Daily Insight The DM-EM conundrum
Group Economics Macro & Financial Markets Research Nick Kounis & Aline Schuiling +31 20 343 5616
11 September 2015 • • •
There has been a striking divergence between developed (DM) and emerging (EM) markets DM demand has not helped EM exports, while EMs have seen tighter financial conditions Eurozone exports have been resilient to EM weakness, helped by US and other EU demand
A striking divergence
Manufacturing PMIs EM versus DM
One of the most striking current features of the global economy
index
is the unusual divergence between the direction of economic
58
growth in DM and EM economies. This divergence already
56
started in 2014, when advanced economy growth accelerated
54
slightly, while emerging market growth slowed. However, this divergence seems to have become more stark this year. For instance, while the manufacturing PMI for DMs has been stable since the start of the year, the EM aggregate has fallen by 2 points, to the lowest level since April 2009.
52 50 48 46 2011
2012 Developed
2013
2014
Emerging
2015 World
Link between DM demand and EM exports Typically there is a strong relationship between domestic
Source: Thomson Reuters Datastream, ABN AMRO Group Economics
demand growth in the DMs and EM export growth. So we had expected the gradual improvement in the domestic economies in the US and the eurozone, to also support EM economies. However, as with the manufacturing PMIs, DM demand and EM exports have gone in different directions in 2014-2015. What explains this divergence? One factor might by weak intra EM exports due to specific weakness in these economies. In addition, weakness in the yen and the euro may have hurt the exports of some Asia economies. Another factor may be a more structural weakness in trade and manufacturing, which means these activities have declined relative to GDP.
Eurozone exports to EU and US accelerate … Will weaker EM growth hit DM exports, pulling these economies down as well? So far eurozone exports have been resilient. Goods exports grew by 7.5% yoy in Q2. Looking at the regional data it turns out that Europe (including the UK and the Eastern European and Scandinavian EU members) and the US contributed by far the most to export growth. In total, these countries contributed almost 6.5 percentage points to yoy growth in Q2. On top of that, Asian countries besides China and Japan contributed around 2pps. In contrast, China
However, there may also be some measurement issues. For instance, eurozone imports from China rose by 8.3% yoy in
and Japan did not contribute, whereas Russia reduced growth by 1.5 pps.
June according to Eurostat. However, Chinese Customs reports that Chinese exports to the EU fell by 3.4% yoy that month and even more since. Our sense is that strong demand in DMs should eventually gain some traction on EM exports.
… implying there is quite some resilience against a slowdown in emerging economies Although there obviously are downside risks to growth in eurozone exports from a slowdown in emerging economies,
Financial channel working the other way On the other hand, financial linkages point in the other direction. Expectations about eventual Fed rate hikes have encouraged capital outflows out of EMs leading to a tightening of financial conditions. There is a risk that this will continue, which could further undermine EM economic growth.
part of this should be cushioned by ongoing strength in exports to Europe and the US. Domestic demand in these countries is growing robustly, while the trade weighted euro has depreciated by around 5% since the start of this year. Although the US export sector is being hampered by the strong dollar, as in the eurozone, domestic fundamentals are improving.
2
The DM-EM conundrum – 11 September 2015
Financial markets Currency markets
Close
Change 1 day
Change 5 days
Change YTD
EUR/USD USD/JPY
1.1267
0.9588
1.3493
-6.8843
120.59
-0.4047
0.4917
0.6258
AUD/USD
0.7069
0.6693
0.6263
-13.4231
USD/CHF
0.9721
-0.5219
-0.3077
-2.1934
NZD/USD
0.6294
-1.6563
-1.7023
-19.2559
GBP/USD
1.5442
0.5077
1.2258
-0.8921
USD/SGD
1.4147
-0.0495
-0.2116
6.8021
USD/CAD
