Daily Insight
Group Economics Macro & Financial Markets Research Maritza Cabazas,& Georgette Boele
Dovish Fed: risk of further delay
+31 20 343 5618
18 September 2015 • • •
FOMC strikes a dovish tone but continues to signal rate hike this year Our view is that a rate hike in December remains likely… …but concerns about the global economy suggest that risks of a delay to 2016 are now larger
Financial turmoil puts FOMC on hold
Fed. One of the members wanted negative interest rates,
After two days of meetings, the Fed kept rates on hold. The
suggesting that the economy needed further stimulus.
FOMC statement showed that policymakers are concerned about recent global developments and the tightening of
Market reactions
financial conditions and their impact on economic activity.
Markets were volatile following the decision, but overall
However, the door was left open for a rate hike this year.
outcomes were supportive for bonds and gold, but negative for
During the press conference, Chair Yellen mentioned that
the dollar, as markets scaled back rate hike expectations. Gold
every remaining meeting this year remains a possibility for a
prices moved higher, while the US dollar and 10y US Treasury
move. However, FOMC members would like to see the extent
yields fell. At the end of the session US equities gave up their
to which these developments have impacted the US economy
gains and closed down for the day. If the Fed eventually hikes
given the strong financial interconnectedness. FOMC
in December as we expect, then the US dollar and yields
members also want to see further improvement in the labour
should move up, while gold prices are likely to fall back. The
market, particularly a recovery in part-time involuntary
EUR/USD should also be pushed down by a stepping up of
employment and labour force participation. This suggests that
ECB QE.
October is too early and that risks of a delay of a rate hike to 2016 have increased. We expect a rate hike in December as
FOMC individual rate projections
global risks should ease and the US economy should continue
rate %
midpoint of target range level for the federal funds rate
4.5
to recover.
•
4
FOMC forecasts: no urgency for rate hike
•
The Summary of Economic Forecasts, painted a mixed picture.
• ••
3.5
In the short run, slightly weaker growth but lower
••• • ••••• ••••••
unemployment, while inflation was lowered. At the same time,
• ••
3
•
•
the long-term outlook was not fundamentally altered. In 2015,
••• 2.5
GDP growth edges up to 2.1% from the 1.9% projected in June, while for 2016, the Fed lowered its GDP forecast to 2.3%
•
••
••
••
•
••
2
from the 2.5% projected in June. Long run growth was
•••
unchanged. Meanwhile, the unemployment rate forecasts are
1.5
••
now closer to the long run projection of 5%. As for inflation, the
••••
forecasts showed “reasonable confidence” that inflation would
•
1
•
move back to the 2% target.
••
••••• 0.5
•••••••
Dot plot shows interest rate hike this year
••• 0
The “dot plot” which shows participants views on the appropriate pace of interest rate normalisation shows that FOMC participants expect the lift off this year. However, four
25bp to 3.5%, reflecting the slightly more cautious tone of the
• 2016
Red dots indicate median Source: Federal Reserve
members feel that the Fed should not hike until 2016 or later. The long run projection of the federal funds rate was lowered
• 2015
.
2017
Longer run
2
– 18 September 2015
Financial markets Currency markets
Close
Change 1 day
Change 5 days
Change YTD
EUR/USD USD/JPY
1.1435
1.1589
0.8555
120.00
-0.7854
-0.4893
0.1335
AUD/USD
0.7174
0.3778
1.1562
-12.1372
USD/CHF
0.9599
-1.2550
-0.9596
-3.4209
NZD/USD
0.6350
0.5224
0.5065
-18.5375
GBP/USD
1.5591
0.4639
1.0500
0.0642
USD/SGD
1.3983
0.0429
-0.8649
5.5639
USD/CAD
1.3179
-0.1213
-0.6408
13.4653
Bond markets
Close
Change 1 day
Change 5 days
-5.4959
Change YTD
2-year German Govt Bond yield
-0.2060
0.0140
0.0180
-0.1080
10-year German Govt Bond yield
0.7810
0.0070
0.0860
0.2400
Yield curve Germany
0.9870
-0.0070
0.0680
0.3480
2-year US Treasury Bond yield
0.6775
-0.1333
-0.0555
0.0130
10-year US Treasury Bond yield
2.1885
-0.1055
-0.0335
0.0173
Yield curve US
1.5110
0.0278
0.0220
0.0043
US 2-year sw ap rate
0.8089
-0.1091
-0.0470
-0.0854
US 10-year sw ap rate
2.2079
-0.0903
-0.0066
-0.0782
US sw ap curve
1.3990
0.0188
0.0404
0.0072
EU 2-year sw ap rate
0.0780
-0.0170
0.0020
-0.0970
EU 10-year sw ap rate
1.0510
-0.0570
0.0590
0.2390
0.9730
-0.0400
0.0570
0.3360
-0.0370
0.0000
-0.0010
-0.1150
EU sw ap curve Euribor 3 Month ACT/360 ICE LIBOR USD 3 Month
0.3396
0.0054
0.0066
0.0840
JPMorgan EMBI Plus Sovereign S
399.2700
-4.7700
-14.4000
11.8300
Equity markets
Close
Change 1 day % Change 5 days %Change YTD%
Nikkei 225
18,432
1.43
0.72
5.62
Hang Seng Index
21,855
-0.51
1.35
-7.42
Hang Seng China Enterprises Index
9,964
0.60
1.88
-16.86
Australian Stock Exchange S&P/ASX 200 Index
5,147
0.94
1.02
-4.88
Singapore Straits Times Index
2,896
0.94
-1.11
-13.95
Euro Stoxx 50 Index
3,256
0.12
1.08
3.48
S&P 500 Index
1,990
-0.26
1.94
-3.34
MSCI World Daily Total Return Gross USD
748
1.29
1.62
-2.59
AEX Index
438
-0.20
0.33
3.10
21
-0.98
-13.25
10.10
Chicago Board Options Exchange Volatility Index
Commodity markets Reuters/Jefferies CRB Total Return Gold spot USD/Oz
Close
Change 1 day % Change 5 days %Change YTD%
200
1.51
0.49
-13.45
1,132
1.09
1.89
-4.48
Generic first NYMEX Crude Light future
47
-0.47
2.20
-11.90
Generic first Brent Crude Oil future
49
-1.03
0.72
-14.11
5,390
0.20
-0.15
-14.44
482
-1.38
0.73
-18.36
LME Copper 3 Months Rolling Forw ard Generic first Wheat future Chicago Board of Trade Source: Bloomberg
3
– 18 September 2015
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
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
ABN AMRO
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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