Daily Insight
Group Economics Macro & Financial Markets Research
05 November 2015
Rising US rate hike expectations Maritza Cabezas
US data released on Wednesday show that economy has started to shrug off the impact of the earlier financial stress
Senior Economist Tel: +31 20 343 5618 maritza.cabezas @nl.abnamro.com
US dollar strengthens as expectations for rate hike increase…
…but stronger dollar leads to a renewed tightening of financial conditions
US ADP private employment report shows moderate job gains October’s ADP report showed that private employment increased by 182K, coming down from a downwardly revised 190K the previous month. Small businesses hiring contributed with half of this increase. Goods producing employment picked up by 24K, resulting in the strongest increase since January. Services employment rose by 158K, down from 182K the previous month. From an industry perspective, manufacturing continued to subtract jobs. For the employment report to be released on Friday, we are expecting an increase of 170K. The expected gains are consistent with an economy that is growing around trend rates and with more stability in financial markets.
ADP private employment shows modest job gains 000s
600 400 200 0 -200 -400 -600 -800 -1000 06
07
08
09
10
11
Private nonfarm payrolls
12
13
14
15
ADP employment
Source: Thomson Reuters Datastream
US services PMI picks up in October The US services sector has been holding up well in contrast to manufacturing activity and is consistent with the stronger consumption growth of the past months. Indeed, the ISM non-manufacturing index increased to 59.1 from 56.9 the previous month. The new
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Daily Insight – Rising US rate hike expectations - 05 November 2015
orders index rebounded to 62 from 56.7. The employment index increased to 59.2 from 58.3 in September. Overall, October’s composite ISM, which offers of picture of the whole economy, edged up in October to 55 from 54.5. US trade deficit narrows as a result of increasing exports Although trade data is quite volatile, September’s trade deficit narrowed to USD 40.8bn from USD 48.3bn the previous month, hitting the lowest level since February. Exports rebounded 1.6% mom in nominal terms, after posting a 2.0% mom decline in August. Imports fell 1.8% mom in nominal terms. We don’t think that this will be a new trend since, the strong dollar and lacklustre global trade will continue taking its toll. We expect net trade will be a drag on growth this year. Probability of December rate hike increases, but stronger dollar still a threat The more positive than expected string of data that was released on Wednesday led markets to price in a higher probability of a Fed rate hike in December this year (rising up to 58%). Remarks from Chair Yellen, during a congressional hearing, confirmed that December was a “live possibility” adding fuel to these expectations. This led to a stronger dollar, which also means tighter financial conditions. On top of this, moves from other central banks to ease, will likely put additional pressure on the USD. We have seen in the past months that the impact of a strong dollar has made its way to weaker export growth and has had a negative impact on manufacturing activity that is export related. It remains to be seen whether the pricing of an earlier rate hike negatively impacts sentiment and leads to a renewed tightening of financial conditions. Our base case is a hike will be delayed to 2016, but chances of an earlier move have risen.
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Daily Insight – Rising US rate hike expectations - 05 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 -1.0
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
52.0 54.1 53.9 54.90 182.00 -40.81 59.1
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)
Find out more about Group Economics at: https://insights.abnamro.nl/en/
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