Global daily insight 27 august 2015

Page 1

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)

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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