Daily Insight
Group Economics Macro & Financial Markets Research
10 May 2016
Edging forward on Greece Nick Kounis Head Macro & Financial Markets
this month…
Research Tel: +31 20 343 5616 nick.kounis@nl.abnamro.com
Greece and its creditors are making progress with agreement expected later
…this will open the way for negotiations on Greek debt relief following a new debt sustainability analysis
Maritza Cabezas Senior Economist
Fed official Evans suggests “wait and see monetary policy response appropriate”
Tel: +31 20 343 5618 maritza.cabezas@nl.abnamro.com
Greece and its creditors moving slowly forwards Greece and its creditors continued to make slow progress towards the completion of the first review of its new programme on Monday. Several eurozone finance ministers signalled that the review could be (finally) completed on 24 May, which would open the way for the payment of the second aid tranche as well as debt relief discussions. In the early hours of Monday, the Greek parliament passed reforms to the country’s pension and income tax systems need as part of the review. The main outstanding issue surrounds 2% GDP of contingency budget cuts. These have been demanded by the IMF as it disagrees with the European Commission that Greece will meet its fiscal targets in the baseline scenario. According to sources, the EC and the IMF still need to agree on the specifics of these contingency measures, including crucially, under what conditions they would be triggered. However, finance ministers suggested that the gap between the two sides was narrowing. Following a successful completion of the review, the difficult issue of debt relief will be discussed. German finance minister Wolfgang Schaeuble said that a debt sustainability analysis would be needed to see if debt relief would be ‘needed’. The IMF and Germany strongly disagree on this issue, with the IMF of the view that major debt relief – in the form of restructuring rather than a haircut – will be needed. Germany holds the view that modest (if any) debt relief is needed. The Greek government has expanded a lot of political capital in passing severe austerity and may well need to achieve significant debt relief to have something to show the public for these efforts. In any case, a long and difficult road still lies ahead for Greece and significant risks remain.
US economic data could likely to delay Fed rate hike The recent US economic data are making it more difficult for the Fed to meet its schedule for two rate hikes this year. Indeed soft growth in the first quarter and weak hiring in April’s jobs market report are prompting investors to delay their call for further rate hikes this year. On top
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Daily Insight – Edging forward on Greece – 10 May 2016
of this political developments, including the UK’s EU referendum in June, are increasing uncertainly regarding the global outlook, supporting a delay. Meanwhile, markets continue to expect one rate hike this year according to the Federal Fund futures prices, but the probability of this rate hike has been declining lately. We expect the Fed to keep interest rates on hold this year, as it waits for more evidence that economy is on a firmer footing.
Markets expect one for Fed rate hike pushed out Federal funds rate December 2016, %
1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 Jan 15
Apr 15
Jul 15
Oct 15
Jan 16
Apr 16
Source: Bloomberg
Fed official Evans suggests “wait and see monetary policy response appropriate” Indeed, Monday’s intervention from Federal Reserve Bank of Chicago President Charles Evans in a panel discussion in London, suggested that he remains cautious on the prospects of a rate hike. Evans, a non-voting FOMC member and a dove, mentioned that aiming for an overshoot of inflation may help the Fed reach the 2% target more easily. He said that a prolonged spell of low inflation carried greater risks and a brief overshoot may help anchor expectations of future inflation close to the Fed’s 2% goal. Evans also mentioned that “the continuation of a wait and see monetary policy response is appropriate to ensure that economic growth continues”.
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Daily Insight – Edging forward on Greece – 10 May 2016
Day
Date
Sunday Sunday
08/05/2016 08/05/2016
Monday Monday Monday
09/05/2016 09/05/2016 09/05/2016
Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday
Time
Country
Key Economic Indicators and Events
Period
Latest outcome
Consensus
CN CN
Imports Exports
Apr Apr
-10.9 -1.8
-4.2 0.4
08:00 11:10 19:00
DE US US
Manufacturing orders - % mom Fed's Evans speaks on Economy and Policy (nv) Fed's Kashkari speaks (nv)
Mar Mar Mar
1.9 -1.2 -1.2
1.0 1.0 1.0
10/05/2016 10/05/2016 10/05/2016 10/05/2016 10/05/2016 10/05/2016 10/05/2016 10/05/2016 10/05/2016
03:30 06:30 08:00 10:30 12:00 16:00
CN NL DE GB US US CN CN CN
CPI - % yoy CPI - % yoy Industrial production - % mom Trade balance - GDP mln NFIB small business optimisme - index US Job Openings by Industry Property prices index - % yoy Property prices index - % yoy M2 money growth - % yoy
Apr Apr Mar Mar Apr Mar Apr Apr Apr
2.3 0.6 -0.5 -4840 93 5445 1370 2336 13.4
2.3
Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday
12/05/2016 12/05/2016 12/05/2016 12/05/2016 12/05/2016 12/05/2016 12/05/2016 12/05/2016
10:00 11:00 13:00 13:00 14:00 17:00 17:45 19:30
NO EC GB GB IN US US US
Policy rate - % Industrial production - % mom Policy rate - % BoE size of asset purchase programme - GBP bn CPI - % yoy Fed's Mester speaks about inflation dynamics (v) Fed's Rosengren speaks (v) Fed's George speaks on economy (v)
May 12 Mar May 12 May Apr
0.5 -0.8 0.5 375 4.8
Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday
13/05/2016 13/05/2016 13/05/2016 13/05/2016 13/05/2016 13/05/2016 13/05/2016 13/05/2016 13/05/2016 13/05/2016
06:30 08:00 08:00 11:00 14:30 14:30 14:30 16:00 16:00
NL DE DE EC US US US US US KR
GDP - % qoq CPI - % yoy GDP - % qoq GDP - % qoq Retail sales - % mom Prod. prices index excl food and energy - % mom Prod. prices index - % mom Univ. of Michigan cons. confidence - index Business inventories - % mom Policy rate - %
1Q P Apr F 1Q P 1Q Apr Apr Apr May P Mar May 13
0.3 -0.1 0.3 0.6 -0.3 -0.10 -0.1 89.0 -0.1 1.5
-0.1
ABN AMRO
0.6
0.5 -0.3
840.7 1347.2 13.5
0.0 0.5
0.5 -0.2 0.5
0.4 -0.1 0.6 0.6 0.7 0.10 0.3 89.8 0.1
0.6 0.5 0.8
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
Find out more about Group Economics at: https://insights.abnamro.nl/en/
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