Danske Bank A/S · OMXCOP:DANSKE
Danske Bank A/S — Debt Investor Presentation (December 2016)
23 slides from Danske Bank A/S's debt investor presentation, Dec 14, 2016
Slide 1: FOMC Review
FOMC Review Hawkish Fed even without Trump’s fiscal boost Senior Analyst Global Head of FICC Research Head of Fixed Income Research Mikael Olai Milhøj Thomas Harr Arne Lohmann Rasmussen +45 45 12 76 07 +45 45 13 67 31 +45 45 12 85 32 [email protected] [email protected] [email protected] 14 Dece
Slide 2: Fed hiked and sounded more hawkish than expected
Fed hiked and sounded more hawkish than expected • As expected, the Fed hiked the target range by 25bp to 0.50%-0.75% from 0.25%-0.50% previously. The statement explains the hike by stronger growth in H2 16, a tighter labour market, higher (although still low) inflation expectations and higher infla
Slide 3: We expect two hikes next year but risk is now skewed towards three hikes
We expect two hikes next year but risk is now skewed towards three hikes • We stick to our view that the Fed hikes twice next year (June and December) but risk is now skewed towards three hikes. • It is still important to remember that the Fed turns more dovish next year due to shifting voting right
Slide 4: USD: We believe the USD will strengthen broadly near-term
USD: We believe the USD will strengthen broadly near-term • The USD strengthened broadly, which was as expected given the surprisingly hawkish shift by the Fed expecting three hikes in 2017. • In particularly, the JPY weakened sharply driven by its historical high negative correlation with US rates.
Slide 5: US yields: we still see the curve flattening further
US yields: we still see the curve flattening further • The rate hike and the new ’dots’ that imply three new rate hikes next year coupled with the higher longer- run estimates might at first glance look hawkish. • However, listening to Yellen it is obvious that she does not put too much weight on th
Slide 6: What to look for next year
What to look for next year December hike Triggers for Fed hikes in 2017 Growth to continue above trend; more US growth √ Picked up in H2 16 after weak H1 16 expansionary fiscal policy from Trump Move lower, absorb remaining slack in Unemployment rate √ Has begun to fall again labour market Higher wa
Slide 7: Fed now signals three hikes both in 2017 and 2018
Fed now signals three hikes both in 2017 and 2018 Median ‘dot’ for 2017 revised up to three hikes Markets have priced more than two hikes in 2017 4.00 % Old 'dots' New 'dots' 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 2017 2018 Source: Bloomberg, Federal Reserve Source: Bloomberg, Federal Reserve, Dans
Slide 8: Yellen told us not to put too much weight on small changes to ‘dots’
Yellen told us not to put too much weight on small changes to ‘dots’ Fed signals three hikes in 2017 and 2018 First upward revision to longer-run ‘dot’ ever 3.50 % 'dots' from December-projections 3.00 Median 'dots' 2.50 3 hikes 2.00 1.50 3 hikes 1.00 0.50 0.00 2017 2018 Source: Federal Reserve Sour
Slide 9: Fed more hawkish on expectations of higher growth and lower unemployment rate next year
Fed more hawkish on expectations of higher growth and lower unemployment rate next year Expects slightly lower unemployment rate next year PCE core inflation unchanged – no overshoot 3.50 % 'dots' from September-projections 3.00 Median 'dots' 2.50 2.00 3 hikes 1.50 2 hikes 1.00 0.50 0.00 2017 2018 S
Slide 10: Fed turns more dovish next year due to shifting voting rights
In our view, still important to remember that the Fed turns more dovish next year due to shifting voting rights 2016 2017 Hawkish Lacker Lacker Richmond George George Kansas city Mester Mester Cleveland Rosengren Rosengren Boston Harker Harker Philadelphia Neutral Lockhart Lockhart Atlanta Williams
Slide 11: Macro charts
Danske [Eyal orpor tutions Macro charts
Slide 12: Growth has rebounded after a slowdown in H1 16
Growth has rebounded after a slowdown in H1 16 Growth picked up in Q3 after three weak quarters Growth has continued at an above-trend pace in Q4 Source: BEA Source: BEA, Markit Economics, Danske Bank Markets 11
Slide 13: Private consumption the main growth engine
Private consumption the main growth engine Solid private consumption growth Very high consumer confidence Source: BEA Source: University of Michigan, Conference Board 12
Slide 14: Have investments bottomed out? We think so
Have investments bottomed out? We think so Non-residential investments have been weak Core capex seems to have bottomed out Source: BEA Source: US Census Bureau 13
Slide 15: Headwind from lower oil investments is fading
Headwind from lower oil investments is fading Oil investments to rebound US oil production has increased Source: BEA, Baker Hughes Source: EIA 14
Slide 16: Still a bit more slack left in the labour market
Still a bit more slack left in the labour market Room for lower unemployment rates Participation rate has increased slightly Source: BLS Source: BLS 15
Slide 17: Fed sees the world through the Phillips curve
Fed sees the world through the Phillips curve Tighter labour market => higher wage growth Wage growth still needs to move even higher Source: BLS Source: BLS 16
Slide 18: Global business cycle has turned – synchronised recovery signal across regions
Global business cycle has turned – synchronised recovery signal across regions PMIs are trending up across countries Source: Markit Economics 17
Slide 19: Financial conditions have begun to tighten again
Financial conditions have begun to tighten again, partly driven by higher growth (expectations) The strong USD is back FCI still not as tight as in early 2016 Source: Federal Reserve Source: Goldman Sachs 18
Slide 20: Actual PCE core inflation still below 2% target
Actual PCE core inflation still below 2% target Fed wants to see actual core inflation move higher Goods deflation fading Source: BEA Source: BEA 19
Slide 21: Inflation expectations have rebounded
Inflation expectations have rebounded Inflation expectations still below historical averages Source: SPF, University of Michigan, Bloomberg 20
Slide 22: Disclosures
Disclosures This research report has been prepared by Danske Research, a division of Danske Bank A/S (‘Danske Bank’). The author of this research report is Mikael Olai Milhøj, Senior Analyst. Analyst certification Each research analyst responsible for the content of this research report certifies th
Slide 23: General disclaimer
General disclaimer This research has been prepared by Danske Bank Markets (a division of Danske Bank A/S). It is provided for informational purposes only. It does not constitute or form part of, and shall under no circumstances be considered as, an offer to sell or a solicitation of an offer to purc
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