Daily Insight Fed maintains outlook
Group Economics Macro & Financial Markets Research Nick Kounis & Arjen van Dijkhuizen + 31 20 343 5616
30 April 2015
Despite weak first quarter, Fed sticks to its outlook for economy, unemployment and inflation We think economy will firm in the coming months setting scene for a hike later in the year China unlikely to adopt full-fledged QE, given room for easing under conventional instruments
Fed recognises weakness…
We do not expect China to adopt unconventional ‘QE’ …
The FOMC did not make major changes in its view of the
Market speculation has grown recently about the possibility of
outlook for the US economy, unemployment and inflation
the PBoC following other major central banks in launching
despite the terrible Q1 GDP data. It certainly recognised the
unconventional QE policies. This would come in the form of the
broad-based weakness over recent months saying that
PBoC buying local government bonds directly. Some
‘economic growth slowed during the winter months’ and the
connected this to the CNY 1tn local government debt swap
‘pace of job gains moderated’. However, this was attributed ‘in
programme announced in March. We believe that China will
part’ to ‘ transitory factors’. As such, the forward looking
continue to add further stimulus to keep economic growth
elements in the statement were unchanged.
around its 7% target for 2015, but do not think that China needs to implement such unconventional policies at this stage.
…but maintains outlook Indeed, the Fed maintained its view of the outlook. It asserted
… given room for easing under conventional instruments
that ‘although growth in output and employment slowed during
Our view is not only based on the PBoC’s denial that it was
the first quarter, the Committee continues to expect that, with
considering QE. We feel there is plenty of room for more
appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate’.
easing using conventional instruments. First, banks’ reserve requirements (RRRs) were cut by in total by 150 bps recently, also reflecting capital outflows turning negative, but at 18.5%, they remain high by international standards. We expect further RRR cuts to add more liquidity to the banking system. Second, despite a cumulative 75 bp cut in recent months, the main
Hike dependent on progress towards its mandate
policy rate (5.35%) is still high compared to current inflation
It also repeated the rather vague conditions that would need to
levels (around 1.5% yoy), leaving room for further cuts. Third,
be met before its policy rate starts to go up. In particular, it
the benchmark deposit rate is currently 2.5%, so there is no
asserted that ‘the Committee anticipates that it will be
‘zero bound’ issue. Fourth, the authorities can use specific
appropriate to raise the target range for the federal funds rate
lending instruments targeting banks and can even stimulate
when it has seen further improvement in the labor market and
banks to buy local government bonds. Last but not least, there
is reasonably confident that inflation will move back to its 2
is room for a weaker exchange to support exports and inflate
percent objective over the medium term’.
the economy.
Rebound should set scene for September hike A lot will obviously depend on whether the economy recovers convincingly after the weak first quarter. Data earlier in the day showed that GDP growth slowed to just 0.2%, even weaker than the consensus forecast of 1%, and following 2.2% in Q4. The slowdown was driven by weaker consumer spending, as well as fixed investment. We expect both to recover. Consumer demand in particular should catch up with gains in disposable income due to the fall in oil prices, as well as ongoing strength in the labour market. A stronger economy should set the scene for a rate hike later in the year, with September remaining most likely in our view.
2
Fed maintains outlook – 30 April 2015
Financial markets Currency markets
Close
Change 1 day
Change 5 days
Change YTD
EUR/USD USD/JPY
1.1113
-0.1348
2.6700
119.03
0.0084
-0.4599
-8.1418 -0.6261
AUD/USD
0.8002
-0.0749
2.8799
-2.1162
USD/CHF
0.9402
0.0958
-1.5188
-5.4410
NZD/USD
0.7615
-0.8464
0.2765
-2.3342
GBP/USD
1.5429
-0.0583
2.4706
-0.9501
USD/SGD
1.3209
0.0454
-1.5503
-0.3470
