Daily Insight EM headwinds for Germany and US
Group Economics Macro & Financial Markets Research Maritza Cabezas, Aline Schuiling & Georgette Boele +31 20 343 5616
7 October 2015
Germany’s factory order from outside the eurozone plummet, while US trade deficit jumps… …reflecting EM headwinds for the manufacturing sectors in Germany and the US Meanwhile, market reaction function to possible Fed delay now positive for risk sentiment
German factory orders reflect EM-DM growth divergence
German factory orders from abroad
Germany’s factory orders fell by 1.8% mom in August, following a 2.2% decline in July (revised lower from -1.4%). The decline in both months was largely due to foreign orders
% yoy, 2M ma
15
from outside the eurozone. These plummeted by 10.1% and
10
3.7% in July and August, respectively, probably reflecting the
5
slowdown in growth in China and emerging markets more generally. Meanwhile, domestic orders were up in July (3.7%), but gave back some of these gains in August (-2.6%), while foreign orders from other eurozone countries increased by 0.6% and by 2.5%, respectively. Demand for German capital goods from other eurozone countries has been particularly
0 -5 -10 Jan-13
Jan-14 Non-eurozone
Jan-15 Eurozone
strong during the past three months (a total rise of almost 14%), resulting in a 10.5% 3m-o-3m rise in August. This bodes well for eurozone fixed investment growth, which currently is
Source: Thomson Reuters Datastream
being supported by low interest rates, easing bank lending standards and rising profitability. Indeed, we expect fixed investment to bounce back in Q3, following its 0.5% qoq contraction in Q2.
Shifting market behaviour to Fed delays Meanwhile, we appear to be seeing a shift to how markets are reacting to changes in expectations of Fed monetary policy once again. Following the September FOMC meeting, when
Sharp widening of US trade deficit on external drags… Trade remains a drag on the US economy. The US trade deficit widened in August by 15.6% to USD 48.3 bn. The main driver was a 2% fall in exports to USD 185bn, while imports increased by 1.2% to USD 233bn. The strong dollar and the weakness in the global economy, most likely reflecting the
the Fed kept interest rates on hold, risk sentiment deteriorated. This reflects that the decision was translated as an indication that the central bank was worried about the US economic outlook. Sentiment only recovered once Fed officials clarified that a rate hike this year was still likely (hence re-assuring that the outlook had not changed that much).
slowdown in growth in China and emerging markets more generally, are hurting US exports, especially the manufacturing sector. Indeed, exports of industrial supplies suffered the sharpest decline.
Fed delay now back to being good news for risky assets The weaker-than-expected US employment report has resulted in a change of market behaviour. This report led to increasing expectations that the Fed would wait until 2016 before hiking
…but also strong domestic demand Meanwhile strong consumer demand in the US, boosted a broad range of imports from mobile phones to vehicles. After eliminating the effects of prices, which is what feeds into real GDP, the trade deficit widened to USD 63.4bn from USD 56.1bn the previous month. We think that net trade will be a drag on the economy in the coming time. Part of this drag from trade will be offset by strong growth in private consumption.
interest rates. However, unlike after the FOMC, this was seen as good news by investors. On Friday, equity markets closed in positive territory and have remained there since. The US dollar has recovered versus the euro and the yen, which we see as a signal an improvement in investor sentiment. Similarly, emerging market currencies recovered considerably versus the US dollar. Our sense is that low inflation gives the Fed room to focus solely on the growth outlook, which should be a positive for investor sentiment.
2
EM headwinds for Germany and US – 7 October 2015
Financial markets Currency markets
Close
Change 1 day % Change 5 days %Change YTD%
EUR/USD USD/JPY
1.1246
0.5274
-0.1332
120.26
-0.1660
0.4762
0.3505
AUD/USD
0.7125
0.6072
1.9605
-12.7373
USD/CHF
0.9707
-0.4819
0.0000
-2.3342
NZD/USD
0.6493
0.0154
2.3003
-16.7030
GBP/USD
1.5209
0.3563
0.3166
-2.3875
USD/SGD
1.4244
0.2040
-0.2451
7.5343
USD/CAD
1.3089
-0.0840
-2.7057
12.6905
Bond markets
Close
Change 1 day
Change 5 days
-7.0579
Change YTD
2-year German Govt Bond yield
-0.2470
0.0120
0.0050
10-year German Govt Bond yield
0.5950
0.0290
0.0120
-0.1490 0.0540
Yield curve Germany
0.8420
0.0170
0.0070
0.2030
2-year US Treasury Bond yield
0.6012
-0.0040
-0.0474
-0.0633
10-year US Treasury Bond yield
2.0474
-0.0088
-0.0034
-0.1238
Yield curve US
1.4462
-0.0048
0.0440
-0.0605
US 2-year sw ap rate
0.7334
-0.0022
-0.0118
-0.1609
US 10-year sw ap rate
2.0383
0.0175
0.0290
-0.2478
US sw ap curve
1.3049
0.0197
0.0408
-0.0869
EU 2-year sw ap rate
0.0520
0.0090
