Daily Insight Lowflation not deflation
Group Economics Macro & Financial Markets Research Nick Kounis, Aline Schuiling & Maritza Cabezas, +31 20 343 5616
1 October 2015
Eurozone inflation turns negative; core still positive but too low – ECB likely to step up QE Unemployment in eurozone stabilised in September but likely to fall further US ADP private payrolls up by 200K; Fed on track to fulfilling employment mandate
Not deflation but reasons for ECB to act
Eurozone inflation expectations and oil prices
Eurozone inflation moved into negative territory in September
%
(-0.1% yoy from +0.1% in August). We do not consider this as
2.20
USD per barrel
120
deflation, which we define as a broad-based and sustained price fall. Indeed, the fall is down to slumping energy prices,
110 2.00
100
while core inflation was stable and positive (at 0.9% yoy). A deflation scenario also does not seem very likely given falling
90 1.80
80 70
unemployment (see below) and a recovering economy. That does not mean that there is no reason for concern at inflation
60
1.60
50
developments in the eurozone. Even core inflation is well below the price stability goal and will remain below it for a long period going forward. The ECB must be worried that inflation
1.40 Jul 14
40 Oct 14
Jan 15
Apr 15
Eurozone 5y5y (lhs)
Jul 15
Oct 15
Brent oil price (rhs)
expectations have become dislodged (see chart). We continue to think the ECB will act to step up QE before long.
Source: Bloomberg
Stabilisation of eurozone unemployment does not signal an end to the gradual labour market recovery
US ADP private payrolls adds 200K in September
The unemployment rate in the eurozone stabilised at 11.0% in
The ADP private payrolls report underlined the resilience of the
September, with the August number being revised upward to
US labour market, despite the uncertainty abroad. Private
11.0% from an earlier estimated 10.9%. We think the
employment rose by 200K in September, after a downwardly
stabilisation does not signal an end to the gradual labour
revised 186K the previous month (initially reported 190K). Job
market recovery that has taken shape during the past two
gains in the goods-producing sector were slightly weaker than
years. To begin with, in the eurozone changes in the labour
in August. This is mainly a result of a decline in manufacturing
market tend to follow changes in economic conditions with a
employment. The ADP report is generally an appetizer for
delay of around two quarters. Therefore, the expansion of GDP
Friday’s nonfarm payrolls report. We are forecasting a 190K
in the first half of the year will have a positive impact on
gain in private employment for September, while total
employment during the rest of the year. Indeed, recent survey
employment should increase 195K.
evidence suggests that employment will continue to expand in the coming quarters. The employment component of the
Other job indicators confirm strength of labour market
composite PMI as well as the hiring intentions in industry and
The labour market component of September’s Conference
services as measured by the EC’s economic sentiment
Board’s consumer survey was the strongest since 2008.
indicator both stood at levels well above their long-term
Meanwhile jobless claims are also holding up well. As for the
averages in September. What is more, we expect the
employment component of the composite Markit PMI, it is also
eurozone economy to continue to grow at a rate somewhat
at the highest since the crisis.
above the trend rate (currently around 1% on an annual basis) during the rest of this year. Consequently, we expect the
Fed is on track to fulfilling employment mandate
unemployment rate to remain on a downward trend and to start
We expect the job market to remain strong, giving the Fed
falling again in the coming months.
more ground for a rate hike in December. Fed officials are fairly confident that shrinking slack means that inflation will rebound over the next year or two. The turbulence in financial markets could, however, force the Fed to delay the lift-off.
2
Lowflation not deflation – 1 October 2015
Financial markets Currency markets
Close
Change 1 day
Change 5 days
Change YTD
EUR/USD USD/JPY
1.1171
-0.0537
-0.5254
119.79
-0.0751
-0.2332
0.0083
AUD/USD
0.7011
-0.0997
-0.1851
-14.2385
USD/CHF
0.9744
0.1130
-0.1025
-2.0014
NZD/USD
0.6392
-0.1094
0.5822
-18.0198
GBP/USD
1.5121
-0.0463
-0.7939
-2.9274
USD/SGD
1.4239
0.1125
0.1618
7.4236
