Daily Insight
Group Economics Macro & Financial Markets Research
13 May 2016
Hawkish Fed policymakers warn against risks of low rates Maritza Cabezas Senior Economist Tel: +31 20 343 5618 maritza.cabezas@nl.abnamro.com
Fed policymakers Rosengren and George strike a hawkish tone…
… and point to risks of keeping rates low
We think that the weakness of the US economy and risks to the global outlook will likely keep the Fed on hold this year
Aline Schuiling Senior Economist Tel: +31 20 343 5606 aline.schuiling@nl.abnamro.com
Eurozone industrial production contracts in March …
… signalling a slowdown in growth in Q2
Fed’s Rosengren shifts his stance from dove to hawk… The debate regarding interest rates continues among Fed policymakers. Federal Reserve Bank of Boston President Rosengren, a voting FOMC member, struck a hawkish tone on Thursday in New Hampshire. He indicated that “if incoming economic data continue to be consistent with gradual improvement in labour markets and inflation getting closer to target, the Fed should be ready to normalise interest rates”. He warned that low rates could encourage speculation in commercial real estate. He said that real estate prices reached peaks prior to the financial crisis. Rosengren mentioned that the economy could grow at above trend rates in the second quarter, which should be enough to pull down unemployment. Until recently Rosengren was considered a dove, given that he showed less concern for inflation than some other Fed members. …while two-time dissenter Esther George continues to think that rates are too low Meanwhile Kansas City Federal Reserve President Esther George, another voting member, warned that “interest rate sensitive sectors can take too much debt in response to low rates”. She mentioned that she “supports a gradual adjustment of short-term interest rates toward a more normal level, but I view the current level as too low for today’s economic decision. George dissented at the past two FOMC meeting, arguing for rate hikes. Despite these two hawkish comments of Fed officials, we continue to think that the fundamental weakness of the US economy and the risks to the global outlook will likely keep the Fed on hold this year.
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2
Daily Insight – Hawkish Fed policymakers indicate risks of low rates – 13 May 2016
Eurozone industrial production and PMI % yoy
index
9
65
6
60
3
55
0
50
-3
45
-6
40 11
12
13
Industrial production (lhs)
14
15
16
Manufacturing PMI (rhs)
Source: Bloomberg
Eurozone industrial sector to slow down in Q2 Industrial production in the eurozone shrank by 0.8% mom in March, following a 1.2% contraction in February (revised lower from -0.8%). The two consecutive monthly declines followed upon a booming start of the year, with production rising by 2.4% mom in January. Consequently, during Q1 as whole output expanded by 0.9% qoq, which contributed to the stronger than expected preliminary estimate for Q1GDP growth of 0.6% qoq. That said, the contraction in March provides an early sign that the industrial sector and GDP growth slowed in Q2. Such a slowdown would also be in line with recent levels of the manufacturing PMI, which are consistent with industrial production growing at a modest pace of around 0.3-0.5% on a quarterly basis.
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Daily Insight – Q2 payback in eurozone – 11 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
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
03:30 06:30 08:00 10:30 12:00 16:00
CN NL DE GB US US
CPI - % yoy CPI - % yoy Industrial production - % mom Trade balance - GDP mln NFIB small business optimisme - index US Job Openings by Industry
Apr Apr Mar Mar Apr Mar
2.3 0.0 -1.3 -3830 94 5757
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 5.4
Friday Friday Friday 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 13/05/2016 13/05/2016 13/05/2016
CN CN CN NL DE DE EC US US US US US KR
Property prices index - % yoy Property prices index - % yoy M2 money growth - % yoy 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 - %
Apr Apr Apr 1Q P Apr F 1Q P 1Q Apr Apr Apr May P Mar May 13
1370 2336 13.4 0.3 -0.1 0.3 0.6 -0.3 -0.10 -0.1 89.0 -0.1 1.5
06:30 08:00 08:00 11:00 14:30 14:30 14:30 16:00 16:00
ABN AMRO
0.6
-0.1
0.5 -0.3
0.0 0.5
0.5 -0.2 0.5
840.7 1347.2 13.5 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)
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