Daily Insight
Group Economics Macro & Financial Markets Research
Eurozone reflation
Aline Schuiling , Kim Liu & Maritza Cabezas + 31 20 343 5606
2 June 2015 • • •
Jump in inflation in various states points to consensus-beating rise in eurozone inflation ECB accelerates QE only modestly in May – sharper frontloading seen in June US consumer spending, weaker than expected, but manufacturing surveys firm
Country data point to jump in eurozone inflation
HICP inflation on the up
German HICP inflation rose to 0.7% yoy in May from 0.3% in
% yoy
April. Regional CPI data show that, as expected, energy price inflation increased in May, due to the rise in oil prices since the start of this year. More surprisingly, the yoy change in clothing and shoe prices dropped sharply, while that of package holidays jumped higher. More fundamentally, core inflation in Germany is expected to pick up in the coming months.
4 3 2 1 0
Economic slack is waning and the labour market is tightening.
-1
Inflation did not only jump higher in Germany in May, but also
-2 Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
in Spain (HICP to -0.3%, up from -0.7% in April) and in Belgium (CPI to +0.6% from +0.3%). These national results signal that eurozone inflation (flash estimate is published on
Germany
Eurozone
Spain
Source: Thomson Reuters Datastream
Tuesday) will also beat the current consensus estimate. ECB QE frontloading yet to materialise in a big way The ECB announced that holdings of public and private sector debt increased by EUR 63.1bn in May. The monthly target of the QE programme is EUR 60bn. So it appears that the ECB stepped up its purchases, but only rather modestly. So the frontloading ahead of the summer lull that ECB Executive Board member Benoit Coeure announced is not yet materialising in a big way. This was also confirmed by the more recent trend in the weekly data. Given the modest increase in the pace of purchases in May, the frontloading will likely need to accelerate in June, which will likely mean that the net supply of core government bonds will be even more negative this month. This should support prices and lead to a further decline in core bond yields. In addition, the backloading in September could become a real possibility. Meanwhile, the data also show that the remaining maturity of bond holdings have decreased for almost all countries. The maturity of holdings of Dutch bonds are still among the lowest of all holdings at 6.85yrs. Together with the remaining maturity of German debt at 7.11yrs, it appears that core national central banks have bought on average bonds with a lower maturity in May. This buying behaviour coincided with the surge in bond yields, which meant that the eligible universe the ECB could buy expanded to lower maturity securities.
US consumer spending weaker than expected in April Although US business investment was stronger than expected in the past couple of months, consumer spending has yet to show signs of recovery after a weak first quarter. Despite the increase in personal income in April (0.4%), real personal spending was flat, following an upwardly revised 0.4% gain the previous month. Households continue to save and pay down debt. Last month, the savings rate rose to 5.6% from 5.2% the prior month.
Meanwhile, core PCE, a preferred inflation
measure by the Fed, was up by 0.1% mom in April and 1.2% yoy. In contrast, core CPI has been trending upward and was at 1.8% yoy in April. Medical expenses provide an explanation for the differences in the inflation data, which result from differing methodological approaches. We expect both inflation measures to gradually turn up this year. US manufacturing surveys firm in May Both of the key US manufacturing surveys improved in May. The Markit US manufacturing PMI edged up to 54.1 from 53.8 in April. Manufacturing job creation in this index was reported for the twenty-third consecutive month. Meanwhile the ISM manufacturing index increased to 52.8, up from 51.5. This report suggests that factory employment returned to expansion in May, increasing 3.4ppts to 51.7. The employment component of these reports suggest that the labour market will continue to do well, especially given the strength of service sector job growth.
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Eurozone reflation – 2 June 2015
Financial markets Currency markets
Close
Change 1 day
Change 5 days
Change YTD
EUR/USD USD/JPY
1.0928
0.0824
0.3397
124.83
-0.0320
1.5539
4.1639
AUD/USD
0.7607
0.0526
-1.7691
-6.8340
USD/CHF
0.9460
-0.0634
-0.3896
-4.8194
NZD/USD
0.7087
0.0000
-2.0727
-9.0827
GBP/USD
1.5199
0.0790
-1.2731
-2.4517
USD/SGD
1.3565
0.0590
0.5709
2.4083
USD/CAD
1.2527
-0.1912
0.7723
Bond markets 2-year German Govt Bond yield
Close
Change 1 day
Change 5 days
-9.6860
7.8519
Change YTD
-0.2150
0.0100
-0.0040
-0.1170
10-year German Govt Bond yield
0.5410
0.0540
-0.0650
0.0000
Yield curve Germany
0.7560
0.0440
-0.0610
0.1170
