Daily Insight ECB & Fed shifting on turmoil
Group Economics Macro & Financial Markets Research Nick Kounis & Maritza Cabezas +31 20 343 5616
27 August 2015 • • •
Officials from ECB and Fed point to shifting stance following market turmoil ECB Chief Economist Praet opens the door to a more QE as soon as September NY Fed President Dudley strikes cautious tone on September rate hike
ECB’s Praet says downside risks to inflation have
inflation has bottomed out and eurozone economic data have
increased…
been pretty resilient.
The ECB’s Chief Economist Peter Praet opened the door for the central bank to further step up its monetary stimulus as
ECB options to expand stimulus
soon as next month’s meeting. In a speech at the European
The ECB has two options to expand stimulus. It could
Economic Association in Mannheim, Germany, he struck a
communicate that QE will be completely open-ended, dropping
dovish tone. Mr Praet asserted that ‘recent developments in
the reference to September 2016. Alternatively it could
the world economy and in commodity markets have increased
increase the size of the monthly purchases, which could also
the downside risk of achieving the sustainable inflation path
involve adding more securities to the list of eligible assets.
towards 2 percent.’ The Governing Council would discuss new forecasts at next week’s meeting and was prepared to act if
Fed’s Dudley cautious on rate hike…
necessary, with the current QE programme providing sufficient
Meanwhile, New York Fed President Dudley, the first FOMC
flexibility ‘in terms of size, composition and length of the
member to speak after Black Monday, struck a cautious tone.
program’. He also asserted that ‘there should be no ambiguity
He noted that the arguments for raising interest rates next
on the willingness and ability of the Governing Council to act if
month are less compelling than they were a few weeks ago,
needed’.
but he also added that “..we really hope that we can raise interest rates this year”. Most data suggest that the US
…increasing chances of more QE
economy remains solid (see also below). However, given the
Mr Praet’s remarks significantly increase the chances that the
recent market turmoil, investor risk sentiment remains fragile.
ECB will step up or extend QE as soon as next month’s
So although our base case is for a September rate hike, the
meeting. However, the water is being muddied by some mixed
risk has increased significantly that the Fed delays further .
commentary. For instance, yesterday, ECB Vice President Constancio seemed to play down the decline in market
…more signs expected from Jackson Hole
measures of inflation expectations. He said the fall in inflation
Later this week central bankers will gather at Jackson Hole to
expectations was down to the decline in oil prices, and that the
discuss “Inflation Dynamics and Monetary Policy”. On
ECB should not try to correct for commodity prices. He also
Saturday (18:25 CET), Fed’s Vice Chair Stanley Fischer will
seemed to play down the disinflationary impact of the Chinese
discuss the US economy. Mark Carney and ECB Vice
devaluation. At this stage, we put some more weight on Praet’s
President Constancio will also give presentations that day.
remarks given his role at the ECB and we therefore conclude that the odds on more QE have shortened. It will be interesting
US durable goods orders beat expectations
to see if Mr Constancio adopts a more dovish tone in his
Meanwhile, economic data continue to improve. Durable goods
Jackson Hole Speech later this week.
orders rose 2% mom in July up from 4.1%. Core orders were stronger than expected and there were upward revisions to
Our base case is no change for now
previous months. Durable goods orders ex-transportation rose
Our current base case is for no change in the QE programme.
0.6% mom from 1% and core capital goods orders rose 2.2%
China risks, the drop in commodity prices and tighter financial
up from 1.4%. This increase was the highest in a year. This
conditions do point in the direction of more QE. However, core
adds to evidence that the US is growing at above-trend rates.
