Daily Insight Warming up for Fed hike
Group Economics Macro & Financial Markets Research Maritza Cabezas & Aline Schuiling
+31 20 343 5616
6 August 2015
Fed rate hike expectations weigh on Treasuries and support the dollar… …following hawkish comments from FOMC’s Lockhart and stronger US services data Eurozone economy as a whole seems to have been resilient to the Greek crisis
Fed preparing engines for a rate hike Fed rate hike expectations built on Wednesday, which pushed
Eurozone retail sales decline …
up Treasury yields and the dollar. FOMC voting member
June, which was weaker than the consensus forecast of -0.2%.
Dennis Lockhart said in an interview with the Wall Street
Still, the monthly changes tend to be rather volatile and despite
Journal that a Fed rate hike is ‘close’, noting that he is open for
the decline in June, sales increased by 0.3% qoq during Q2 as
a September move. He mentioned that the rebound of Q2
a whole. Combined with stable new car registrations this
growth and a further improvement in employment supports this
suggests that private consumption continued to expand in Q2,
view.
but more moderately than in Q1, when it grew by 0.5% qoq.
Buoyant ISM services index
… but intentions for major purchases rises
Meanwhile, July’s ISM nonmanufacturing index surged to 60.3,
Ongoing growth of private consumption would also be in line
up from 56 in June. The strength of this survey was broad
with recent changes in consumer confidence. Although
based, suggesting that domestic demand is gaining traction.
confidence declined in the past few months, it stayed above
The employment index jumped to 59.6 up from 52.7 in July,
the level recorded at the start of the year and also above its
the highest reading in a decade.
long-term average value. Moreover, the details of the
The volume of retail sales in the eurozone fell by 0.6% mom in
consumer confidence report show that the main reason for the ADP employment softer
decline in past few months was deteriorating expectations
In contrast, we saw a softer July ADP reading, which showed
about the economic situation (probably largely due to the
private payrolls increased 185K, down from a downwardly
Greek crisis). In contrast, consumers’ intention to carry out
revised 229K the previous month. Nevertheless, the balance of labour market indicators, including initial jobless claims, points to ongoing momentum. So we expect the official nonfarm payrolls in Friday’s employment report to show another strong gain (our forecast is 230K).
major purchases remained roughly unchanged and at a historically high level. Overall eurozone economy resilient to Greek crisis Although a lot of hard data for June still need to be published, it seems the eurozone economy as a whole was largely resilient to the Greek crisis. Both the composite PMI and
US services ISM surges
Economic Sentiment have remained at levels consistent with
index
GDP growing at rates above the trend growth rate. Moreover, exports and industrial production should benefit from the
63 61 59 57 55 53 51 49 47 45
depreciation of the trade-weighted euro since the start of this year and the pick-up of growth in the US and China after the first quarter. Net exports had a negative impact on GDP growth in Q1 but this should have become positive in Q2 and strengthen in the second half of the year. Fixed investment is expected to have expanded in Q2 as well and pick-up further in the coming quarters. Corporate 10
11
12
13
14
15
profitability is rising, while both financial conditions and bank lending standards have eased considerably since the start of
Source: Thomson Reuters Datastream
the year.