1.3225
-0.0076
0.2502
13.8614
Bond markets
Close
Change 1 day
Change 5 days
Change YTD
2-year German Govt Bond yield
-0.2240
0.0010
0.0150
-0.1260
10-year German Govt Bond yield
0.6950
-0.0030
-0.0290
0.1540
Yield curve Germany
0.9190
-0.0040
-0.0440
0.2800
2-year US Treasury Bond yield
0.7330
-0.0079
0.0407
0.0685
10-year US Treasury Bond yield
2.2220
0.0214
0.0624
0.0508
Yield curve US
1.4890
0.0293
0.0217
-0.0177
US 2-year sw ap rate
0.8654
-0.0085
0.0322
-0.0289
US 10-year sw ap rate
2.2290
-0.0202
0.0041
-0.0571
US sw ap curve
1.3636
-0.0117
-0.0281
-0.0282
EU 2-year sw ap rate
0.0800
0.0010
0.0060
-0.0950
EU 10-year sw ap rate
1.0205
-0.0125
-0.0245
0.2085
EU sw ap curve
0.9405
-0.0135
-0.0305
0.3035
-0.0360
-0.0010
-0.0030
-0.1140
0.3330
0.0010
0.0005
0.0774
-4.8900
-9.4700
26.2300
Euribor 3 Month ACT/360 ICE LIBOR USD 3 Month JPMorgan EMBI Plus Sovereign S
413.6700
Equity markets
Close
Change 1 day % Change 5 days %Change YTD%
Nikkei 225
18,300
-2.51
0.64
4.86
Hang Seng Index
21,563
-2.57
3.00
-8.65
Hang Seng China Enterprises Index
9,780
-1.96
5.15
-18.39
Australian Stock Exchange S&P/ASX 200 Index
5,095
-2.42
1.34
-5.84
Singapore Straits Times Index
2,888
-1.37
-0.63
-14.18
Euro Stoxx 50 Index
3,221
-1.49
-1.50
2.37
S&P 500 Index
1,950
0.40
0.05
-5.30
MSCI World Daily Total Return Gross USD
736
0.30
0.90
-4.14
AEX Index
436
-1.81
-1.88
2.77
-0.42
0.11
36.04
Chicago Board Options Exchange Volatility Index
Commodity markets Reuters/Jefferies CRB Total Return
26
Close
Change 1 day % Change 5 days %Change YTD%
196
-1.31
-0.50
-14.84
1,111
0.32
-1.25
-6.20
Generic first NYMEX Crude Light future
45
2.65
-2.01
-14.92
Generic first Brent Crude Oil future
48
1.60
-4.62
-15.68
5,387
0.41
2.69
-14.49
478
1.27
-0.16
-18.91
Gold spot USD/Oz
LME Copper 3 Months Rolling Forw ard Generic first Wheat future Chicago Board of Trade Source: Bloomberg
3
The DM-EM conundrum – 11 September 2015
Day
Date
Time
Country
Monday Monday Monday
07/09/2015 07/09/2015 07/09/2015
08:00:00 09:00:00 15:45:00
DE CH EC
Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday
08/09/2015 08/09/2015 08/09/2015 08/09/2015 08/09/2015 08/09/2015 08/09/2015
01:50:00 11:00:00 12:00:00 21:00:00
Wednesday Wednesday Wednesday Wednesday
09/09/2015 09/09/2015 09/09/2015 09/09/2015
Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Friday Friday Friday Friday Friday Friday Friday
Key Economic Indicators and Events
Period
Latest outcome
Consensus
ABN AMRO
Industrial production - % mom Foreign currency reserves - CHF mln ECB announces weekly QE details
Jul Aug
-1.4 531820
1.1
1.0
JP EC US US CN CN RU
GDP - % qoq GDP - Q2 final estimate and components, % qoq NFIB small business optimisme - index Fed Reserve consumer credit - USD bn Exports Imports GDP - % yoy
2Q F 2Q P Aug Jul Aug Aug 2Q P
-0.4 0.3 95.4 20.7 -8.3 -8.1 -4.6
-0.5 0.3 95.9 18.9 -6.5 -8.0 -4.5
10:30:00 16:00:00 16:00:00 23:00:00
GB US CA NZ
Trade balance - GDP mln US Job Openings by Industry Policy rate - % Policy rate - %
Jul Jul Sep 9 Sep 10
-1601.0 5249 0.5 3.0
-1866.7 5323 0.50 2.76
10/09/2015 10/09/2015 10/09/2015 10/09/2015 10/09/2015 10/09/2015 10/09/2015 10/09/2015
01:50:00 03:30:00 09:30:00 13:00:00 13:00:00 15/09/2015 15/09/2015 15/09/2015
JP CN NL GB GB CN CN CN
Machinery orders private sector - % mom CPI - % yoy CPI - % yoy Policy rate - % BoE size of asset purchase programme - GBP bn New Yuan loans - CNY bn Aggregate financing - CNY bn M2 growth - %yoy
Jul Aug Aug Sep 10 Sep Aug Aug Aug
-7.9 1.6 1.0 0.5 375 1480 718.8 13.3
3.9 1.9 0.5 375 850 1035.0 13.3
11/09/2015 11/09/2015 11/09/2015 11/09/2015 11/09/2015 11/09/2015 11/09/2015
08:00:00 12:30:00 14:30:00 14:30:00 16:00:00
DE RU US US US KR EC
CPI - % yoy Key rate % Prod. prices index - % mom Prod. prices index excl food and energy - % mom Univ. of Michigan cons. confidence - index Policy rate - % Euro finance ministers, central bankers meet in Luxembourg
Aug F Sep 11 Aug Aug Sep P Sep 11
0.2 11.0 0.2 0.3 91.9 1.50
0.2 11.0 -0.1 0.1 91.5 1.50
96.0
-4.5
0.25 2.75
0.8
10.5
92.0 1.50
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
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