Daily Insight
Group Economics Macro & Financial Markets Research
How will the ECB react?
Aline Schuiling, Nick Kounis & Maritza Cabezas, +31 20 343 5616
5 June 2015 • • •
Bond yields and the euro have already edged above the levels assumed by the ECB in its forecasts The ECB could strengthen verbal intervention, or in case of a sharper rise, step up QE Most data point to a solid US labour market report for May
ECB unable to prevent bond yields and euro rising
ECB projections for yields and EUR/USD and actual
During and after Wednesday’s ECB press conference,
%
government bond yields and the euro rose in tandem. This
1.7
1.15
trend continued with a vengeance on Thursday morning, though the moves more than reversed by the end of the day.
1.13
1.5
The sell-off in bonds and euro strength occurred despite ECB President Draghi stepping up his dovish tone on QE, which
1.11 1.3
1.09
seems to have been designed to calm the markets. He mentioned that if necessary the ECB could step up QE and that an unwarranted tightening of financial conditions could be
1.1 12-May
1.07 17-May
22-May
27-May
1-Jun
a trigger for that. However, investors focused more on his
10y Weighted avg yield (lhs)
ECB projection for 2015
subsequent comments that volatility in the bond market was
EUR/USD (rhs)
ECB projection for 2015
here to stay.
Source: ECB Staff Forecasts, Thomson Reuters Datastream
Tightening of financial conditions Following the upward trend in bond yields and the euro of the
US job market report set to be solid in May
last few days, financial conditions have tightened somewhat
We are forecasting a 235K increase for May’s nonfarm payrolls
more than the ECB assumed in its projections for this year
to be released this Friday. Slightly higher than April’s increase
(see chart). Given current market prices, weighted average
of 223K. The unemployment rate should remain unchanged at
eurozone bond yields and the EUR/USD are somewhat above
5.4%. The pace of job creation has slowed in the first part of
the levels assumed for this year, while the gap was more
the year to an average of 193K down from an average of 259K
significant earlier on Wednesday when the bond sell-off was in
in 2014. This slowdown in momentum is, however, to some
full flow. The ECB’s projections show inflation just about
extent a reflection of the weak economic activity, resulting from
reaching the target in 2017, at 1.8% compared to the its price
the harsh winter weather and other temporary factors.
stability goal of close to but below 2%. This means that the sell-off in the bond market and euro strength could eventually
Most other labour market data have been positive
threaten the ECB achieving its goal.
We think that the labour market will firm in the coming months. In
May
the
employment
components
of
Markit
US
The ECB’s options
manufacturing PMI and the ISM Manufacturing surveys
So what can the ECB do next given that Mario Draghi’s dovish
improved. Meanwhile, Markit services jobs index rose at
commentary fell on death ears earlier in the week? The ECB’s
fastest rate since June 2014. Jobless claims, a measure of
next step could be to step up verbal intervention by various
unemployment benefits, have also been trending down
degrees. The central bank could say that it saw an
recently. Furthermore, May’s ADP private employment report
‘unwarranted tightening of financial conditions’ making explicit
show an acceleration in job growth compared to April. Finally,
its displeasure at recent market developments. The next step
most indicators in Chair Yellen’s dashboard are showing a firm
could be to mention ‘tighter financial conditions’ as being a
recovery.
downside risk to economic growth. If words do not work, it may have no choice but step up QE, though that is not our base case scenario.
2
How will the ECB react? – 5 June 2015
Financial markets Currency markets
Close
Change 1 day
Change 5 days
Change YTD
EUR/USD USD/JPY
1.1251
-0.3278
2.4122
-7.0165
124.27
-0.2088
0.0967
3.6966
AUD/USD
0.7691
0.0781
0.6017
-5.8053
USD/CHF
0.9328
-0.0214
-0.7976
-6.1475
NZD/USD
0.7126
-0.0140
0.2673
-8.5824
GBP/USD
1.5378
-0.0260
0.5690
-1.3029
USD/SGD
1.3473
0.0594
-0.0371
1.7137
USD/CAD
1.2487
0.1042
0.2650
7.5075
Bond markets
Close
Change 1 day
Change 5 days
Change YTD
2-year German Govt Bond yield
-0.1850
-0.0030
0.0420
-0.0870
10-year German Govt Bond yield
0.8380
-0.0440
0.3080
0.2970
Yield curve Germany
1.0230
-0.0410
0.2660
0.3840
2-year US Treasury Bond yield
0.6567
-0.0158
0.0278
-0.0078
10-year US Treasury Bond yield
2.2999
-0.0643
0.1644
0.1287
Yield curve US
1.6432
-0.0485
0.1366
0.1365
US 2-year sw ap rate
0.9020
-0.0070
0.0485
0.0077
US 10-year sw ap rate
2.3838
-0.0225
0.1843
0.0977
US sw ap curve
1.4818
-0.0155
0.1358
0.0900
EU 2-year sw ap rate
0.1270
0.0000
0.0260
-0.0480
EU 10-year sw ap rate
1.1290
0.0032
0.2801
0.3170
EU sw ap curve
1.0020
0.0032
0.2541
0.3650
-0.0130
0.0010
0.0000
-0.0910
0.2792
0.0005
-0.0043
0.0236
-3.8500
-5.7800
-16.0000
Euribor 3 Month ACT/360 ICE LIBOR USD 3 Month JPMorgan EMBI Plus Sovereign S
371.4400
Equity markets
Close
Change 1 day % Change 5 days %Change YTD%
Nikkei 225
20,488
0.07
-0.31
17.41
Hang Seng Index
27,552
-0.38
0.36
16.72
Hang Seng China Enterprises Index
14,127
0.09
-0.39
17.88
Australian Stock Exchange S&P/ASX 200 Index
5,504
-1.42
-3.65
1.72
Singapore Straits Times Index
3,345
-0.14
-2.33
-0.60
Euro Stoxx 50 Index
3,556
-0.77
-2.58
13.03
S&P 500 Index
2,098
-0.75
-1.07
1.91
MSCI World Daily Total Return Gross USD
813
0.35
-0.37
5.90
AEX Index
485
-0.50
-3.37
14.33
15
9.59
12.47
-22.03
Chicago Board Options Exchange Volatility Index
Commodity markets Reuters/Jefferies CRB Total Return Gold spot USD/Oz
Close
Change 1 day % Change 5 days %Change YTD%
224
-0.99
1.21
-2.76
1,178
-0.57
-0.85
-0.55
Generic first NYMEX Crude Light future
58
-2.68
0.62
8.95
Generic first Brent Crude Oil future
62
-2.65
-0.75
8.34
5,915
-1.60
-2.95
-6.11
524
2.55
7.16
-11.19
LME Copper 3 Months Rolling Forw ard Generic first Wheat future Chicago Board of Trade Source Bloomberg
3
How will the ECB react? – 5 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
How will the ECB react? – 5 June 2015
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