USD/CAD
1.3318
0.0376
0.0977
14.6029
Bond markets
Close
Change 1 day
Change 5 days
-7.6624
Change YTD
2-year German Govt Bond yield
-0.2520
0.0000
0.0030
-0.1540
10-year German Govt Bond yield
0.5870
0.0040
-0.0100
0.0460
Yield curve Germany
0.8390
0.0040
-0.0130
0.2000
2-year US Treasury Bond yield
0.6368
0.0079
-0.0430
-0.0277
10-year US Treasury Bond yield
2.0403
0.0035
-0.0863
-0.1309
Yield curve US
1.4035
-0.0044
-0.0433
-0.1032
US 2-year sw ap rates
0.7537
0.0007
-0.0178
-0.1406
US 10-year sw ap rates
2.0031
0.0026
-0.0887
-0.2830
US sw ap curve
1.2494
0.0019
-0.0709
-0.1424
EU 2-year sw ap rates
0.0475
0.0005
-0.0135
-0.1275
EU 10-year sw ap rates
0.9565
-0.0035
-0.0275
0.1445
EU sw ap curve
0.9090
-0.0040
-0.0140
0.2720
-0.0400
0.0010
-0.0010
-0.1180
Euribor 3 Month ACT/360 ICE LIBOR USD 3 Month
0.3255
-0.0011
-0.0010
0.0699
JPMorgan EMBI Plus Sovereign S
459.6100
5.1600
36.6200
72.1700
Equity markets
Close
Change 1 day % Change 5 days %Change YTD%
Nikkei 225
17,388
2.70
-1.05
-0.36
Hang Seng Index
20,846
1.41
-4.36
-11.69
Hang Seng China Enterprises Index
9,406
1.90
-4.37
-21.52
Australian Stock Exchange S&P/ASX 200 Index
5,043
0.42
-0.58
-6.81
Singapore Straits Times Index
2,791
0.11
-2.70
-17.06
Euro Stoxx 50 Index
3,101
2.34
0.67
-1.45
S&P 500 Index
1,920
1.91
-0.97
-6.74 -6.65
MSCI World Daily Total Return Gross USD
717
2.03
-0.73
AEX Index
421
2.19
0.48
-0.78
25
-8.68
10.71
27.60
Chicago Board Options Exchange Volatility Index
Commodity markets Reuters/Jefferies CRB Total Return Gold spot USD/Oz Generic first NYMEX Crude Light future Generic first Brent Crude Oil future LME Copper 3 Months Rolling Forw ard Generic first Wheat future Chicago Board of Trade Source: Bloomberg
Close
Change 1 day % Change 5 days %Change YTD%
194
0.10
0.72
1,116
0.06
-3.31
-15.72 -5.83
45
0.64
1.05
-14.81
49
0.29
0.71
-15.38
5,160
3.82
2.04
-18.10
512
-0.15
2.97
-13.18
3
Lowflation not deflation – 1 October 2015
Day
Date
Time
Country
Key Economic Indicators and Events
Monday Monday Monday Monday Monday
28/09/2015 28/09/2015 28/09/2015 28/09/2015 28/09/2015
. 14:30:00 14:30:00 15:45:00 16:00:00
CH US US EC US
Total Sight Deposits bn PCE deflator core - % mom PCE deflator core - % yoy ECB announces weekly QE details Pending home sales - % mom
Tuesday Tuesday Tuesday Tuesday Tuesday
29/09/2015 29/09/2015 29/09/2015 29/09/2015 29/09/2015
07:30:00 11:00:00 14:00:00 15:00:00 16:00:00
IN EC DE US US
Repo rate - % Economic sentiment monitor - index CPI - % yoy S&P/Case Shiller house price index Conference Board cons. confidence - index
Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday
30/09/2015 30/09/2015 30/09/2015 30/09/2015 30/09/2015 30/09/2015 30/09/2015 30/09/2015 30/09/2015
01:50:00 09:55:00 09:55:00 10:30:00 11:00:00 11:00:00 11:00:00 14:15:00 15:45:00
JP DE DE GB EC EC EC US US
Industrial production - % mom Unemployment - % Unemployment change - thousands GDP - % qoq Core inflation - % yoy CPI - % yoy Unemployment - % ADP nat. employment report - thousands Chicago Fed - business confidence - index
Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday
01/10/2015 01/10/2015 01/10/2015 01/10/2015 01/10/2015 01/10/2015 01/10/2015 01/10/2015 01/10/2015
01:50:00 03:00:00 03:45:00 10:00:00 10:30:00 14:30:00 15:45:00 16:00:00
JP CN CN EC GB US US US RU
Tankan business conditions large enterprises PMI manufacturing - index (official) PMI manufacturing - index (HSBC) - flash PMI manufacturing - index PMI manufacturing - index Initial jobless claims - thousands Markit - Flash PMI ISM manufacturing - index GDP - % yoy
Friday Friday Friday Friday
02/10/2015 02/10/2015 02/10/2015 02/10/2015
01:30:00 14:30:00 14:30:00 14:30:00
JP US US US
Unemployment - % Change in employment private employment - thousands Change in employment total - thousands Unemployment - %
Period
Latest outcome
Consensus
Aug Aug
465 0.0 1.3
0.1 1.3
Aug
-1.4
0.3
0.4
Sep 29 Sep Sep P Jul Sep
6.8 105.6 0.0 -0.2 103.0
7.0 104.1 0.0 0.1 96.1
104.3 0.0 0.2 96
Aug P Sep Sep 2Q F Sep A Sep Aug Sep Sep
-0.5 6.4 2.0 0.7 0.9 -0.1 11.0 200.0 48.70
0.9 6.4 -4.3 0.7 0.9 0.0 10.9 183.6 53.20
0.9 -0.1 10.9 180.0 52.0
3Q Sep Sep F Sep F Sep Sep 25 Sep F Sep 2Q F
12.0 49.7 47.0 52.0 51.5 267.0 53.0 51.1 -4.6
13.0 49.6 47.1 52.0 51.4
50.7 -4.6
50 -4.6
Aug Sep Sep Sep
3.3 140.0 173.0 5.1
3.3 195.0 201.0 5.1
190 195 5.1
ABN AMRO
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
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