Global daily insight 23 september 2015

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Daily Insight Threat of a US government shutdown

Group Economics Macro & Financial Markets Research Maritza Cabezas, Peter de Bruin, +31 20 343 5619

23 September 2015   

We expect Republicans and Democrats to reach an agreement and avoid a US government shutdown A less likely scenario is that US Congress passes a continuous resolution to extend funding Turkey’s central bank keeps monetary policy tight, though policy in Hungary stays extremely loose

New deadline approaching for a US government shutdown Democrats and Republicans have longstanding differences on

Turkish Central Bank has pushed up interbank rates

spending priorities. Despite the Republican majority, Republicans lack the votes to pass the spending bill they want in the Senate. If an agreement is not reached by September 30

%

14

when the Federal spending authority expires, then they will

12

need to pass a continuous resolution to avoid a government

10

shutdown. This allows funding to be extended at current levels and removes the urgency of Congress to resolve the differences for a set amount of time.

8 6 4

One of the major issues in debate is Planned Parenthood and

11 12 Benchmark repurchase rate

its funding. Republicans want to strip federal funding from this

One-week interbank rate

Issues in debate that could potentially cause a shutdown

10

13 14 15 Overnight lending rate

program, which Democrats support. On top of this, there are the usual differences, democrats want to increase the cap on

Source: Thomson Reuters Datastream

spending in domestic programs for unemployment benefits and other welfare payments as well as education, infrastructure

Turkey’s central bank keeps monetary policy tight

and environmental protection. Meanwhile Republicans are

Turkey’s central bank (CBT) kept its monetary policy rates

opposed to more domestic spending.

unchanged and maintained a tight liquidity stance during its meeting. In response to the slide in the lira and high inflation, it

Economic impact of a shutdown

has pushed interbank rates to the upper bound of its interest

A less likely scenario of a shutdown of government agencies

rate corridor. We think that the CBT will continue this policy,

will cause some uncertainty, but we expect it to be short lived.

though expect policy rates to be raised as well when the Fed

In 1995 and in 2013, the economic impact of the shutdowns

starts its tightening cycle and pressure on the lira intensifies.

was not meaningful and was rapidly reversed in the next months. The major costs are related to the interruptions to

Policy in Hungary and the Czech Republic extremely loose

business as federal employees that are not considered

The Hungarian Central Bank (MNB) kept its policy constant

“essential” stayed away from work, for instance National Park

too. But, at 1.35%, policy is extremely loose. Inflation has

Services. Moreover, in contrast to 2013, there is no risk of an

started to pick up, but should remain below the central bank’s

overlap with the debt ceiling. Overall, the fiscal viability is more

target for an extended period. Policy tightening will therefore

solid now than during the previous episodes and a shutdown is

most likely have to wait until 2016H2. The situation is more or

more likely to be avoided.

less similar in the Czech Republic. The CNB is likely to keep policy also constant during this Thursday’s meeting. However,

Fed’s rate decisions not influenced by shutdown threat

given the renewed fall in inflation, the CNB-board is likely to

Chair Yellen mentioned during the press conference after the

send a dovish message. In addition, it may discuss introducing

FOMC meeting last week that the threat of a shutdown “played

negative policy rates to alleviate pressure on the FX floor and

no role” in the central bank’s decision to delay the rate hike.

lessen the current sharp pace of FX reserve accumulation.

We think that this will not be a concern for the upcoming

That said, the sound economic performance should help

December FOMC meeting, since we expect Republicans and

inflation over time to pick up, and we would be surprised if the

Democrats to reach an agreement beforehand.

CNB opts for more stimulus.