2
ECB & Fed shifting on turmoil – 27 August 2015
Financial markets Currency markets
Close
Change 1 day % Change 5 days %Change YTD%
EUR/USD USD/JPY
1.1362
-0.2020
1.5008
-6.0992
119.63
0.2346
-3.0944
-0.1752
AUD/USD
0.7095
0.1270
-3.4300
-13.1047
USD/CHF
0.9499
0.1793
-1.2886
-4.4270
NZD/USD
0.6422
-0.0467
-3.1373
-17.6139
GBP/USD
1.5474
-0.0839
-1.3138
-0.6867
USD/SGD
1.4076
-0.0426
0.2636
6.2660
USD/CAD
1.3328
0.1127
1.7793
14.7482
Bond m arkets 2-year German Govt Bond yield
Close
Change 1 day
Change 5 days
Change YTD
-0.2290
0.0090
0.0280
-0.1310
10-year German Govt Bond yield
0.7040
-0.0260
0.0850
0.1630
Yield curve Germany
0.9330
-0.0350
0.0570
0.2940
2-year US Treasury Bond yield
0.6720
0.0715
0.0146
0.0075
10-year US Treasury Bond yield
2.1663
0.0949
0.0407
-0.0049
Yield curve US
1.4943
0.0234
0.0261
-0.0124
US 2-year sw ap rate
0.8120
0.0170
-0.0864
-0.0823
US 10-year sw ap rate
2.2148
0.0307
0.0463
-0.0713
US sw ap curve
1.4028
0.0137
0.1327
0.0110
EU 2-year sw ap rate
0.0900
0.0000
0.0100
-0.0850
EU 10-year sw ap rate
1.0415
0.0025
0.1145
0.2295
EU sw ap curve
0.9515
0.0025
0.1045
0.3145
-0.0330
0.0000
-0.0040
-0.1110
Euribor 3 Month ACT/360 ICE LIBOR USD 3 Month
0.3270
-0.0046
-0.0059
0.0714
JPMorgan EMBI Plus Sovereign S
451.8200
-14.9600
30.3900
64.3800
Equity markets
Close
Change 1 day % Change 5 days %Change YTD%
Nikkei 225
18,377
3.20
-9.13
5.31
Hang Seng Index
21,080
-1.52
-9.01
-10.70
Hang Seng China Enterprises Index
9,428
-0.91
-11.41
-21.33
Australian Stock Exchange S&P/ASX 200 Index
5,173
0.69
-3.86
-4.40
Singapore Straits Times Index
2,873
-0.46
-5.53
-14.62
Euro Stoxx 50 Index
3,171
-1.47
-7.55
0.77
S&P 500 Index
1,902
1.86
-8.52
-7.60
MSCI World Daily Total Return Gross USD
715
-0.11
-8.96
-6.83
AEX Index
429
-1.82
-8.63
1.00
33
-8.08
117.11
72.45
Chicago Board Options Exchange Volatility Index
Commodity markets Reuters/Jef f eries CRB Total Return Gold spot USD/Oz Generic first NYMEX Crude Light future Generic first Brent Crude Oil f uture 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%
188
0.77
-3.14
1,127
-1.17
-0.60
-18.38 -4.88
39
-0.74
-4.36
-26.75
43
0.62
-7.80
-24.16
4,935
-2.57
-1.20
-21.67
490
-1.01
-1.26
-16.91
3
ECB & Fed shifting on turmoil – 27 August 2015
Day
Date
Time
Country
Monday Monday
24/08/2015 24/08/2015
09:00:00 15:45:00
CH EC
Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday
25/08/2015 25/08/2015 25/08/2015 25/08/2015 25/08/2015 25/08/2015 25/08/2015 25/08/2015
08:00:00 09:30:00 10:00:00 14:00:00 15:00:00 15:00:00 16:00:00 16:00:00
Wednesday
26/08/2015
Thursday Thursday Thursday Friday Friday Friday Friday Friday Friday Friday Friday Friday
Key Economic Indicators and Events
Period
Latest outcome
Consensus
ABN AMRO
Total sight deposits in bn CHF ECB announces weekly QE details
21-Aug
463
DE NL DE HU US US US US
GDP - % qoq, Q2 final and details Producer confidence manufacturing - index Ifo - business climate - index Base rate -% S&P/Case Shiller house price index FHFA house price index - % mom New homes sold - % mom Conference Board cons. confidence - index
2Q F Aug Aug Aug 25 Jun Jun Jul Aug
0.4 3.7 108.0 1.4 -0.2 0.4 -6.8 90.9
0.4
0.4 3.7 107.7
107.5 1.4 0.2 0.4 6.7 92.8
14:30:00
US
New durable goods orders - % mom
Jul
3.4
-0.4
27/08/2015 27/08/2015 27/08/2015
10:00:00 14:30:00 16:00:00
EC US US
M3 growth - % yoy GDP - % qoq annualised Pending home sales - % mom
Jul 2Q S Jul
5.0 2.3 -1.8
4.9 3.2 1.7
5.0 3.1 1.5
28/08/2015 28/08/2015 28/08/2015 28/08/2015 28/08/2015 28/08/2015 28/08/2015 28/08/2015 28/08/2015
01:30:00 01:30:00 10:30:00 11:00:00 14:00:00 14:00:00 14:30:00 14:30:00 16:00:00
JP JP GB EC DE BR US US US
CPI - % yoy Unemployment - % GDP - % qoq Economic sentiment monitor - index CPI - % yoy GDP - % yoy PCE deflator core - % mom PCE deflator core - % yoy Univ. of Michigan cons. confidence - index
Jul Jul 2Q P Aug Aug P 2Q Jul Jul Aug F
0.4 3.4 0.7 104.0 0.2 -1.6 0.2 1.3 92.9
0.2 3.4 0.7 103.6 0.2
0.7 103.8 0.2
0.1 1.3 93.5
93.0
0.2 0.3 6.0 92.0
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
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