Daily Insight Fed closes door for rate hike in June
Group Economics Macro & Financial Markets Research Nick Kounis & Maritza Cabezas + 31 20 343 5616
21 May 2015
Cautiously optimistic FOMC members see June rate hike as too early; September hike still on the cards ECB reported to give Greek banks more room on ELA Japan GDP growth stronger than expected, but inventories played a big role
Minutes show cautiously optimistic FOMC members The FOMC minutes from the April meeting did not make major
Japan GDP growth lifted by build-up in inventories
changes to the view communicated in the corresponding FOMC statement about the outlook for the US economy,
contribution in % 10
unemployment and inflation despite the weak first quarter GDP growth. The minutes reinforced the ‘transitory factors’ affecting
5
the slowdown that were already mentioned in the statement.
0
As such, the forward looking view about the economy was unchanged. The April meeting was before the release of solid
-5
nonfarm payrolls and housing market data and a disappointing
-10
retail sales report, which together have been showing a mixed
-15
start for the second quarter. We expect firmer economic activity in the coming quarters. Rate hike in September still on the cards
-20 Q1 2012
Investment Government consumption Inventories Net exports Private consumption GDP growth Q1 2013
Q1 2014
Q1 2015
Source: Thomson Reuters Datastream
The minutes indicate that participants expressed different views about the likely timing and pace of rate hikes. A June
Japan GDP growth strong, inventory largest contributor
rate hike is unlikely as most participants think that the
First quarter GDP grew at an annualized pace of 2.4% up from
economic conditions in June will still not be right for raising
1.1% the previous quarter. The report showed a steady
rates. We continue to expect a rate hike in September. A lot
contribution of consumption to growth, which was unchanged
will obviously depend on whether the economy recovers
at 0.9 ppts. Meanwhile business investment was for the first
convincingly after the weak first quarter.
time in a year a positive contributor to growth (0.1%). It was, however, the build-up in inventories that lifted the economy
ECB reported to have given Greek banks breathing space
above expectations. Net exports’ contribution was down 0.7
The ECB’s Governing Council had a non-monetary meeting on
ppts. Inventories contributed 2ppts to GDP growth after
Wednesday. Leaks suggested that it had given Greek banks
shaving off 1.1ppts in the fourth quarter. We think the large
more breathing space by giving more room to the Bank of
positive contribution from inventory has negative implications
Greece to provide ELA. Sources reported by Market News
for GDP growth in the second quarter.
International said that Greek banks would be allowed to use EUR 6bn more in collateral for ELA. Meanwhile, sources told
Firmer consumption ahead and monetary stimulus
Bloomberg News that the Bank of Greece had requested an
Recovery in momentum of domestic demand remains weak,
increase in the ELA ceiling of EUR 1.1bn, which would take it
but we expect consumption to support the economy in the
to EUR 81.1bn. This would be the same increase as was
coming time. Indeed, the rise in disposable income resulting
granted last week. This compares to actual borrowing of EUR
from lower oil prices and higher real wages should bring about
74bn. Greek banks have enough collateral to borrow around
firmer consumption growth. We also expect additional
an extra EUR 20bn assuming the ceiling would be allowed to
monetary easing in July, but there are risks that this could be
rise. This means that theoretically, have several more months
announced earlier if the economy does not show more
of room assuming deposit withdrawal does not significantly
meaningful signs of recovery.
quicken. On the other hand, the government is facing a more acute liquidity crunch, and could be facing real difficulties without fresh funds within the next two weeks.
