Daily Insight
Group Economics Macro & Financial Markets Research
25 October 2016
All eyes on Italy now Macro & Financial Markets Research team Tel: +31 20 343 5616 nick.kounis@nl.abnamro.com
Euro Macro: Portugal and Spain will be out of the woods for a while, all eyes on Italy now - There was positive news on Portugal and Spain during the weekend. First, rating agency DBRS decided to keep Portugal rated as investment grade and also keep the outlook unchanged at stable. This means that Portuguese government (PGBs) and government-guaranteed bonds remain eligible for the ECB’s QE programme and can be used as collateral in the ECB’s refi operations. In its decision DBRS had considered ‘Portugal’s eurozone membership and its adherence to the EU economic governance framework, which helps foster credible macroeconomic policies’. Meanwhile, on Sunday, Spain’s Socialist Party decided that it will support a minority government led by Mariano Rajoy of the centre-right Partido Popular (PP). The minority coalition of the PP and the centrist Ciudadanos (Cs) should be installed in the coming weeks, ending to the political deadlock that lasted for almost a year. All eyes will be on Italy now. Recent polls for the 4 December constitutional reform referendum give a small lead to the ‘no’ camp. Initially Prime Minister Matteo Renzi had attached his own political future to the referendum, saying he would resign in case of a ‘no’ vote, which could trigger early elections. Since then he has distanced himself from those comments, but it remains unclear what he would do. Meanwhile, Mr Renzi has presented a Draft 2017 Budget to the EC last week that is in conflict with the EC’s rules for debt reduction. The Commission will present its reaction to the budget this week. (Aline Schuiling) Euro Macro: Eurozone PMIs rise moving into Q4 - The eurozone composite PMI beat expectations. It rose to 53.7 in October, up from 52.6 in September. The manufacturing PMI increased to 53.3 from 52.6, while the services sector PMI rose to 53.5 from 52.2. The more forward looking components of the services PMI (such as the business expectations and the new orders) improved significantly as well. However, the forward looking parts of the manufacturing PMI were less positive, with the new orders component rising only modestly and the new exports orders declining somewhat. On the positive side, the employment component of the composite PMI increased to 52.5 from 52.0 signalling an ongoing moderate labour market recovery. Overall, the PMI report seems to signal a slight pick-up in GDP growth in the final quarter of the year, up from what probably was 0.3% qoq in Q3 (the first estimate of Q3 GDP will be published next week). (Aline Schuiling) Fed view: Fed speakers point to one rate hike this year - James Bullard, president of the St. Louis Fed spoke yesterday in Arkansas about the US economy and monetary policy. He mentioned that one rate increase in the policy rate would be all that was needed for now. He added that low interest rates are likely to continue to be the norm over the next two or three years. His conclusion was based on a Taylor-type rule. This coincides with remarks from John Williams of the Federal Reserve of San Francisco who mentioned on Friday that ‘this year would be good’ for a rate hike and that his preference was ‘sooner rather than later’. He also mentioned that the differences in the FOMC are not as deep as they seem and that he does not see problems in the FOMC building consensus. According to the latest FOMC minutes most participants see a rate hike by the end of this year, which is in line with our view. (Maritza Cabezas)
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Bloomberg: ABNM