Daily Insight
Group Economics Macro & Financial Markets Research
Mario’s intervention fails
Nick Kounis & Kim Liu + 31 20 343 5616
4 June 2015 • • •
ECB President Mario Draghi tried to cool QExit speculation but failed spectacularly… …with Bund yields soaring and the euro strengthening during and after the press conference ECB will be unwavering in its commitment to QE in near term, but tone could change in 2016
ECB prepared to step up QE if necessary
Verbal intervention fails spectacularly
ECB President Mario Draghi made it clear in the press
Mr. Draghi’s verbal intervention to cap bond yields and the
conference that the Governing Council planned to continue QE
euro failed spectacularly. The yield on the 10y Bund continued
despite recent better economic data. Indeed, he stressed that
to surge during the press conference and reached the highest
if anything, the ECB could step up QE if needed rather than
level this year, breaking through the 0.85% level as markets
end it early. So as expected, he went out of his way to pour
seemed to react negatively to his remark that there would be
cold water on ‘QExit’ speculation. This shows that the ECB
more volatility in the bond market. Similarly, the euro
wants to fight against any early tightening of financial
strengthened against the dollar. At the same time, the
conditions due to higher bond yields and a stronger euro, as it
government bonds of other eurozone countries outperformed
could nip the economic recovery in the bud.
Germany, with yield spreads declining, also continuing the trend seen before the press conference.
Meeting inflation goal depends on full QE implementation Mr. Draghi stressed that the ECB must maintain a steady
Relief in near term but trend to continue in 2016
monetary policy course and implement its monetary policy
We expect government bond yields and the euro to fall back in
measures in full. The central bank’s view of the outlook was
the near term. Frontloading of ECB purchases and a drying up
broadly unchanged. The staff’s updated GDP growth
of supply will lead to re-emergence of scarcity of core
projections were more or less the same as in March.
government bonds, supporting prices. This should be
Meanwhile, inflation was revised a little higher for 2015 (to
accompanied by flattening of yield curves, in particular in 2s5s
+0.3% from 0%) but was left unchanged in the important
as core national central banks will have preference to buy
longer-term horizons (at 1.5% in 2016 and 1.8% in 2017).
short term debt which is eligible for QE purchases. We also
Although inflation was seen back in line with the ECB’s price
stay constructive of peripheral country spreads. These spreads
stability goal by the end of the forecast horizon, the ECB
have underperformed on Grexit fears and should be further
President made it clear that this depended on a full
supported by a catch up effect on the back of ongoing QE
implementation of the QE programme.
purchases. Looking further forward, we expect core government bond yields and the euro to jump higher again at
Unwavering commitment
around the turn of the year and through 2016 as QExit
We think the ECB will continue to be unwavering in its
speculation builds more significantly.
commitment to continue QE this year and will keep dismissing QExit speculation. We have only just seen signs of a more
ECB forecasts largely unchanged
convincing recovery, while core inflation remains low, despite
%
the recent rise.
2.5
However, early next year, the tone could change. By then we
2.0
would have seen a number of quarters of better economic
1.5
growth. Core inflation will have shown clearer signs of turning
1.0
the corner, while inflation expectations will have risen further. The ECB’s confidence that it will meet its inflation target over the medium term should be stronger. It will be clearer that September 2016 is very likely the end point for QE.
1.5
0.5
2
1.9
1.8
1.5
0.3
0.0 2015
2016 GDP
Source: ECB Staff Forecasts
Inflation
2017
2
Mario’s intervention fails – 4 June 2015
Financial markets Currency markets
Close
Change 1 day
Change 5 days
Change YTD
EUR/USD USD/JPY
1.1253
-0.0178
2.9552
124.36
-0.0161
0.4199
3.7717
AUD/USD
0.7772
-0.1670
1.6745
-4.8132
USD/CHF
0.9358
0.1284
-0.9316
-5.8457
NZD/USD
0.7137
-0.0280
-0.3630
-8.4413
GBP/USD
1.5316
-0.0848
0.0915
-1.7008
USD/SGD
1.3436
0.0596
-0.5625
1.4344
USD/CAD
1.2460
0.0562
-0.0160
Bond markets 2-year German Govt Bond yield
Close
Change 1 day
Change 5 days
-7.0000
7.2751
Change YTD
-0.1820
0.0120
0.0470
-0.0840
10-year German Govt Bond yield
0.8820
0.1680
0.3280
0.3410
Yield curve Germany
1.0640
0.1560
0.2810
0.4250
2-year US Treasury Bond yield
0.6725
0.0198
0.0240
0.0080
10-year US Treasury Bond yield
2.3678
0.1054
0.2393
0.1966
Yield curve US
1.6953
0.0856
0.2153
0.1886
US 2-year sw ap rate
0.9133
-0.0026
0.0467
0.0190
US 10-year sw ap rate
2.4480
-0.0145
0.2260
0.1619
US sw ap curve
1.5347
-0.0119
0.1793
0.1429
EU 2-year sw ap rate
0.1300
0.0030
0.0270
-0.0450
EU 10-year sw ap rate
1.1740
-0.0013
0.2885
0.3620
EU sw ap curve
1.0440
-0.0043
0.2615
0.4070
-0.0140
-0.0010
-0.0010
-0.0920
Euribor 3 Month ACT/360 ICE LIBOR USD 3 Month
0.2787
-0.0038
-0.0072
0.0231
JPMorgan EMBI Plus Sovereign S
375.2900
-5.2800
1.6900
-12.1500
Equity m arkets
Close
Change 1 day % Change 5 days %Change YTD%
Nikkei 225
20,474
-0.34
0.00
17.32
Hang Seng Index
27,657
0.69
-1.51
17.17
Hang Seng China Enterprises Index
14,115
-0.61
-3.99
17.77
Australian Stock Exchange S&P/ASX 200 Index
5,584
-0.93
-2.47
3.19
Singapore Straits Times Index
3,350
0.27
-3.18
-0.45
Euro Stoxx 50 Index
3,584
0.62
-2.69
13.90
S&P 500 Index
2,117
0.33
-0.33
2.80
MSCI World Daily Total Return Gross USD
810
0.18
-0.16
5.54
AEX Index
488
0.25
-3.13
14.91
-3.86
3.17
-28.70
Chicago Board Options Exchange Volatility Index
Com modity m arkets Reuters/Jef f eries CRB Total Return Gold spot USD/Oz Generic f irst NYMEX Crude Light future Generic f irst Brent Crude Oil f uture LME Copper 3 Months Rolling Forw ard Generic f irst Wheat f uture Chicago Board of Trade Source Bloomberg
14
Close
Change 1 day % Change 5 days %Change YTD%
226
1.05
2.56
1,186
-0.62
-0.21
-1.79 0.06
60
-2.53
3.83
12.09 11.43
64
-2.46
2.93
6,011
-0.48
-1.14
-4.59
511
-0.34
4.72
-13.40
3
Mario’s intervention fails – 4 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
4
Mario’s intervention fails – 4 June 2015
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