Daily Insight
Group Economics Macro & Financial Markets Research Nick Kounis, Arjen van Dijkhuizen & Aline
The Fed-China sandwich
Schuiling, +31 20 343 5616
15 September 2015
Markets mixed reflecting cross-currents of China concerns and Fed optimism China’s August data point to stabilisation of growth, but below 7% target - we expect more stimulus Eurozone’s resilience continues, as industrial sector starts Q3 on a strong note Official GDP figures versus Bloomberg estimates
Optimism that the Fed will hold vs. soft China data
%yoy
Financial markets saw a distinctly mixed session against the background of rather lackluster China data (see below), and
14
optimism that the Fed would stand pat. China equities closed
12
down and commodity prices were soft, partly reflecting the weak economic reports. On the other hand, emerging market
10
equities overall were slightly up on optimism that the Federal
8
Reserve would hold fire and keep its policy rate on hold later 6
this week. This view also supported Treasuries. Although economists are split on whether the Fed will raise its policy
4
rate, financial market pricing implies only around a 30%
07
on hold until the December FOMC. China’s activity data for August: quite a mixed bag The August data published last weekend were a mixed bag. Fixed investment slowed to a 15-year low of 10.9% yoy (July: 11.2%). Industrial production rose marginally to 6.1% yoy (July: 6.0%), which was below consensus (6.5%) as markets had discounted for the low base. Meanwhile, retail sales growth rose to a seven-month high of 10.8% yoy (July: 10.5%). This suggests that the stock market rout has had a limited effect on consumption so far. Still, Chinese retail sales also capture some part of government consumption, whereas consumption of services is not fully included in the number.
08
09
10
11
Real GDP growth (official)
change of a move. Our own base case is that the Fed will stay
12
13
14
15
Bloomberg GDP estimate
Source: Thomson Reuters Datastream
Eurozone’s industrial sector expanding Industrial production in the eurozone was stronger than expected in July. It rose by 0.6% mom following two consecutive declines of 0.2% and 0.3% in May and June, respectively. Although the risks for the eurozone industrial sector are to the downside given the slowdown in China and emerging markets more generally, we do not expect a sharp deterioration in the sector. Domestic demand in the eurozone is growing robustly, while exports and production will also benefit from strong demand from the other EU countries and the US and the depreciation of the euro during the past year.
Further stimulus likely to keep growth close to target Previously released number showed trade remained weak, CPI rose thanks to higher food prices and PPI fell deeper into deflation. Aggregate financing picked up, while new bank loans slowed. All in all, overall growth momentum seems to have
The eurozone’s manufacturing PMI for August and its orders component both point in the direction of ongoing moderate expansion in the eurozone’s industrial sector. Combined with continued growth in the services sector (its PMI came out at 54.4 in August) and healthy consumption growth (retail sales
stabilised in August. Bloomberg’s GDP estimate came in at
were up by 0.4% mom in July), this makes us quite
6.6%, similar to July’s level. With economic growth likely
comfortable about our forecast that GDP will expand by around
hovering somewhat below the 7% target, we expect more stimulus to come. For the remainder of this year, we have penciled in another 25 bp policy rate cut and 50 bps in RRR cuts and we expect ongoing fiscal stimulus (mainly infrastructure spending) as well.
0.5% in Q3. .
2
The Fed-China sandwich – 15 September 2015
September 2013
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
26
-0.42
0.11
36.04
Chicago Board Options Exchange Volatility Index
Commodity markets Reuters/Jefferies CRB Total Return
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 Fed-China sandwich – 15 September 2015
September 2013
Day
Date
Time
Country
Sunday Sunday Sunday
13/09/2015 13/09/2015 13/09/2015
07:30:00 07:30:00 07:30:00
CN CN CN
Monday Monday Monday Monday Monday
14/09/2015 14/09/2015 14/09/2015 14/09/2015 14/09/2015
06:30:00 09:00:00 11:00:00 14:00:00 15:45:00
Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday
15/09/2015 15/09/2015 15/09/2015 15/09/2015 15/09/2015 15/09/2015 15/09/2015 15/09/2015
Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday
Key Economic Indicators and Events
Period
Latest outcome
Consensus
ABN AMRO
Retail sales - % yoy Industrial production - % yoy Fixed asset investment - % yoy
Aug Aug Aug
10.5 6.0 11.2
10.6 6.5 11.2
JP CH EC IN EC
Industrial production - % mom Foreign currency reserves - CHF mln Industrial production - % mom CPI - % yoy ECB announces weekly QE details
Jul F Aug Jul Aug
-0.6 531820 -0.4 3.8
#N/A N/A 0.3 3.6
0.4
10:30:00 11:00:00 14:30:00 14:30:00 15:15:00 16:00:00
NL GB DE US US US US JP
Government presents Budget 2016 CPI - % yoy Aug ZEW index (expectation economic growth) Sep Retail sales - % mom Aug Empire State PMI - Manuf. general business conditions - index Sep Industrial production - % mom Aug Business inventories - % mom Jul Annual rise in monetary base Sep 15
0.1 25.0 0.6 -14.9 0.6 0.8 80.0
0.0 17.7 0.3 -0.5 -0.2 0.2 80.6
0.0 10.0 0.4
16/09/2015 16/09/2015 16/09/2015 16/09/2015 16/09/2015 16/09/2015 16/09/2015 16/09/2015
10:30:00 10:30:00 11:00:00 14:30:00 14:30:00 14:30:00 14:30:00 16:00:00
GB GB EC US US US US US
Claimant count unemployment rate - % Change in claimant count - thousands Core inflation - % yoy Inflation excl food and energy - % mom Inflation excl food and energy - % yoy Inflation (CPI) - % mom Inflation (CPI) - % yoy NAHB home builders' confidence index
Aug Aug Aug F Aug Aug Aug Aug Sep
2.3 -4.9 1.0 0.1 1.8 0.1 0.2 61.0
2.3 -5.0 1.0 0.1 1.9 0.0 0.2 61.0
Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday
17/09/2015 17/09/2015 17/09/2015 17/09/2015 17/09/2015 17/09/2015 17/09/2015 17/09/2015 17/09/2015 17/09/2015
01:50:00 09:30:00 09:30:00 09:30:00 09:30:00 10:30:00 14:30:00 16:00:00 20:00:00 20:30:00
JP NL CH CH CH GB US US US US
Merchandise trade exports - % yoy Unemployment rate SNB 3-month ibor lower target SNB 3-month ibor upper target SNB Sight Deposit Interest rate Retail sales - % mom Housing starts - % mom Philadelphia Fed - business confidence - index Targe range for fed funds rate Fed Chair Yellen holds press conference
Aug Aug Sep 17 Sep 17 Sep 17 Aug Aug Sep Sep 17 Sep-17
7.6 6.8 -1.3 0 -0.75 0.1 0.2 8.3 0-0.25%
Friday
18/09/2015
09:30:00
NL
Consumer confidence - index
Sep
6
0.1 1.9 -0.1 0.2
6.8 -1.3 0 -0.75 -4.5 5.9 0.25-0.50%
-4.0 7.0 0-0.25%
7
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
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