USD/CAD
Bond markets
1.2019
Close
-0.0083
Change 1 day
-1.0293
Change 5 days
3.4248
Change YTD
2-year German Govt Bond yield
-0.2370
0.0360
0.0230
-0.1390
10-year German Govt Bond yield
0.2850
0.1220
0.1200
-0.2560
Yield curve Germany
0.5220
0.0860
0.0970
-0.1170
2-year US Treasury Bond yield
0.5551
-0.0019
0.0267
-0.1094
10-year US Treasury Bond yield
2.0228
-0.0160
0.0651
-0.1484
Yield curve US
1.4677
-0.0141
0.0384
-0.0390
US 2-year sw ap rates
0.8025
-0.0165
-0.0013
-0.0918
US 10-year sw ap rates
2.1059
-0.0381
0.0749
-0.1802
US sw ap curve
1.3034
-0.0216
0.0762
-0.0884
EU 2-year sw ap rates
0.0780
0.0200
0.0020
-0.0970
EU 10-year sw ap rates
0.5933
-0.0117
0.0803
-0.2187
EU sw ap curve
0.5153
-0.0317
0.0783
-0.1217
-0.0050
0.0000
-0.0030
-0.0830
0.2782
-0.0009
0.0009
0.0226
JPMorgan EMBI Plus Sovereign S
373.4900
0.5600
-2.1500
-13.9500
Equity markets
Close
Euribor 3 Month ACT/360 ICE LIBOR USD 3 Month
Change 1 day % Change 5 days %Change YTD%
Nikkei 225
19,737
-1.60
-1.97
13.10
Hang Seng Index
28,400
-0.15
1.67
20.31
Hang Seng China Enterprises Index
14,603
-0.76
-0.45
21.85
Australian Stock Exchange S&P/ASX 200 Index
5,783
-0.95
-1.06
6.88
Singapore Straits Times Index
3,487
-0.23
-0.26
3.63
Euro Stoxx 50 Index
3,617
-2.65
-2.88
14.96
S&P 500 Index
2,107
-0.37
-0.05
2.33
MSCI World Daily Total Return Gross USD
817
-0.44
0.64
6.49
AEX Index
489
-2.47
-3.25
15.26
7.90
5.35
-30.26
Chicago Board Options Exchange Volatility Index
Commodity markets Reuters/Jefferies CRB Total Return
13
Close
Change 1 day % Change 5 days %Change YTD%
228
1.16
2.95
-1.15
1,206
0.09
0.98
1.76
Generic first NYMEX Crude Light future
58
-0.29
1.16
9.65
Generic first Brent Crude Oil future
65
-0.62
0.89
14.13
6,145
0.44
3.96
-2.46
479
0.37
-3.77
-18.78
Gold spot USD/Oz
LME Copper 3 Months Rolling Forw ard Generic first Wheat future Chicago Board of Trade Source: Bloomberg
3
Fed maintains outlook – 30 April 2015
Day
Date
Time
Country
Key Economic Indicators and Events
Period
Latest outcome
Consensus
ABN AMRO
Tuesday Tuesday Tuesday
28/04/2015 28/04/2015 28/04/2015
10:30:00 15:00:00 16:00:00
GB US US
GDP - % qoq S&P/Case Shiller house price index Conference Board cons. confidence - index
1Q A Feb Apr
0.3 0.9 95.2
0.7 102.2
0.8 102.0
Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday
29/04/2015 29/04/2015 29/04/2015 29/04/2015 29/04/2015 29/04/2015 29/04/2015 29/04/2015 29/04/2015
09:30:00 10:00:00 11:00:00 14:00:00 14:30:00 16:00:00 20:00:00 23:00:00
SE EC EC DE US US US NZ BR
Policy rate - % M3 growth - % yoy Economic sentiment monitor - index CPI - % yoy GDP - % qoq annualised Pending home sales - % mom Policy rate - % Policy rate - % Policy rate - %
Apr 29 Mar Apr Apr P 1Q A Mar Apr 29 Apr 30 Apr 29
-0.3 4.6 103.9 0.3 0.2 1.1 0.25 3.5 13.3
4.3 104.0 0.4 1.0 0.5 0.25 3.5 13.2
4.5 103.9 0.5 1.1
Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday
30/04/2015 30/04/2015 30/04/2015 30/04/2015 30/04/2015 30/04/2015 30/04/2015 30/04/2015 30/04/2015 30/04/2015 30/04/2015 30/04/2015
01:50:00 09:55:00 09:55:00 11:00:00 11:00:00 11:00:00 12:30:00 14:30:00 14:30:00 15:45:00 20:00:00
JP DE DE EC EC EC RU US US US MX JP
Industrial production - % mom Unemployment - % Unemployment change - thousands Core inflation - % yoy CPI - % yoy Unemployment - % Key rate % PCE deflator core - % mom PCE deflator core - % yoy Chicago Fed - business confidence - index Policy rate - % Policy rate - %
Mar P Apr Apr Apr A Apr Mar Apr 30 Mar Mar Apr Apr 30 Apr 30
-0.3 6.4 -14.0 0.6 -0.1 11.3 14.0 0.1 1.4 46.3 3.0 80.0
6.4 -15.0 0.6 0.0 11.2 13.0 0.2 1.4 49.4
6.4
Friday Friday Friday Friday Friday Friday Friday Friday
01/05/2015 01/05/2015 01/05/2015 01/05/2015 01/05/2015 01/05/2015 01/05/2015 01/05/2015
01:30:00 01:30:00 03:00:00 03:00:00 09:30:00 10:30:00 16:00:00 16:00:00
JP JP CN CN NL GB US US
CPI - % yoy Unemployment - % PMI manufacturing - index (official) PMI non-manufacturing - index (official) PMI manufacturing - index PMI manufacturing - index Univ. of Michigan cons. confidence - index ISM manufacturing - index
Mar Mar Apr Apr Apr Apr Apr F Apr
2.2 3.5 50.1 53.7 52.5 54.4 95.9 51.5
0.25
0.7 0.1 11.2 13.0
48.0
50.0 52.5 95.8 52.1
96.0 51.5
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
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