Group Economics
Daily Insight
Macro & Financial Markets Research Aline Schuiling, Maritza Cabezas & Arjen
Markets rebound
van Dijkhuizen, +31 20 343 5616
28 August 2015
It was ‘Happy Thursday’ with strong economic data and rebounding markets US GDP rebounded more strongly in Q2, while eurozone bank lending is on the up Meanwhile, we expect China to ease monetary policy further this year
Markets rebound and data beat estimates
Eurozone money supply signals recovery
Investor sentiment improved on Thursday, with global equity
% yoy
markets rallying strongly to be roughly at or above start of the week levels. Volatility indexes have also moved down further, though they are still above historical averages. Meanwhile, economic data have beat estimates. Q2 US GDP growth stronger than expected Indeed, the second estimate of Q2 US GDP growth was revised up to 3.7% from 2.3%. Stronger growth in consumption of durable goods together with higher growth in residential investment were important drivers. A strong labour market and
Index
65
13 11 9 7 5 3 1 -1 -3 -5
60 55 50 45 40 35 00
02
04
06
08
Real M1 money supply (lhs)
10
12
14
Composite PMI (rhs)
cheaper gasoline prices are boosting consumption and are supporting a firmer recovery of the housing market. US GDP is
Source: Thomson Reuters Datastream, ABN AMRO Group Economics
expected to continue growing at above trend rates in the second half of the year. The Fed will have to weigh the strong
China’s recent easing measures …
economic data against the recent market turmoil. Although our
Earlier this week, the PBoC reacted to the recent turmoil by
base case is for a September rate hike, instability in markets
cutting its key policy rate by another 25 bps (to 4.6%), marking
could delay the rate hike.
the fifth such move since November 2014. Bank reserve requirements (RRRs) were cut by another 50 bps. The
Eurozone money growth and bank lending accelerate
accompanying statement had a more dovish tone, stressing
Money growth in the eurozone accelerated in July. The annual
the need to use monetary tools more flexibly. It was also
growth rate in the broad monetary aggregate M3 increased to
announced this week that the PBoC will provide banks with
5.3%, up from 4.9% in June. Meanwhile, growth the narrower
around US 28bn in additional short-term liquidity.
aggregate M1 increased to 12.1% from 11.7%. Real M1 growth, which tends to move ahead of changes in GDP
… will likely be followed by more action
growth, has accelerated sharply since the start of this year,
While we expect some more CNY weakening, we assume the
signaling a pick-up in growth in the second half of this year.
PBoC will stand firm to prevent a sharp depreciation. This
Meanwhile, bank lending to the private sector strengthened as
would lead to a tightening of domestic liquidity through FX
well. Annual growth in loans to non-financial companies
interventions, but these effects can be compensated by further
(adjusted for sales and securitisation) jumped to 0.9% in July,
RRR cuts. For now, we expect further RRR cuts of 50 bps in
up from 0.2% in June. The monthly flow in loans to non-
2015 and another 150 bps in 2016. We expect the PBoC to be
financial companies has been on a clear upward trend since
more cautious with cutting policy rates further and pencil in a
the start of this year, reflecting historically low levels of interest
25 bp cut in Q4-2015. We expect the PBoC to use more parts
rates, improved corporate profitability and business confidence
of its monetary toolkit as well, including its standing facilities
and an easing of bank lending conditions. The data underline
and targeted lending to policy banks. We also expect more
that the eurozone economic recovery was gaining momentum
fiscal stimulus, particularly in the form of infrastructure
before the recent turmoil in financial markets began.
investment financed by policy banks.