Daily Insight
Group Economics Macro & Financial Markets Research
03 November 2015
Is the ECB changing its message?
ECB President Draghi sounds more cautious…
Nick Kounis
…but we still think further monetary easing is on the cards
Head Macro & Financial Markets
Global manufacturing PMI firms in October, though growth moderate…
…helped by turn in China’s Caixin index, and modest improvement in
Research Tel: +31 20 343 5616 nick.kounis@nl.abnamro.com
US and eurozone
Arjen van Dijkhuizen Senior Economist Tel: +31 20 628 8052
Draghi tones down rhetoric…
arjen.van.dijkhuizen @nl.abnamro.com
Over the weekend, ECB President Mario Draghi seemed to tone down his dovish rhetoric somewhat compared to the October press conference, in comments he made to Italian newspaper Il Sole 24. His remarks in general gave the impression that further stimulus is not a done deal, which provided some support to the euro and weighed on eurozone government bonds. Mr Draghi said that the central bank would take action ‘If we are convinced that our medium-term inflation target is at risk’ and ‘we will see whether a further stimulus is necessary’. He also noted that it was ‘too early’ to pass judgment on lowering the deposit rate further. …but easing still likely With the euro having settled around the 1.10 mark against the dollar, and markets having gone a long way to price in additional stimulus, the ECB President may have been concerned that expectations would run too far ahead. This would make it difficult to match or even surpass these expectations when the Governing Council meets next month. So Mr Draghi may have been trying to rein in the speculation on the degree of extra stimulus rather than signalling that the ECB will sit on its hands. Indeed, we still think further monetary easing next month is likely given the ongoing downside risks to inflation the ECB identified at its September and October meetings. We expect an increase and extension of QE as well as a 10bp deposit rate cut. Global manufacturing PMI firms Global manufacturing seems to be finding its footing. The manufacturing PMI rose to 51.4 in October from 50.7 in September. Although it remains at low levels consistent with only moderate growth, the outcome is the best since March (when it was 51.7) and provides the first tentative sign that growth momentum may be stabilising. The most noticeable
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Daily Insight - Is the ECB changing its message? - 03 November 2015
improvement in the big economies was in China (see below), while we saw more or less stable growth rates in the US and the eurozone. Domestic demand – especially in advanced economies – looks to have been running ahead of global production growth, so this might be a sign that it is starting to catch up. This should ease fears about a sharp further slowdown in the global economy, though we do think the outlook is one of only moderate expansion rather than a sharp rebound in global GDP growth rates.
Global manufacturing PMI Index
57 55 53 51 49 47 11
12
13
14
15
Source: Thomson Reuters Datastream
Caixin’s manufacturing PMI for China improves sharply in October …, While both the official and Caixin’s versions of China’s manufacturing PMI remain below the neutral 50 mark, the overall picture clearly improved in October. Admittedly, the official manufacturing PMI, which better captures the larger (state-owned) enterprises, remained stable at 49.8, whereas markets had expected a small improvement to 50. However, Caixin’s manufacturing PMI jumped by more than one percentage point, to 48.3 (September: 47.2). This was the first improvement of this index since June and was clearly better than markets had expected (47.6). The improvement of Caixin’s index was broad-based. Both the new orders index and the output index rose by 1.5-2 points. The new export orders index jumped by more than 6 points and at 50.7 came out above the neutral mark again, for the first time since last June.
... confirming our view of a gradual slowdown, not a hard landing While the weakness in China’s economy remains particularly concentrated in the industrial sectors, the improvement in the overall picture for China’s manufacturing PMIs confirms our view that the Chinese economy is undergoing a gradual slowdown, not a hard landing (see our China Watch, Hard landing fears have eased, published last week). The PBoC recently cut the policy rates and bank RRRs further, while providing several banks with additional loans through its medium-term lending facility. These, and previous, support measures are gradually working their way to the economy, as illustrated for instance by rising lending activity and improving house prices. We expect overall growth to cool to 7% this year (from 7.3% in 2014) and to slow gradually to 6.5% next year.
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Daily Insight - Is the ECB changing its message? - 03 November 2015
Day
Date
Time
Country
Sunday Sunday
01/11/2015 01/11/2015
02:00:00 02:00:00
CN CN
Monday Monday Monday Monday Monday Monday Monday
02/11/2015 02/11/2015 02/11/2015 02/11/2015 02/11/2015 02/11/2015 02/11/2015
02:45:00 09:00:00 09:30:00 10:30:00 15:45:00 15:45:00 16:00:00
Tuesday Tuesday
03/11/2015 03/11/2015
Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday
Key Economic Indicators and Events
Period
Latest outcome
Consensus
PMI manufacturing - index (official) PMI non-manufacturing (official)
Oct Oct
49.8 53.1
50.0
CN CH NL GB US EC US
PMI manufacturing - index (Caixin) Total Sight Deposits bn PMI manufacturing - index PMI manufacturing - index Markit - Flash PMI ECB announces weekly QE details ISM manufacturing - index
Oct
47.6
Oct Oct Oct F
48.3 467.4b 53.7 55.5 54.1
Oct
50.1
49.9
50.0
04:30:00 16:00:00
AU US
RBA Cash Rate Target Factory orders
2.0 -1.7
2.0 -0.9
1.75
Sep
04/11/2015 04/11/2015 04/11/2015 04/11/2015 04/11/2015 04/11/2015 04/11/2015 04/11/2015 04/11/2015
02:45:00 10:00:00 10:00:00 10:30:00 14:15:00 14:30:00 16:00:00 16:00:00
CN EC EC GB US US US US PL
PMI services - index (Caixin) Oct PMI services - index Oct F Composite PMI output Oct F PMI services - index Oct ADP nat. employment report - thousands Oct Trade balance - USD bn Sep ISM non-manufacturing, index Oct Fed's Yellen Testified on Bank Regulation Before House Panel Reference rate - % Nov 4
Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday
05/11/2015 05/11/2015 05/11/2015 05/11/2015 05/11/2015 05/11/2015 05/11/2015 05/11/2015
06:30:00 08:00:00 10:00:00 11:00:00 13:00:00 13:00:00 13:00:00 14:30:00
NL DE NO EC GB GB CZ US
CPI - % yoy Manufacturing orders - % mom Policy rate - % Retail sales - % mom Policy rate - % BoE size of asset purchase programme - GBP bn Repo rate - % Output per hour nonfarm business sector - % qoq
Friday Friday Friday Friday Friday Friday Friday
06/11/2015 06/11/2015 06/11/2015 06/11/2015 06/11/2015 06/11/2015 06/11/2015
08:00:00 09:00:00 10:30:00 14:30:00 14:30:00 14:30:00 21:00:00
DE CH GB US US US US
Industrial production - % mom Foreign currency reserves - CHF mln Trade balance - GDP mln Change in employment private employment - thousands Change in employment total - thousands Unemployment - % Fed Reserve consumer credit - USD bn
ABN AMRO
52.7
50.5 54.2 54.0 53.30 199.50 -48.33 56.9
174.90 -45.72 56.4
160
1.5
1.5
1.5
1.5
0.8 1.0 0.5
0.5
0.5
0.1 0.1
0.1
0.4
0.2
167 178 5.1 17.8
160 170 5.1
Oct Sep Nov 5 Sep Nov 5 Nov Nov 5 3Q P
0.6 -1.8 0.75 0.0 0.5 375.0 0.1 3.3
Sep Oct Sep Oct Oct Oct Sep
-1.2 541540 -3268 118 142 5.1 16.0
54.2 54.0
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
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