2

Threat of a US government shutdown – 23 September 2015

Financial markets Currency markets

Close

Change 1 day

Change 5 days

Change YTD

EUR/USD USD/JPY

1.1118

-0.0180

-1.5235

120.13

-0.0166

-0.3649

-8.1005 0.2922

AUD/USD

0.7079

-0.1411

-1.6396

-13.4067

USD/CHF

0.9756

0.0513

0.4530

-1.8807

NZD/USD

0.6288

-0.0953

-1.2408

-19.3536

GBP/USD

1.5352

-0.0846

-0.9101

-1.4444

USD/SGD

1.4180

0.0918

1.5250

6.9785

USD/CAD

1.3275

0.0226

0.7820

14.2329

Bond markets

Close

Change 1 day

Change 5 days

Change YTD

2-year German Govt Bond yield

-0.2620

-0.0280

-0.0320

10-year German Govt Bond yield

0.5900

-0.0940

-0.1530

-0.1640 0.0490

Yield curve Germany

0.8520

-0.0660

-0.1210

0.2130

2-year US Treasury Bond yield

0.6738

-0.0324

-0.1286

0.0093

10-year US Treasury Bond yield

2.1337

-0.0675

-0.1530

-0.0375

Yield curve US

1.4599

-0.0351

-0.0244

-0.0468

US 2-year sw ap rates

0.7680

-0.0174

-0.1346

-0.1263

US 10-year sw ap rates

2.1396

0.0093

-0.1527

-0.1465

US sw ap curve

1.3716

0.0267

-0.0181

-0.0202

EU 2-year sw ap rates

0.0473

0.0023

-0.0327

-0.1277

EU 10-year sw ap rates

0.9730

-0.0640

-0.1120

0.1610

EU sw ap curve

0.9257

-0.0663

-0.0793

0.2887

-0.0390

-0.0010

-0.0030

-0.1170

0.3260

0.0068

-0.0095

0.0704

JPMorgan EMBI Plus Sovereign S

422.9900

18.6800

18.9500

35.5500

Equity markets

Close

Euribor 3 Month ACT/360 ICE LIBOR USD 3 Month

Change 1 day % Change 5 days %Change YTD%

Nikkei 225

18,070

-1.96

-1.06

3.55

Hang Seng Index

21,797

0.18

1.59

-7.66

Hang Seng China Enterprises Index

9,835

-0.65

1.35

-17.93

Australian Stock Exchange S&P/ASX 200 Index

5,074

-0.57

-0.48

-6.22

Singapore Straits Times Index

2,868

-0.48

0.93

-14.76

Euro Stoxx 50 Index

3,076

-3.41

-4.10

-2.24

S&P 500 Index

1,943

-1.23

-1.79

-5.64

MSCI World Daily Total Return Gross USD

725

-1.65

-1.80

-5.55

AEX Index

420

-2.96

-2.82

-1.06

22

11.42

-0.44

16.88

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%

195

-1.03

-0.61

1,124

-0.09

0.38

-15.26 -5.16

46

0.04

-1.63

-12.93

49

0.33

5.25

-14.39

5,078

-3.62

-5.03

-19.40

496

-0.25

0.15

-15.98


3

Threat of a US government shutdown – 23 September 2015

Day

Date

Time

Country

Monday Monday Monday

21/09/2015 21/09/2015 21/09/2015

15:45:00 16:00:00 20:00:00

EC US MX

Tuesday Tuesday Tuesday

22/09/2015 22/09/2015 22/09/2015

13:00:00 14:00:00 15:00:00

Wednesday Wednesday Wednesday Wednesday Wednesday

23/09/2015 23/09/2015 23/09/2015 23/09/2015 23/09/2015

Thursday Thursday Thursday Thursday Thursday Thursday Thursday Friday Friday Friday Friday

Key Economic Indicators and Events

Period

Latest outcome

Consensus

ABN AMRO

ECB announces weekly QE details Existing home sales - % mom Policy rate - %

Aug Sep 21

-4.8 3.0

-1.2 3.1

-0.8

TR HU US

Repo rate - % Base rate -% FHFA house price index - % mom

Sep 22 Sep 22 Jul

7.5 1.4 0.6

1.4 0.5

0.4

03:45:00 10:00:00 10:00:00 10:00:00 15:45:00

CN EC EC EC US

PMI manufacturing - index (Caixin) - flash PMI services - index Composite PMI output PMI manufacturing - index Markit - Flash PMI

Sep P Sep P Sep P Sep P Sep P

47.3 54.4 54.3 52.3 53.0

47.8 54.2 54.1 52.2

54.5 54.2 51.8

24/09/2015 24/09/2015 24/09/2015 24/09/2015 24/09/2015 24/09/2015 24/09/2015

06:30:00 10:00:00 10:00:00 11:10:00 13:00:00 14:30:00 16:00:00

NL DE NO EZ CZ US US

Producer confidence manufacturing - index Ifo - business climate - index Policy rate - % ECB allotment TLTRO-5 - EUR bn Repo rate - % New durable goods orders - % mom New homes sold - % mom

Sep Sep Sep 24

107.9

3.0 108.1

Sep 24 Aug Aug

3.5 108.3 1.0 73.8 0.1 2.2 5.4

0.1 -2.2 1.5

-2.0 1.4

25/09/2015 25/09/2015 25/09/2015 25/09/2015

01:30:00 10:00:00 14:30:00 16:00:00

JP EC US US

CPI - % yoy M3 growth - % yoy GDP - % qoq annualised Univ. of Michigan cons. confidence - index

Aug Aug 2Q T Sep F

0.2 5.3 3.7 85.7

0.1 5.4 3.7 87.6

5.5 3.7 85.0

Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)

Find out more about Group Economics at: https://insights.abnamro.nl/en/ This document has been prepared by ABN AMRO. It is solely intended to provide financial and general information on economics. The information in this document is strictly proprietary and is being supplied to you solely for your information. It may not (in whole or in part) be reproduced, distributed or passed to a third party or used for any other purposes than stated above. This document is informative in nature and does not constitute an offer of securities to the public, nor a solicitation to make such an offer. No reliance may be placed for any purposes whatsoever on the information, opinions, forecasts and assumptions contained in the document or on its completeness, accuracy or fairness. No representation or warranty, express or implied, is given by or on behalf of ABN AMRO, or any of its directors, officers, agents, affiliates, group companies, or employees as to the accuracy or completeness of the information contained in this document and no liability is accepted for any loss, arising, directly or indirectly, from any use of such information. The views and opinions expressed herein may be subject to change at any given time and ABN AMRO is under no obligation to update the information contained in this document after the date thereof. Before investing in any product of ABN AMRO Bank N.V., you should obtain information on various financial and other risks and any possible restrictions that you and your investments activities may encounter under applicable laws and regulations. If, after reading this document, you consider investing in a product, you are advised to discuss such an investment with your relationship manager or personal advisor and check whether the relevant product –considering the risks involved- is appropriate within your investment activities. The value of your investments may fluctuate. Past performance is no guarantee for future returns. ABN AMRO reserves the right to make amendments to this material. © Copyright 2015 ABN AMRO Bank N.V. and affiliated companies ("ABN AMRO").


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