Daily Insight
Group Economics Macro & Financial Markets Research
26 January 2016
Fed and BoJ to react to global headwinds •
Global headwinds set stage for Fed and BoJ meetings this week
Senior Economist
•
Fed’s forward guidance likely to hint March rate hike is off the table
Tel: +31 20 343 5618
•
We expect the Fed to hike again in June, but the risks are skewed to later
Maritza.cabezas@nl.abnamro.com
•
It is a close call whether BoJ moves this week – we expect it to ease in April
Aline Schuiling
•
Eurozone surveys coming down, closing the gap with hard data
Maritza Cabezas
Senior Economist Tel: +31 20 343 5606 aline.schuiling @nl.abnamro.com
Global headwinds set stage for Wednesday’s FOMC meeting Last week, the ECB signalled it would ease policy further in reaction to global headwinds. Next up - this week - we have the Fed and BoJ. Since the last FOMC meeting sharp falls in commodity prices and a deterioration in investor sentiment have clouded the outlook. This meeting is not followed by a press conference suggesting that if FOMC policymakers want to communicate changes to the interest rate outlook, they will have to make use of the FOMC statement. No change in forward guidance, likely suggests March rate hike off the table We think the Fed’s forward guidance will hint a March rate hike is off the table. Although FOMC policymakers have forecast four rate hikes this year, recent developments suggest that the downside risks have increased. Following the sharp fall in oil prices, market-based inflation expectations have fallen, which has been one of the indicators that the Fed has pointed to when referring to inflation risks (see chart). US inflation expectations falling (5Y-5Y inflation swap) %
3.7 3.2 2.7 2.2 1.7 1.2 12
13
14
15
16
Source: Thomson Reuters Datastream
Insights.abnamro.nl/en
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Daily Insight – Fed and BoJ to react to global headwinds – 26 January 2016
In addition, there are more concerns about emerging market growth. As a result, we think that the Fed will underline the risks related to recent global developments in the upcoming statement. We don’t expect the statement to make any major changes to the view on the US domestic data, despite the recent disappointing retail sales and industrial production data released after the meeting. Crucially, the labour market remains strong. We expect next rate hike in June, but risks skewed to later We continue to expect a second rate hike in June, and two more rate hikes after that this year. We think that there are downside risks, related to the strong US dollar and energy prices, which suggests that the bar for more rate hikes has become higher. Indeed, markets are now expecting only one rate hike this year. BoJ’s monetary policy meeting on Friday close call for more easing,… Although we expect the BoJ to ease in April, the developments of the recent weeks have increased the pressure for further easing already at Friday’s meeting. Global headwinds have resulted in a stronger yen and equity price weakness, which is pushing the BoJ further from its inflation target. On top of this, at the forefront of February “shunto” wage negotiations, additional easing could set a more optimistic tone for wage growth in the coming time. …but we expect the BOJ to stay on hold and signal a bias towards easing ahead However, we think that the BoJ will want to wait and see how global developments play out and review their policy only in April. Indeed, Japan is positively benefitting from the low energy prices and authorities think that it is only a question of time that consumption growth picks up. The problem is that the recent fall in oil prices has come with increasing uncertainty in financial markets leading to the sharp yen appreciation. This should result in a downward revision of its inflation and GDP growth in the next meeting. At the same time, the BoJ will likely commit to more easing if necessary as soon as in the next meeting. Eurozone surveys coming down, closing the gap with economic activity Germany’s Ifo business climate indicator dropped to 107.3 in January, down from 108.6 in December. The expectations component, which is the part of the survey that has the closest link to GDP growth, dropped to 102.4 from 104.6, while the current conditions index edged to 112.5 from 112.8. The Ifo index is one of many eurozone surveys that has declined in January after having risen during the final months of 2015. Indeed, there has been a widening gap between the results of a broad set of surveys, such as the PMIs, Economic Sentiment and Germany’s Ifo index, and real economic activity during the course of 2015. This gap seems to have widened in 2015Q4, when all the surveys rose, whereas the incoming hard economic data have signalled that GDP growth lost some momentum. That said, despite the decline in a number of surveys in January, they have remained well above their long- term average values. Looking ahead, we expect the economic recovery in the eurozone to continue, although at a moderate pace.
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Daily Insight – Fed and BoJ to react to global headwinds – 26 January 2016
Day
Date
Time
Country
Monday Monday Monday
25/01/2016 25/01/2016 25/01/2016
00:50:00 10:00:00 15:00:00
JP DE BE
Merchandise trade exports - % yoy Ifo - business climate - index Business confidence - index
Tuesday Tuesday Tuesday Tuesday
26/01/2016 26/01/2016 26/01/2016 26/01/2016
14:00:00 15:00:00 16:00:00
HU US US US
Wednesday Wednesday Wednesday Wednesday Wednesday
27/01/2016 27/01/2016 27/01/2016 27/01/2016 27/01/2016
16:00:00 18:00:00 20:00:00 20:00:00 21:00:00
Thursday Thursday Thursday Thursday Thursday Thursday Thursday
28/01/2016 28/01/2016 28/01/2016 28/01/2016 28/01/2016 28/01/2016 28/01/2016
06:30:00 10:30:00 11:00:00 14:00:00 14:30:00 14:30:00 16:00:00
Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday
29/01/2016 29/01/2016 29/01/2016 29/01/2016 29/01/2016 29/01/2016 29/01/2016 29/01/2016 29/01/2016 29/01/2016 29/01/2016 29/01/2016
00:30:00 00:50:00 07:30:00 10:00:00 11:00:00 11:00:00 11:30:00 14:30:00 16:00:00
Key Economic Indicators and Events
Period
Latest outcome
Consensus
ABN AMRO
Dec Jan Jan
-3.3 108.7 0.0
-6.9 108.3
108.1
Base rate -% FHFA house price index - % mom S&P/Case Shiller house price index Conference Board cons. confidence - index
Jan 26 Nov Nov Jan
1.35 0.5 0.8 96.5
1.35 0.5 0.7 95.6
1.35 0.5 0.7 95.0
US FR US US NZ
New homes sold - % mom Total jobseekers - thousands Fed Funds Target Rate - lower bound Fed Funds Target Rate - upper bound Policy rate - %
Dec Dec Jan 27 Jan 27 Jan 28
4.3 -15.0 0.25 0.50 2.5
2.1
2.4
0.25 0.50 2.5
0.25 0.50
NL GB EC DE US US US
Producer confidence manufacturing - index GDP - % qoq Econom ic sentiment monitor - index CPI - % yoy Initial jobless claims - thousands New durable goods orders - % mom Pending hom e sales - % mom
Jan 4Q A Jan Jan P Jan 23 Dec P Dec
3.0 0.4 106.8 0.3 293 0.0 -0.9
JP JP JP FR EC EC EC RU US US US JP
CPI - % yoy Unemployment - % Industrial production - % m om GDP - % qoq M3 growth - % yoy Core inflation - % yoy CPI - % yoy Key rate % GDP - % qoq annualised Chicago Fed - business confidence - index Univ. of Michigan cons. confidence - index Policy rate - %
Dec Dec Dec P 4Q A Dec Jan A Jan A Jan 29 4Q A Jan Jan F Jan 29
0.3 3.3 -0.9 0.3 5.1 0.9 0.2 11.0 2.0 43 93.3 80
2.2 0.5 106.5 0.5
105.8 0.4
-0.7 0.9
-1 0.9
0.2 3.3 -0.1 0.2 5.1 0.9 0.4 11.0 0.7 45 92.4 80
0.9 0.2 11.0 0.9 92.0
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/
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