Daily Insight Rising risk of ECB QE plus
Group Economics Macro & Financial Markets Research
Nick Kounis, +31 20 343 5616
1 September 2015 • • •
We see a rising risk that the ECB will step up QE at this week’s policy meeting… …meanwhile we now expect a Fed hike in December rather than September Given this, we have lowered our government bond yield forecasts, but kept EUR/USD unchanged
Changes to our monetary policy views
Eurozone inflation expectations dip with oil
We have made changes to our views on Fed and ECB
%
monetary policy. This reflects the recent turmoil on financial
2.20
USD per barrel
120 110
markets, the fall in commodity prices and ongoing downside risks to China and emerging markets and hence the global economic outlook.
2.00
100 90
1.80
80 70
Rising chances of ECB QE plus
1.60
60
We now see a much bigger risk that the ECB will step up QE as soon as this week’s meeting. We see this probability at around 40%, so it is an increasingly close call. The renewed
50 1.40 Jul 14
40 Oct 14
Jan 15
Eurozone 5y5y (lhs)
drop in oil prices, which will keep headline inflation lower for
Apr 15
Jul 15
Brent oil price (rhs)
longer is a key factor behind the rising risk of action in our view. This has also led to a sharp fall in inflation expectations,
Source: Bloomberg
as measured by the 5y5y inflation swap, that ECB President Draghi has put a lot of weight on in the past (see chart).
We see one Fed hike this year and four next So overall, we now expect one hike in Fed’s target for the fed
Our base case of no further QE ( now with a 60% chance) is
funds rate this year, compared to two previously. We continue
still supported by indications that a moderate economic
to expect four rate hikes next year, meaning a one-every-
recovery is continuing, and by the bottoming out of core
other-meeting pace.
inflation. In any case, we expect Mr. Draghi to step his dovish rhetoric at this week’s meeting.
Lowered bond yield forecasts Given the above changes we have lowered our global
Fed rate hike to be delayed to December
government bond yield forecasts. We now expect 10y Bund
Meanwhile, we have changed our forecast of the timing of the
yields to remain broadly flat over the next few months, with an
first rate hike by the Fed to December from September
end of year forecast of 0.7%. Although the economic recovery
previously. There is still a chance of a move next month, given
should gain some pace, ongoing speculation about further
the ongoing strength in the economy and the labour market.
ECB monetary easing should keep yields anchored. We still expect yields to rise next year (to 1.6% by end-2016).
However, we think that the FOMC will take a cautious
Meanwhile, we still expect 10y Treasury to rise this year and
approach given the ongoing fragility of financial markets (for
next, but the rise is likely to be more moderate than before –
instance, the VIX is still above its long-run average level).
especially in the next few months - given less Fed hikes. We
Officials may therefore decide that it makes sense to wait and
see yields rising to 2.4% by year end and 2.8% by the end of
see rather than risk rocking the boat. In addition, by December,
next year.
the Fed will also have a better insight into how China and the global economy in general are developing. With inflation
Finally, our call for EUR/USD to fall to parity by year end
subdued it may well judge it can afford to take its time.
remains unchanged as the Fed will still hike by then, while expectations for more ECB QE could weigh on the euro.
2
Rising risk of ECB QE plus – 1 September 2015
Financial markets Currency markets
Close
Change 1 day % Change 5 days %Change YTD%
EUR/USD USD/JPY
1.1226
0.1964
-1.7246
121.21
-0.0330
1.0673
1.1432
AUD/USD
0.7121
0.0281
-0.8631
-12.7863
USD/CHF
0.9665
-0.0517
2.0484
-2.7568
NZD/USD
0.6322
-0.6287
-3.1111
-18.8967
GBP/USD
1.5350
0.0261
-2.2044
-1.4826
USD/SGD
1.4097
-0.1275
0.4632
6.4246
USD/CAD
Bond markets
1.3160
Close
-0.3860
Change 1 day
-1.1641
Change 5 days
-7.2231
13.3018
Change YTD
2-year German Govt Bond yield
-0.2030
0.0050
0.0490
-0.1050
10-year German Govt Bond yield
0.7980
0.0560
0.2060
0.2570
Yield curve Germany
1.0010
0.0510
0.1570
