Daily Insight China cuts policy rates further
Group Economics Macro & Financial Markets Research Arjen van Dijkhuizen, Maritza Cabezas, Aline Schuiling + 31 20 628 8052
12 May 2015
Chinese authorities react to ongoing weak data with another round of policy rate cuts Impact of lower oil prices on US labour market manageable ECB steps up the pace of asset purchases somewhat
Ongoing weak Chinese data …
Impact lower oil prices on US job market manageable…
After economic growth fell to 7% yoy in Q1-2015 from 7.3%
On Friday, the US released April’s job market report (see US
yoy in the second half of 2014, recent data show that Q2
Watch – US employers shake off winter effects). Looking at the
started quite weak as well, despite recent easing measures.
details, the mining & logging industry saw employment decline
Early this month, the manufacturing PMIs pointed to ongoing
to -15K, of which -3K was oil & gas extraction. Since the
weak domestic demand, although the services PMIs were
beginning of the year, employment in mining has declined by
more resilient, highlighting the rebalancing from industry
49K, with losses concentrated in support activities for mining.
towards services. Recent trade data do not bode well either,
This is not significant and represents around 0.03% of total
with both exports and imports contracting further. Meanwhile,
nonfarm payrolls.
CPI inflation rose marginally to 1.5% yoy in April (from 1.4% in February/March), remaining far below the 2015 target of 3%.
…knock-on effects modest It is difficult to estimate the knock-on effects of lower energy
… trigger further rate cuts by the PBoC
prices on the job market in other industries. However, during
In reaction, the Peoples Bank of China (PBoC) cut policy rates
the energy price collapse of 1986, which saw the largest
further last weekend, aiming to drive bank lending rates down.
decline in oil prices, the Dallas Fed calculated that for every
The 1-year best lending rate was reduced by another 25bp to
job lost in the oil & gas sector, 2.6 jobs were lost in various
5.10%, following similar moves in November and February.
non-energy sectors. This suggests that lower job growth in
The PBoC also cut the benchmark deposit rate by 25bp to
energy related activities will not derail overall job growth in any
2.25%, but left banks’ room to manoeuvre unchanged as the
meaningful way. We think that the US labour market will
“variation margin“ was raised to 1.5 times the bench-mark rate.
remain solid in the coming time.
The latest policy cuts, which followed a 100bp drop in banks’ overall reserve requirements last month, did not surprise us, as
The ECB stepped up the pace of purchases somewhat
our baseline scenario assumes ongoing ‘measured’ monetary
The ECB reported the amounts of settled purchases under its
easing and targeted (fiscal) stimulus to prevent growth from
PSPP programme during the week of 4-8 May yesterday.
falling significantly below the 2015 target of 7%.
These include purchases of euro area government bonds as well as securities issued by national and European agencies.
Inflation is bottoming out, remaining below target
The total amount outstanding came out at EUR 108.7bn at the end of last week, implying that the ECB settled EUR 13.6bn of
% yoy / %
10
purchases, which compared to EUR 10.1bn the week before.
8
This implies that the central bank bought around EUR 2.7bn a
6
day, which slightly higher than the amounts of the previous couple of weeks. By doing so, the ECB is still running ahead of
4
schedule. We have estimated that the ECB needs to buy EUR
2
2.4bn a day in order to reach its announced target. So,
0
currently, the central bank has bought around EUR 4bn above
-2
target. 08
09
10
Headline inflation Source: Bloomberg
11
12
13
Core inflation
14
15
Key policy rate