Daily Insight
Group Economics Macro & Financial Markets Research
31 May 2016
ECB treading water Nick Kounis Head Macro & Financial Markets Research Tel: +31 20 343 5616 nick.kounis@nl.abnamro.com
ECB to adopt wait and see stance on data and new measures…
…however further monetary easing likely later in the year
German inflation rises as the Easter-effect drops out of the series
Eurozone inflation set to accelerate, but underlying pressures to remain weak
Aline Schuiling Senior Economist Tel: +31 20 343 5606
ECB meets this week and will likely keep policy on hold
aline.schuiling@nl.abnamro.com
We expect the ECB to keep policy on hold when it meets this week. Having announced a package of additional monetary easing in March, the central bank is likely in wait and see mode. It will want to see how the measures It announced will impact financial conditions in the coming months. Two of the key measures in the package (the corporate bond programme and the LTRO II) will not even start to be implemented until June. Meanwhile, the ECB will also want to wait and see how the economic data unfolds. Weak growth and subdued core inflation could trigger easing in H2 The ECB’s economists will also update their projections for growth and inflation. The projections for this year’s inflation and growth rates could go up somewhat. However, further out the medium term picture will likely be unchanged. This is because although headline inflation is likely to accelerate faster in the second half of the year on rising oil prices, core inflationary pressures in the eurozone will likely remain weak (see also below). This means the ECB will continue to project inflation undershooting its goal in 2018. Meanwhile, although economic growth was firmer than expected in Q1, the signs are that it will slow again going forward. We maintain the view that the ECB will step up monetary easing in the autumn. In particular we expect it to step up QE. Our base case sees an increase in the pace of monthly purchases in September as well as an extension of the duration of the programme. German inflation rises as the impact of the timing of Easter drops out of the series … The first estimate for German inflation in May published on Monday showed it increased to 0.1%, up from -0.1% in April. Preliminary HICP inflation increased to 0.0% from -0.3%. The details of the regional data show that the rise in inflation was largely due to services sector inflation – specifically the inflation rate of package holidays, hotels and restaurants – returning to close to the level of January-February, i.e. before the impact of the timing of Easter kicked in. As Easter was in March this year and in April last year, base effects first lifted inflation in March and subsequently reduced it in April. It seems that it returned back to the underlying trend in May. The impact of the early Easter tends to be stronger in Germany than in other eurozone countries. The details of regional inflation also show that food price inflation fell significantly in most states in May, whereas energy price inflation was roughly stable.
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Daily Insight – ECB treading water – 31 May 2016
… inflation expected to pick up gradually, but remain at subdued levels Looking forward, we expect inflation to pick up in the second half of this year, largely because of rising energy price inflation. Core inflation, which has hovered at levels close to 1% since the start of 2015, is expected to remain subdued, however. On the one hand it is lifted by the low level of German unemployment and wage pressure building up, but working in the other direction second round effects of the low level of headline inflation during the past few years are expected to keep core inflation lower. On top of that the, recent changes in the euro exchange rate will have a downward impact on inflation as well. That said, on average, inflation in Germany is expected to be somewhat above the eurozone average this year.
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Daily Insight – ECB treading water – 31 May 2016
Day
Date
Time
Country
Monday Monday Monday Monday Monday
30/05/2016 30/05/2016 30/05/2016 30/05/2016 30/05/2016
02:35:00 06:30:00 11:00:00 14:00:00
US NL EC DE BE
Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday
31/05/2016 31/05/2016 31/05/2016 31/05/2016 31/05/2016 31/05/2016 31/05/2016 31/05/2016 31/05/2016 31/05/2016 31/05/2016 31/05/2016 31/05/2016
01:30:00 01:50:00 09:55:00 10:00:00 11:00:00 11:00:00 11:00:00 14:00:00 14:30:00 14:30:00
Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday
Key Economic Indicators and Events
Period
Latest outcome
Consensus
ABN AMRO
Fed's Bullard speaks Producer confidence manufacturing - index Economic sentiment monitor - index CPI - % yoy CPI - % yoy
May May May P May
4.4 104.7 0.1 2.0
104.2 0.1
4.2 104.5 0.2
15:45:00 16:00:00
JP JP DE EC EC EC EC IN US US US US US
Unemployment - % Industrial production - % mom Unemployment - % M3 growth - % yoy Core inflation - % yoy CPI - % yoy Unemployment - % GDP - % yoy PCE deflator core - % mom PCE deflator core - % yoy S&P/Case Shiller house price index Chicago Fed - business confidence - index Conference Board cons. confidence - index
Apr Apr P May Apr May A May Apr 1Q Apr Apr Mar May May
3.2 0.3 6.2 5.0 0.7 -0.2 10.2 7.3 0.1 1.6 0.7 50.4 94.2
01/06/2016 01/06/2016 01/06/2016 01/06/2016 01/06/2016 01/06/2016 01/06/2016 01/06/2016 01/06/2016 01/06/2016
03:00:00 03:00:00 03:45:00 09:00:00 10:00:00 10:30:00 14:00:00 15:45:00 16:00:00 20:00:00
CN CN CN NE EC GB BR US US US
PMI manufacturing - index (official) PMI non-manufacturing - index (official) PMI manufacturing - index (Caixin) PMI PMI manufacturing - index PMI manufacturing - index GDP - % yoy Markit - Flash PMI ISM manufacturing - index Fed Beige Book
May May May May May F May 1Q May F May
50.1 53.5 49.4 52.6 51.5 49.2 -5.9 50.5 50.8
51.5
50.7
50.5
Thursday Thursday Thursday Thursday Thursday Thursday
02/06/2016 02/06/2016 02/06/2016 02/06/2016 02/06/2016 02/06/2016
13:45:00 13:45:00 13:45:00 14:15:00 14:35:00 19:00:00
EC EC EU US US US
ECB Main Refinancing Rate - % ECB Deposit Facility Rate - % ECB Marginal Lending Facility Rate - % ADP nat. employment report - thousands Fed's Powell discusses Prudential regulation (v) Fed's Kaplan speaks on economy (nv)
Jun 2 Jun 2 Jun 2 May
0.0 -0.4 0.25 155.7
0.0 -0.4 0.25 180
0.0 -0.4 0.25 165.0
Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday
03/06/2016 03/06/2016 03/06/2016 03/06/2016 03/06/2016 03/06/2016 03/06/2016 03/06/2016 03/06/2016 03/06/2016 03/06/2016 03/06/2016
03:45:00 03:45:00 09:45:00 10:00:00 10:00:00 10:30:00 11:00:00 14:30:00 14:30:00 14:30:00 14:30:00 16:00:00
CN CN US EC EC GB EC US US US US US
PMI services - index (Caixin) PMI composite - index (Caixin) Fed's Evans speaks on economy and policy (nv) Composite PMI output PMI services - index PMI services - index Retail sales - % mom Trade balance - USD bn Change in employment private employment - thousands Change in employment total - thousands Unemployment - % ISM non-manufacturing, index
May May
51.8 50.8
May F May F May Apr Apr May May May May
52.9 53.1 52.3 -0.5 -40.4 171 160 5.0 55.7
2.8 6.2 5.0 0.8 -0.1 10.2 7.5 0.2 1.6 0.7 54.9 96.8
6.2 5.0 0.7 -0.2 10.2 7.5
95.0
50.0 49.2 53.0
52.9 53.1 0.3 -43.1 163 174 5.0 55.7
0.2 160 170 5.0 55.0
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
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