:55 DEM PMI manufacturing, final Index Dec 63.3 63.3
10:00 EUR PMI manufacturing, final Index Dec 60.6 60.6
10:30 GBP PMI manufacturing Index Dec 58.8 57.8 58.2
15:30 CAD RBC manufacturing PMI Index Dec 54.4
15:45 USD Markit PMI manufacturing, final Index Dec 55.8 55.0
Wednesday, January 3, 2018 Period Danske Bank Consensus Previous
- USD Total vechicle sales m Dec 17.45 17.4
8:00 NOK Unemployment (LFS) % Oct 4.0% 4.0%
9:55 DEM Unemployment % Dec 5.5% 5.6%
10:30 GBP PMI construction Index Dec 53.1 53.1
16:00 DKK Currency reserves DKK bn Dec 464.2 464.2
16:00 USD Construction spending m/m Nov 0.7% 1.4%
16:00 USD ISM manufacturing Index Dec 57.7 58.0 58.2
20:00 USD FOMC minutes
Thursday, January 4, 2018 Period Danske Bank Consensus Previous
1:30 JPY Nikkei Manufacturing PMI, final Index Dec 54.2
2:45 CNY Caixin PMI service Index Dec 51.9
8:00 DKK Confidence indicator, industry, s.a. Net balance Dec 2
8:30 SEK PMI services Index Dec 62.0 61.8
9:15 ESP PMI services Index Dec 54.7 54.4
9:45 ITL PMI services Index Dec 54.7 54.7
9:50 FRF PMI services, final Index Dec 59.4 59.4
9:55 DEM PMI services, final Index Dec 55.8 55.8
10:00 EUR PMI composite, final Index Dec 58.0 58.0
10:00 EUR PMI services, final Index Dec 56.5 56.5
10:30 GBP Mortgage approvals 1000 Nov 64.1 64.6
10:30 GBP PMI services Index Dec 53.8 54.1 53.8
10:30 GBP Broad money M4 m/m|y/y Nov 0.6%|4.1%
11:00 NOK House price report m/m Dec 4.0% 4.0%
14:15 USD ADP employment 1000 Dec 190 190
14:30 USD Initial jobless claims 1000
15:45 USD Markit PMI service, final Index Dec 53.8 52.4
17:00 USD DOE U.S. crude oil inventories K
19:30 USD Fed's Bullard (non-voter, dovish) speaks
Source: Danske Bank

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Calendar (continued)
Friday, January 5, 2018 Period Danske Bank Consensus Previous
1:30 JPY Markit PMI services Index Dec 51.2
8:00 DKK CB's securities statistics Nov
8:00 DKK Foriegn portfolio investments Nov
8:00 DKK Forced sales (s.a.) Number Dec
8:00 DKK Bankruptcies (s.a.) Number Dec
8:00 NOK Credit indicator (C2) y/y Nov 5.7%
8:00 DKK Gross unemployment s.a. K (%) Nov 4.3% 116 (4.3%)
8:00 DEM Retail sales m/m|y/y Nov 1.0%|2.2% -1.0%|-1.4%
8:45 FRF Consumer confidence Index Dec 103.0 102.0
8:45 FRF HICP, preliminary m/m|y/y Dec 0.4%|1.3% 0.1%|1.2%
11:00 EUR PPI m/m|y/y Nov 2.5%|0.3% 2.5%|0.4%
11:00 EUR HICP - core inflation, preliminary y/y Dec 1.0% 1.0% 0.9%
11:00 EUR HICP inflation, preliminary y/y Dec 1.4% 1.4% 1.5%
11:00 ITL HICP, preliminary m/m|y/y Dec -0.2%|1.1%
14:30 USD Unemployment % Dec 4.1% 4.0% 4.1%
14:30 USD Average hourly earnings, non-farm m/m|y/y Dec 0.3%|2.5% 0.3%|2.5% 0.2%|2.5%
14:30 USD Non farm payrolls 1000 Dec 185 185 228
14:30 USD Trade balance USD bn Nov -47.4 -48.7
14:30 CAD Net change in full time employment 1000 Dec 29.6
16:00 USD Core capital goods orders, final % Nov
16:00 USD ISM non-manufacturing Index Dec 57.3 57.4
The editors do not guarantee the accurateness of figures, hours or dates stated above
For furher information, call (+45 ) 45 12 85 22.
Source: Danske Bank

15 | 22 December 2017 www.danskeresearch.com

Weekly Focus

Disclosures
This research report has been prepared by Danske Bank A/S (‘Danske Bank’). The author of this research report is
Louise Aggerstrøm Hansen, Senior Analyst.
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Report completed: 22 December 2017, 12:15 GMT

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

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