2
Fed closes door for rate hike in June – 21 May 2015
Financial markets Currency markets
Close
Change 1 day
Change 5 days
Change YTD
EUR/USD USD/JPY
1.1110
0.1442
-2.6293
121.15
-0.1648
1.6530
-8.1666 1.1438
AUD/USD
0.7886
0.1397
-2.4131
-3.5352
USD/CHF
0.9356
-0.1707
2.5652
-5.9037
NZD/USD
0.7307
0.0000
-2.5343
-6.2845 -0.1605
GBP/USD
1.5552
0.1030
-1.4199
USD/SGD
1.3354
-0.1271
1.1284
0.7469
USD/CAD
1.2198
-0.0819
1.7942
4.9651
Bond markets
Close
Change 1 day
Change 5 days
Change YTD
2-year German Govt Bond yield
-0.2120
-0.0030
-0.0230
10-year German Govt Bond yield
0.6320
0.0370
-0.0920
-0.1140 0.0910
Yield curve Germany
0.8440
0.0400
-0.0690
0.2050
2-year US Treasury Bond yield
0.5850
0.0000
0.0409
-0.0795
10-year US Treasury Bond yield
2.2461
-0.0018
0.0160
0.0749
Yield curve US
1.6611
-0.0018
-0.0249
0.1544
US 2-year sw ap rates
0.8490
-0.0068
0.0302
-0.0453
US 10-year sw ap rates
2.2930
-0.0110
0.0065
0.0069
US sw ap curve
1.4440
-0.0042
-0.0237
0.0522
EU 2-year sw ap rates
0.1030
-0.0040
-0.0170
-0.0720
EU 10-year sw ap rates
0.9367
-0.0023
-0.0403
0.1247
EU sw ap curve
0.8337
0.0017
-0.0233
0.1967
-0.0120
0.0000
-0.0030
-0.0900
0.2810
0.0050
0.0060
0.0254
JPMorgan EMBI Plus Sovereign S
366.0900
-0.5200
3.9400
-21.3500
Equity markets
Close
Euribor 3 Month ACT/360 ICE LIBOR USD 3 Month
Change 1 day % Change 5 days %Change YTD%
Nikkei 225
20,197
0.85
3.20
Hang Seng Index
27,585
-0.39
1.23
16.86
Hang Seng China Enterprises Index
14,236
0.31
2.72
18.78
15.73
Australian Stock Exchange S&P/ASX 200 Index
5,627
0.29
-1.22
3.99
Singapore Straits Times Index
3,440
-0.42
-0.39
2.21
Euro Stoxx 50 Index
3,683
0.35
3.66
17.07
S&P 500 Index
2,126
-0.09
1.30
3.25
MSCI World Daily Total Return Gross USD
821
-0.03
0.81
6.98
AEX Index
502
0.54
3.13
18.24
13
0.23
-6.40
-32.92
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%
227
0.09
-2.04
1,210
0.02
-0.90
-1.53 2.12
59
-0.32
-1.82
10.36
65
-0.15
-2.49
13.26
6,220
0.00
-2.89
-1.27
514
0.15
2.39
-12.89
3
Fed closes door for rate hike in June – 21 May 2015
Day
Date
Time
Country
Monday Monday Monday
18/05/2015 18/05/2015 18/05/2015
01:50:00 06:30:00 16:00:00
JP JP US
Tuesday Tuesday Tuesday Tuesday Tuesday
19/05/2015 19/05/2015 19/05/2015 19/05/2015 19/05/2015
10:30:00 11:00:00 11:00:00 11:00:00 14:30:00
Wednesday Wednesday Wednesday
20/05/2015 20/05/2015 20/05/2015
Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday
21/05/2015 21/05/2015 21/05/2015 21/05/2015 21/05/2015 21/05/2015 21/05/2015 21/05/2015 21/05/2015
Friday Friday Friday Friday Friday Friday Friday Friday Friday
Period
Latest outcome
Machinery orders private sector - % mom Industrial production - % mom NAHB home builders' confidence index
Mar Mar F May
2.9 -0.8 54.0
GB EC EC DE US
CPI - % yoy Core inflation - % yoy Trade balance external EU - EUR bn ZEW index (expectation economic growth) Housing starts - % mom
Apr Apr F Mar May Apr
-0.1 0.6 23.4b 41.9 1135.0
01:50:00 13:00:00 20:00:00
JP TR US
GDP - % qoq Repo rate - % Federal Reserve releases Minutes April FOMC meeting
1Q P May 20
0.6 7.5
03:45:00 09:30:00 10:00:00 10:00:00 10:00:00 10:00:00 10:30:00 16:00:00 16:00:00
CN NL EC EC EC EC GB US US
PMI manufacturing - index (HSBC) - flash Unemployment rate PMI manufacturing - index PMI services - index Composite PMI output BOP Current account - EUR bn Retail sales - % mom Philadelphia Fed - business confidence - index Existing home sales - % mom
May P Apr May P May P May P Mar Apr May Apr
48.9 7.0 52 54.1 53.9 13.8 -0.5 7.5 6.1
FR NL DE US US US US US JP
Business confidence manuf. - index Consumer confidence - index Ifo - business climate - index Inflation excl food and energy - % mom Inflation excl food and energy - % yoy Inflation (CPI) - % mom Inflation (CPI) - % yoy Markit - Flash PMI Policy rate - %
May May May Apr Apr Apr Apr May P May 22
101.0 0 108.6 0.2 1.8 0.2 -0.1 54.1 80.0
22/05/2015 08:45:00 22/05/2015 09:30:00 22/05/2015 10:00:00 22/05/2015 14:30:00 22/05/2015 14:30:00 22/05/2015 14:30:00 22/05/2015 14:30:00 22/05/2015 15:45:00 22/05/2015 Field Not Appl
Key Economic Indicators and Events
Consensus
ABN AMRO
0.4
7.0
2 0.1 1.7 0.2 0.0 0.0
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
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