0.3620
2-year US Treasury Bond yield
0.7395
0.0239
0.1715
0.0750
10-year US Treasury Bond yield
2.2091
0.0284
0.2057
0.0379
Yield curve US
1.4696
0.0045
0.0342
-0.0371
US 2-year sw ap rate
0.8934
0.0119
0.0682
-0.0009
US 10-year sw ap rate
2.2624
0.0329
0.0865
-0.0237
US sw ap curve
1.3690
0.0210
0.0183
-0.0228
EU 2-year sw ap rate
0.1005
0.0005
0.0035
-0.0745
EU 10-year sw ap rate
1.1060
0.0020
0.0385
0.2940
EU sw ap curve
1.0055
0.0015
0.0350
0.3685
-0.0330
0.0000
-0.0010
-0.1110
0.3290
0.0046
-0.0001
0.0734
-5.1500
-29.2500
32.2100
Euribor 3 Month ACT/360 ICE LIBOR USD 3 Month JPMorgan EMBI Plus Sovereign S
419.6500
Equity markets
Close
Change 1 day % Change 5 days %Change YTD%
Nikkei 225
18,890
-1.28
1.89
8.25
Hang Seng Index
21,671
0.27
1.97
-8.20
Hang Seng China Enterprises Index
9,741
-0.10
1.45
-18.72
Australian Stock Exchange S&P/ASX 200 Index
5,207
-1.07
4.11
-3.77
Singapore Straits Times Index
2,921
-1.17
2.74
-13.19
Euro Stoxx 50 Index
3,270
-0.52
6.39
3.92
S&P 500 Index
1,968
-1.05
3.95
-4.41 -2.50
MSCI World Daily Total Return Gross USD
748
0.50
0.52
AEX Index
445
-0.21
6.04
4.84
28
8.64
-30.54
47.40
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%
198
2.32
5.84
-14.27
1,135 49
0.09
-1.78
-4.25
7.34
26.94
-8.88
53
6.77
25.18
-6.79
5,135
-0.10
1.58
-18.49
483
1.15
-4.12
-18.19
3
Rising risk of ECB QE plus – 1 September 2015
Day
Date
Time
Country
Key Economic Indicators and Events
Period
Latest outcome
Consensus
Monday Monday Monday Monday Monday Monday Monday Monday
31/08/2015 31/08/2015 31/08/2015 31/08/2015 31/08/2015 31/08/2015 31/08/2015 31/08/2015
01:50:00 09:00:00 11:00:00 11:00:00 14:00:00 15:00:00 15:45:00 15:45:00
JP CH EC EC IN BE US EC
Industrial production - % mom Total sight deposits in bn CHF Core inflation - % yoy CPI - % yoy GDP - % yoy GDP - % qoq Chicago Fed - business confidence - index ECB announces weekly QE details
Jul P 21-Aug Aug A Aug P 2Q 2Q F Aug
1.1 463 1.0 0.2 6.1 0.4 54.7
-0.1
Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday
01/09/2015 01/09/2015 01/09/2015 01/09/2015 01/09/2015 01/09/2015 01/09/2015 01/09/2015 01/09/2015 01/09/2015 01/09/2015 01/09/2015
03:00:00 00:00:00 03:45:00 03:45:00 09:30:00 09:55:00 09:55:00 10:00:00 10:30:00 11:00:00 15:45:00 16:00:00
CN CN CN CN NL DE DE EC GB EC US US
PMI manufacturing - index (official) PMI non-manufacturing - index (official) PMI manufacturing - index (Caixin) PMI services - index (Caixin) PMI manufacturing - index Unemployment - % Unemployment change - thousands PMI manufacturing - index PMI manufacturing - index Unemployment - % Markit - Flash PMI ISM manufacturing - index
Aug Aug Aug F Aug Aug Aug Aug Aug F Aug Jul Aug F Aug
50.0 53.9 47.1 53.8 56.0 6.4 9.0 52.4 51.9 11.1 52.9 52.7
49.7
Wednesday Wednesday Wednesday Wednesday
02/09/2015 02/09/2015 02/09/2015 02/09/2015
14:15:00 14:30:00
US US BR PL
ADP nat. employment report - thousands Output per hour nonfarm business sector - % qoq Policy rate - % Reference rate - %
Aug 2Q F Sep 2 Sep 2
Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday
03/09/2015 03/09/2015 03/09/2015 03/09/2015 03/09/2015 03/09/2015 03/09/2015 03/09/2015 03/09/2015 03/09/2015
07:30:00 09:30:00 10:00:00 10:00:00 10:30:00 11:00:00 13:45:00 13:45:00 14:30:00 16:00:00
FR SE EC EC GB EC EC EC US US
Unemployment (mainland France) - % Policy rate - % PMI services - index Composite PMI output PMI services - index Retail sales - % mom ECB refi rate - % ECB deposit rate - % Trade balance - USD bn ISM non-manufacturing, index
Friday Friday Friday Friday
04/09/2015 04/09/2015 04/09/2015 04/09/2015
08:00:00 14:30:00 14:30:00 14:30:00
DE US US US
Manufacturing orders - % mom Change in employment private employment - thousands Change in employment total - thousands Unemployment - %
ABN AMRO
0.1 7.0 54.0
47.2 55.8
52.4 51.9 11.0
52.5 11.0
52.7
53.0
185.4 1.3 14.3 1.5
196.2 2.4 14.3 1.5
195
2Q Sep 3 Aug F Aug F Aug Jul Sep 3 Sep 3 Jul Aug
10.0 -0.4 54.3 54.1 57.4 -0.6 0.05 -0.20 -43.8 60.3
54.3 54.0 57.4 0.6 0.05 -0.20 -44.2 58.5
Jul Aug Aug Aug
2.0 210 215 5.3
-0.6 186 203 5.3
58.0 0.05 -0.20
-0.4 200 210
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
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