2-year US Treasury Bond yield
0.6487
0.0434
0.0345
-0.0158
10-year US Treasury Bond yield
2.1917
0.0703
-0.0175
0.0205
Yield curve US
1.5430
0.0269
-0.0520
0.0363
US 2-year sw ap rate
0.8890
0.0097
0.0092
-0.0053
US 10-year sw ap rate
2.2735
0.0100
0.0524
-0.0126
US sw ap curve
1.3845
0.0003
0.0432
-0.0073
EU 2-year sw ap rate
0.1030
-0.0020
0.0000
-0.0720
EU 10-year sw ap rate
0.8870
-0.0132
-0.0090
0.0750
EU sw ap curve
0.7840
-0.0112
-0.0090
0.1470
-0.0130
-0.0010
-0.0010
-0.0910
Euribor 3 Month ACT/360 ICE LIBOR USD 3 Month
0.2838
0.0010
-0.0008
0.0282
JPMorgan EMBI Plus Sovereign S
382.7400
1.8600
19.6100
-4.7000
Equity markets
Close
Change 1 day % Change 5 days %Change YTD%
Nikkei 225
20,570
0.03
0.76
17.87
Hang Seng Index
27,597
0.63
-1.41
16.91
Hang Seng China Enterprises Index
14,299
1.39
-0.93
19.31
Australian Stock Exchange S&P/ASX 200 Index
5,735
-0.72
0.24
5.99
Singapore Straits Times Index
3,392
-0.75
-1.68
0.80
Euro Stoxx 50 Index
3,575
0.12
-2.20
13.62
S&P 500 Index
2.86
2,118
0.50
-0.39
MSCI World Daily Total Return Gross USD
809
-0.66
-1.50
5.40
AEX Index
492
-0.27
-1.77
15.97
-1.30
12.61
-28.85
Chicago Board Options Exchange Volatility Index
Commodity markets Reuters/Jefferies CRB Total Return Gold spot USD/Oz Generic first NYMEX Crude Light future Generic first Brent Crude Oil future LME Copper 3 Months Rolling Forw ard Generic first Wheat future Chicago Board of Trade Source Bloomberg
14
Close
Change 1 day % Change 5 days %Change YTD%
224
1.02
-1.06
-2.94
1,190
-0.09
-1.10
0.39
60
-0.12
0.85
13.07 13.20
65
-1.01
-0.95
6,024
0.15
-2.23
-4.38
494
3.51
-4.17
-16.28
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Eurozone reflation – 2 June 2015
Day
Date
Time
Country
Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday
01/06/2015 01/06/2015 01/06/2015 01/06/2015 01/06/2015 01/06/2015 01/06/2015 01/06/2015 01/06/2015 01/06/2015
03:00:00 03:45:00 09:30:00 10:00:00 10:30:00 14:00:00 14:30:00 14:30:00 15:45:00 16:00:00
CN CN NL EC GB DE US US US US
Tuesday Tuesday Tuesday Tuesday Tuesday
02/06/2015 02/06/2015 02/06/2015 02/06/2015 02/06/2015
07:30:00 09:55:00 09:55:00 11:00:00 11:00:00
Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday
01/07/2015 03/06/2015 03/06/2015 03/06/2015 03/06/2015 03/06/2015 03/06/2015 03/06/2015 03/06/2015 03/06/2015 03/06/2015 03/06/2015 03/06/2015
01:50:00
Thursday Thursday Thursday Thursday Thursday Thursday Thursday Friday Friday Friday Friday Friday Friday Friday
Key Economic Indicators and Events
Period
Latest outcome
Consensus
PMI manufacturing - index (official) PMI manufacturing - index (HSBC) - flash PMI manufacturing - index PMI manufacturing - index PMI manufacturing - index CPI - % yoy PCE deflator core - % mom PCE deflator core - % yoy Markit - Flash PMI ISM manufacturing - index
May May F May May F May May P Apr Apr May F May
50.1 49.1 54.0 52.3 51.9 0.5 0.2 1.3 53.8 51.5
50.2 49.2
IN DE DE EC EC
Repo rate - % Unemployment - % Unemployment change - thousands Core inflation - % yoy CPI - % yoy
Jun 2 May May May A May
7.50 6.4 -8.0 0.6 0.0
7.29 6.4 -9.9 0.7 0.2
10:00:00 10:00:00 10:30:00 11:00:00 11:00:00 13:45:00 13:45:00 14:15:00 14:30:00 16:00:00
JP PL BR EC EC GB EC EC EC EC US US US
Tankan business conditions large enterprises Reference rate - % Policy rate - % PMI services - index Composite PMI output PMI services - index Unemployment - % Retail sales - % mom Policy rate - % ECB Deposit rate - % ADP nat. employment report - thousands Trade balance - USD bn ISM non-manufacturing, index
2Q Jun 3 Jun 3 May F May F May Apr Apr Jun 3 Jun 3 May Apr May
12 1.5 13.25 53.3 53.4 59.5 11.3 -0.8 0.05 -0.20 169.0 -51.4 57.8
1.5 13.75 53.3 53.4 59.1 11.2 0.5 0.05 -0.20 188.1 -43.7 57.2
02/07/2015 04/06/2015 04/06/2015 04/06/2015 04/06/2015 04/06/2015 04/06/2015
09:30:00 09:30:00 13:00:00 13:00:00 14:30:00 14:30:00 20:00:00
SE NL GB GB US US MX
Policy rate - % CPI - % yoy Policy rate - % BoE size of asset purchase programme - GBP bn Initial jobless claims - thousands Output per hour nonfarm business sector - % qoq Policy rate - %
Jul 2 May Jun 4 Jun May 30 1Q F Jun 4
-0.25 0.6 0.5 375 282 -1.9 3.0
05/06/2015 05/06/2015 05/06/2015 05/06/2015 05/06/2015 05/06/2015 05/06/2015
08:00:00 09:00:00 11:00:00 14:30:00 14:30:00 14:30:00 21:00:00
DE CH EC US US US US
Manufacturing orders - % mom Foreign currency reserves - CHF mln GDP - % qoq Change in employment private employment - thousands Change in employment total - thousands Unemployment - % Fed Reserve consumer credit - USD bn
Apr May 1Q F May May May Apr
0.9 521.9 0.4 213 223 5.4 20.5
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected key variables and events)
ABN AMRO
54.0 52.3 52.7 0.7 0.2 1.4
0.7
51.9
52.0
6.4 0.7 0.2
1.5
11.2 0.05 -0.20 190.0
0.8 0.5 375 -2.8 3.0 0.3 524.5 0.4 212 222 5.4 16.9
0.5 0.4 225 235 5.4
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Eurozone reflation – 2 June 2015
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