Daily Insight
Group Economics Macro & Financial Markets Research
26 April 2016
Weak data cast doubt on strength of US economy Maritza Cabezas Senior Economist Tel: +31 20 343 5618 maritza.cabezas @nl.abnamro.com
US capital goods orders point to weak business investment in Q1…
…adding to economic data casting doubt on strength of US economy
As a result Fed policymakers to keep rates on hold and maintain cautious tone in April’s FOMC meeting
Roy Teo Senior FX Strategist Tel: +65 6597 8616 roy.teo@sg.abnamro.com
BoJ preview: additional easing on the cards in Thursday’s BoJ meeting
Negative rates on BoJ lending facilities part of the possible measures
Business investment data point to further weakening of the US economy in Q1… Durable goods orders increased only by 0.8% after slumping by -3.1% the previous month. This was mainly the result of an increase in defense spending. Orders of capital goods non defense ex aircraft were flat, after declining 2.7% in February. Core shipments non defense ex aircraft, which are used to by the BEA to estimate investment in durable equipment in the National Accounts, increased by 0.3%. However, the annualised 3-month average was very weak, declining 9.1%. This data confirm the US economy weakened further in Q1. Our forecast for the preliminary first quarter growth is 0.9%, after a weak 1.4% in the fourth quarter of 2015, but risks are to the downside.
US business spending in capital goods weak % 3m ar
30 20 10 0 -10 -20 -30 -40
20 10 0 -10 -20 -30 00
02
04
06
08
10
12
Core durable goods shipments (lhs) Business investment (rhs) Source: Thomson Reuters Datastream
Insights.abnamro.nl/en
14
16
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Daily Insight – Weak data cast doubt on strength of US economy– 27 April 2016
… while other drivers of GDP growth remain weak Although manufacturing surveys show some improvement, industrial production and business investment remain weak. Meanwhile, consumers, which are the main drivers of growth in the US, are still somewhat restrained. This despite the higher disposable income resulting from lower oil prices and the strong labour market. This report casts more doubt on the strength of the US economy. We think the Fed will maintain the policy rate on hold this year. BoJ to provide additional easing Meanwhile we think the BoJ will ease further. In the April 28 meeting, we expect the BoJ to revise its growth and inflation forecasts downward. To avoid a negative impact on sentiment, BoJ officials will need to provide an adequate guidance and announce additional easing. However, we see this as a close call ahead of the G-7 meeting which Japan’s authorities are chairing. Japan’s policymakers will want to avoid any criticism regarding competitive devaluations, while at the same time they will need to show that they are committed to doing all it takes to support the economy. We expect BoJ officials to increase the annual pace of asset purchases from about JPY 80 trln to over JPY 100 trln. This will likely be combined with the expansion of ETFs and J-Reits purchases to 5 trln yen and 200bn yen per annum. In addition, the interest rate for the Fund-Provisioning Measure to stimulate bank lending conducted through the Loan Support Program could also be lowered to -0.1% from 0%. Negative rates on BoJ lending facilities part of the possible measures Rumours that the BoJ could announce negative rates on the loan facilities have been received well by markets. The BoJ’s Stimulating Bank Lending Facility has an unlimited capacity. The amount outstanding in March 2016 is 24.4 trillion yen. Meanwhile, the Growth Supporting Facility amounts to 10 trillion yen and covers investments or loans that contribute to strengthening the foundations for economic growth. March’s outstanding amount is 5.6 trillion yen. This facility contemplates specific areas of support. There is a maximum amount for the loans extended, they should not exceed 2 trillion yen. In both cases, the interest rate on these loans is 0% and the duration is within four years. The ECB’s TLTRO could be a reference for the BoJ The ECB’s TLTRO programme could be a reference for the BoJ to further incentivise bank lending to the real economy. Since the announcement of the ECB’s March policy package, including the TLTRO II programme, sentiment in financial markets has improved noticeably and worries about the risks of a new crisis in the European banking sector have eased. If eurozone banks are able to meet the ECB’s condition of 2.5% growth in bank lending between end-January 2016 and end-January 2018, this would allow them the get the maximum discount (i.e. 40 bp) on the interest rate that has to be paid on the TLTRO II funds. In this sense, the BoJ could also adopt a benchmark for loan growth. Banks receive the maximum rate of reduction if they exceed a certain benchmark stock of loans.
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Daily Insight – Weak data cast doubt on strength of US economy– 27 April 2016
Day
Date
Time
Country
Key Economic Indicators and Events
Period
Latest outcome
Consensus
ABN AMRO
Monday Monday
25/04/2016 25/04/2016
10:00:00 16:00:00
DE US
Ifo - business climate - index New homes sold - % mom
Apr Mar
106.6 -2
107.0 2
107.1 1
Tuesday Tuesday Tuesday Tuesday
26/04/2016 26/04/2016 26/04/2016 26/04/2016
14:00:00 14:30:00 15:00:00 16:00:00
HU US US US
Base rate -% New durable goods orders - % mom S&P/Case Shiller house price index Conference Board cons. confidence - index
Apr 26 Mar P Feb Apr
1.05 0.8 0.7 94.2
1.06 1.7 0.7 95.9
Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday
27/04/2016 27/04/2016 27/04/2016 27/04/2016 27/04/2016 27/04/2016
10:30:00 16:00:00 20:00:00 20:00:00
EC GB US US US BR
M3 growth - % yoy GDP - % qoq Pending home sales - % mom Federal Funds Target Rate - Upper bound Federal Funds Target Rate - Lower bound Policy rate - %
Mar 1Q A Mar Apr 27 Apr 27 Apr 27
5.0 0.6 3.5 0.50 0.25 14.25
5.0 0.4 -0.1 0.50 0.25 14.25
Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday
28/04/2016 28/04/2016 28/04/2016 28/04/2016 28/04/2016 28/04/2016 28/04/2016 28/04/2016 28/04/2016
01:30:00 01:30:00 01:50:00 06:30:00 09:55:00 11:00:00 14:00:00 14:30:00
JP JP JP NL DE EC DE US JP
Unemployment - % CPI - % yoy Industrial production - % mom Producer confidence manufacturing - index Unemployment - % Economic sentiment monitor - index CPI - % yoy GDP - % qoq annualised Policy rate - %
Mar Mar Mar P Apr Apr Apr Apr P 1Q A Apr 28
3.3 0.3 -5.2 3.9 6.2 103.0 0.3 1.4 -0.1
3.3
Friday Friday Friday Friday Friday Friday Friday Friday Friday
29/04/2016 29/04/2016 29/04/2016 29/04/2016 29/04/2016 29/04/2016 29/04/2016 29/04/2016 29/04/2016
11:00:00 11:00:00 11:00:00 11:00:00 12:30:00 14:30:00 14:30:00 15:45:00 16:00:00
EC EC EC EC RU US US US US
Unemployment - % GDP - % qoq CPI - % yoy Core inflation - % yoy Key rate % PCE deflator core - % mom PCE deflator core - % yoy Chicago Fed - business confidence - index Univ. of Michigan cons. confidence - index
Mar 1Q A Apr Apr A Apr 29 Mar Mar Apr Apr F
10.3 0.3 0.0 1.0 11.00 0.15 1.7 53.6 89.7
1.8 94.0
1.0 0.50 0.25
2.0 3.5 6.2 103.5 0.2 0.7
10.3 0.4 0.1 0.9 10.88 0.10 53.2 90.1
103.4 0.1 0.9 -0.1 10.3 0.4 -0.1 0.8
90.0
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
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