Daily Insight
Group Economics Macro & Financial Markets Research
2 March 2016
Draghi ‘announces’ March stimulus
ECB President Draghi signals that the ECB will review stance in March against background of increasing downside risks
Nick Kounis
market consensus
Head of Macro and Financial Markets Research
We continue to expect the ECB to ease policy more aggressively than the
Global manufacturing PMI falls to stagnation levels in February, though some
Tel: +31 20 343 5616 nick.kounis @nl.abnamro.com
very early signs of bottoming out in US ISM index ECB President signals March action in letter to member of European Parliament In the run up to next week’s Governing Council meeting all eyes are on any hints from the ECB Governing Council – in official communications or otherwise in leaks – to get a sense of what might be on the cards. The latest ECB signaling came in an expected form. On Tuesday, President Mario Draghi responded to a letter from a member of the European Parliament asking about possible further monetary policy measures. Mr. Draghi responded that ‘at its meeting in early March the Governing Council will review and possibly reconsider its monetary policy stance’. Increased downside risks to the outlook This is exactly in line with the ECB’s communication in January. However, the ECB head went on to add that the ‘review has to be seen against the background of increased downside risks to the earlier outlook amid heightened uncertainty about emerging market economies’ growth prospects, volatility in the financial and commodity markets, and geopolitical risks. In this environment, euro area inflation dynamics continue to be weaker than expected’. This confirms that there is no longer any question about whether the ECB will act next week. We think the ECB will be more aggressive than markets expect Mr. Draghi capped off the letter by repeating that ‘there are no limits to how far we are willing to deploy our instruments within our mandate to achieve our objective of inflation rates below, but close to, 2% over the medium term.’ We think the ECB will act more aggressively than currently priced in by markets. Our base case is that the ECB will cut its deposit rate by 20bp in March and by another 20bp in June. We expect measures to cushion the blow for banks. A tiered deposit rate system and even longer duration refi loans look likely. Finally, we expect a EUR 10bn increase in monthly asset purchases and an
Insights.abnamro.nl/en
2
Daily Insight – Draghi ‘announces’ March stimulus - 2 March 2016
extension of the programme to June 2017. This will be facilitated by removing the deposit rate floor for asset purchases. Global manufacturing drops further; ISM shows tentative signs of stabilization The global manufacturing PMI fell in February to levels consistent with stagnating output. The index dropped to 50 in February – the level separating expansion from contraction – from 50.9 in January. The details of the PMI were rather downbeat with all the main components (output, new orders, employment) deteriorating. Meanwhile, the export orders index fell into moderate contraction territory, which suggests that world trade growth may be weakening further. The Markit manufacturing PMI fell in every major economy (US, China, the eurozone, Japan, UK, Brazil and Russia), except India where it was stable. The PMI data suggest that global growth remains very weak and we expect that to continue in the next few months before a modest recovery later in the year. Meanwhile, there was some ‘positive’ news in the shape of a rise in the US ISM manufacturing index. It has a longer track record than the US manufacturing PMI. It must be said the index remains below the 50-mark, but the rise might be a tentative sign that the worst is over.
3
Daily Insight – Draghi ‘announces’ March stimulus - 2 March 2016
Day
Date
Time
Country
Monday Monday Monday Monday Monday
29/02/2016 29/02/2016 29/02/2016 29/02/2016 29/02/2016
00:50:00 11:00:00 15:00:00 15:45:00 16:00:00
JP EC BE US US
Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday
01/03/2016 01/03/2016 01/03/2016 01/03/2016 01/03/2016 01/03/2016 01/03/2016 01/03/2016 01/03/2016 01/03/2016 01/03/2016 01/03/2016
00:30:00 02:00:00 02:00:00 02:45:00 09:00:00 09:55:00 09:55:00 10:00:00 10:30:00 11:00:00 15:45:00 16:00:00
Wednesday Wednesday
02/03/2016 02/03/2016
Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday
03/03/2016 03/03/2016 03/03/2016 03/03/2016 03/03/2016 03/03/2016 03/03/2016 03/03/2016 03/03/2016 03/03/2016
Friday Friday Friday Friday
04/03/2016 04/03/2016 04/03/2016 04/03/2016
Key Economic Indicators and Events
Period
Latest outcome
Consensus
ABN AMRO
Industrial production - % mom CPI - % yoy GDP - % qoq Chicago Fed - business confidence - index Pending home sales - % mom
Jan P Feb 4Q F Feb Jan
3.7 -0.2 0.3 47.6 -2.5
2.8 0.2
-0.2
52.3 0.9
52.0 0.8
JP CN CN CN NE DE DE EC GB EC US US
Unemployment - % PMI manufacturing - index (official) PMI non-manufacturing - index (official) PMI manufacturing - index (Caixin) PMI Unemployment - % Unemployment change - thousands PMI manufacturing - index PMI manufacturing - index Unemployment - % Markit - Flash PMI ISM manufacturing - index
Jan Feb Feb Feb Feb Feb Feb Feb F Feb Jan Feb F Feb
3.2 49.0 52.7 48.0 51.7 6.20 -10.0 51.2 50.8 10.3 51.3 50
14:15:00
US BR
ADP nat. employment report - thousands Policy rate - %
Feb Mar 2
205.3 14.3
02:45:00 02:45:00 10:00:00 10:00:00 10:30:00 11:00:00 13:00:00 14:30:00 16:00:00
CN CN FR EC EC GB EC BR US US
PMI services - index (Caixin) PMI composite - index (Caixin) Unemployment (mainland France) - % PMI services - index Composite PMI output PMI services - index Retail sales - % mom GDP - % yoy Output per hour nonfarm business sector - % qoq ISM non-manufacturing, index
Feb Feb 4Q Feb F Feb F Feb Jan 4Q 4Q F Feb
52.4 50.1 10.2 53.0 52.7 55.6 0.3 -4.5 -3.0 53.5
14:30:00 14:30:00 14:30:00 14:30:00
US US US US
Change in employment private employment - thousands Change in employment total - thousands Unemployment - % Trade balance - USD bn
Feb Feb Feb Jan
158.0 151.0 4.9 -43.4
188.0 198.0 4.9 -43.4
3.3 49.4 48.4 6.20 -8.3 51.0 52.0 10.4
51 10.4
49
49
186.4
165
53.0 52.7 55.1 0.1
54.0 0.1
-3.3 53.4
52.0 165 175 4.9
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/
DISCLAIMER ABN AMRO Bank Gustav Mahlerlaan 10 (visiting address) P.O. Box 283 1000 EA Amsterdam The Netherlands
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 2016 ABN AMRO Bank N.V. and affiliated companies ("ABN AMRO").