Sweden: Emerging markets the weak link in the global economy

Market movers ahead

The main event next week is the US job report. We expect job growth slowed to 180,000 in September. Job growth will need to drop below 160,000 before the Fed will see it as an obstacle to starting the tightening cycle later this year.
China still attracts much attention. We expect the official PMI to decline slightly to 49.5 in September from 49.7 in August. We expect Caixin service PMI dropped to 51.0 in September from 51.5 in August as the weakness in the industrial sector should have some spill-over to services as well.
In the euro area, the focus is on inflation in September which the markets will follow closely as the pressure on Draghi for further easing intensifies. We expect inflation turned negative again.
In the UK, we must see strong growth in the Index of Services through Q3 in order to have above-trend GDP growth, as production and construction Q3 figures released so far have been weaker than expected.
In Denmark, the FX reserves data for September will show to what degree the Danish central bank has continued to intervene in the FX market.

Global macro and market themes

The Emerging Markets have become the weak link in the global economy and represent the biggest risk factor currently.
We look for Chinese growth to stay around 6½-7% in the coming years, while there is likely to be little relief for commodity-exporting EM economies.
The US economy continues with a moderate recovery and the Fed is expected to start raising rates in December – although very slowly.
The euro recovery faces some downside risk in the short term from the EM turmoil but we expect the recovery to continue in the medium term.

Focus

Nordic Outlook – September 2015, 24 September 2015.
Norges Bank Review: A 25bp rate cut and an easing bias, 24 September 2015

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