0.0000
-0.1230
EU 10-year sw ap rate
0.9720
0.0260
0.0230
0.1600
EU sw ap curve
0.9200
0.0170
0.0230
0.2830
-0.0460
0.0000
-0.0050
-0.1240
0.3271
0.0031
0.0010
0.0715
JPMorgan EMBI Plus Sovereign S
417.4600
-18.0300
-36.9900
30.0200
Equity markets
Close
Euribor 3 Month ACT/360 ICE LIBOR USD 3 Month
Change 1 day % Change 5 days %Change YTD%
Nikkei 225
18,186
1.00
7.41
4.21
Hang Seng Index
21,832
-0.10
3.05
-7.51
Hang Seng China Enterprises Index
9,932
0.48
4.41
-17.13
Australian Stock Exchange S&P/ASX 200 Index
5,167
0.33
5.06
-4.50
Singapore Straits Times Index
2,897
1.62
3.93
-13.90
Euro Stoxx 50 Index
3,221
0.97
6.32
2.39
S&P 500 Index
1,984
-0.17
5.29
-3.65
MSCI World Daily Total Return Gross USD
742
1.92
5.01
-3.33
AEX Index
441
0.82
6.89
3.78
20
0.15
-27.06
1.93
Chicago Board Options Exchange Volatility Index
Commodity markets Reuters/Jefferies CRB Total Return Gold spot USD/Oz Generic first NYMEX Crude Light future Generic first Brent Crude Oil future LME Copper 3 Months Rolling Forw ard Generic first Wheat future Chicago Board of Trade Source: Bloomberg
Close
Change 1 day % Change 5 days %Change YTD%
197
1.17
1.45
1,149
1.19
1.93
-14.58 -3.01
47
1.84
4.16
-11.56
50
2.01
4.17
-12.37
5,203
0.49
4.68
-17.42
523
1.41
3.77
-11.36
3
EM headwinds for Germany and US – 7 October 2015
Day
Date
Time
Country
Key Economic Indicators and Events
Period
Latest outcome
Consensus
ABN AMRO
Monday Monday Monday Monday Monday Monday Monday
05/10/2015 05/10/2015 05/10/2015 05/10/2015 05/10/2015 05/10/2015 05/10/2015
09:00:00 10:00:00 10:00:00 10:30:00 11:00:00 15:45:00 16:00:00
CH EC EC GB EC EC US
Total Sight Deposits bn PMI services - index Composite PMI output PMI services - index Retail sales - % mom ECB announces weekly QE details ISM non-manufacturing, index
Sep F Sep F Sep Aug
465 54.0 53.9 55.6 0.4
54.0 53.9 56.7 0.0
54.0 53.9
Sep
59.0
58.1
Tuesday Tuesday Tuesday
06/10/2015 06/10/2015 06/10/2015
08:00:00 14:30:00
DE US PL
Manufacturing orders - % mom Trade balance - USD bn Reference rate - %
Aug Aug Oct 6
-1.4 -41.9 1.5
0.3 -43.4 1.5
-0.2
Wednesday Wednesday Wednesday Wednesday
07/10/2015 07/10/2015 07/10/2015 07/10/2015
08:00:00 09:00:00 21:00:00
DE CH US JP
Industrial production - % mom Foreign currency reserves - CHF mln Fed Reserve consumer credit - USD bn Policy rate - %
Aug Sep Aug Oct 7
0.7 540031.4 19.1 80.0
0.0
-0.1
Thursday Thursday Thursday Thursday Thursday Thursday
08/10/2015 08/10/2015 08/10/2015 08/10/2015 08/10/2015 08/10/2015
01:50:00 13:00:00 13:00:00 13:25:00 13:30:00 20:00:00
JP GB GB NL EC US
Machinery orders private sector - % mom Policy rate - % BoE size of asset purchase programme - GBP bn CPI - % yoy ECB account of the monetary policy meeting of 3 September FOMC minutes Sept. 16-17
Aug Oct 8 Oct Sep
-3.6 0.5 375.0 0.8
2.8 0.5
Friday
09/10/2015
10:30:00
GB
Trade balance - GDP mln
Aug
-3371.0
-2066.7
-0.1
1.5
19.1 80.0
Sep
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/ This document has been prepared by ABN AMRO. It is solely intended to provide financial and general information on economics. The information in this document is strictly proprietary and is being supplied to you solely for your information. It may not (in whole or in part) be reproduced, distributed or passed to a third party or used for any other purposes than stated above. This document is informative in nature and does not constitute an offer of securities to the public, nor a solicitation to make such an offer. No reliance may be placed for any purposes whatsoever on the information, opinions, forecasts and assumptions contained in the document or on its completeness, accuracy or fairness. No representation or warranty, express or implied, is given by or on behalf of ABN AMRO, or any of its directors, officers, agents, affiliates, group companies, or employees as to the accuracy or completeness of the information contained in this document and no liability is accepted for any loss, arising, directly or indirectly, from any use of such information. The views and opinions expressed herein may be subject to change at any given time and ABN AMRO is under no obligation to update the information contained in this document after the date thereof. Before investing in any product of ABN AMRO Bank N.V., you should obtain information on various financial and other risks and any possible restrictions that you and your investments activities may encounter under applicable laws and regulations. If, after reading this document, you consider investing in a product, you are advised to discuss such an investment with your relationship manager or personal advisor and check whether the relevant product –considering the risks involved- is appropriate within your investment activities. The value of your investments may fluctuate. Past performance is no guarantee for future returns. ABN AMRO reserves the right to make amendments to this material. © Copyright 2015 ABN AMRO Bank N.V. and affiliated companies ("ABN AMRO").