Daily Insight
Group Economics Macro & Financial Markets Research
08 June 2016
EM central banks take centre stage Georgette Boele Co-ordinator FX & Precious Metals
The RBA and RBI stayed pat on Tuesday
More Emerging Market central banks will decide on monetary policy this
Strategy
week …
Tel: +31 20 629 7789 georgette.boele@nl.abnamro.com
Aline Schuiling Senior Economist Tel: +31 20 343 5606
…most of them will likely leave policy unchanged…
…with the exception of the Central Bank of Russia
The RBNZ and central bank of Brazil to signal easing ahead
Private consumption was the main driver behind the pick-up in eurozone
aline.schuiling@nl.abnamro.com
Q1 GDP growth; we expect growth to slow down again in Q2 Roy Teo Senior FX Strategist Tel: +65 6597 8616 roy.teo@sg.abnamro.nl
Central banks stayed pat on Tuesday… As expected the Reserve Bank of Australia (RBA) left monetary policy unchanged on Tuesday. The RBA stated that, having eased monetary policy at its May meeting, holding the stance of policy unchanged would be consistent with sustainable growth in the economy and inflation returning to target over time. As a result, financial markets have reduced expectations that the RBA may reduce rates in the coming months, which supported the Australian dollar. The Reserve Bank of India (RBI) also left interest rates unchanged as expected but financial markets are more concerned whether Governor Rajan will stay for another term. Our Asia economist expects the RBI to keep the repo rate unchanged for the remainder of 2016. The RBI is now focusing more on improving monetary transmission. Moreover, inflation has risen, there are upward inflation risks stemming from wage increases and weather conditions and the economy has accelerated in Q1.
...and more decisions later this week Later this week, more central banks will decide on monetary policy: the Reserve Bank of New Zealand, National Bank of Poland and central bank in Brazil (8 June), Bank of Korea and central bank of Peru (9 June) and Central Bank of Russia (10 June). We expect most of them to keep monetary policy unchanged. The RBNZ is likely to keep its powder dry, given strong gains in the terms of trade and resilient house prices. As financial markets are pricing in about 25% probability of a 25bp rate cut next week, the New Zealand dollar (NZD) may gain some support. However, we expect the RBNZ to resume its easing bias later this year in August. It is unlikely that the National Bank of Poland will ease monetary policy as economic growth remains healthy and inflation will likely pick up later this year due to positive base effects. For the central bank in Brazil, we
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Daily Insight - EM central banks take centre stage- 08 June 2016
expect the guidance to point into the direction of future rate cuts, because of lower inflationary pressure, a stronger real and to support the economy. It is likely that Central Bank of Russia will reduce rates because inflation has fallen to levels last seen before the crisis and the economy is still relatively weak. It will likely ease by 50bp to 10.5%.
A further increase in Swiss FX reserves The latest SNB FX reserves show that the SNB continues to pursue its policy to prevent the Swiss franc from strengthening. The last thing the SNB wants is a sharp strengthening of the franc, which would threaten Swiss exports and also push inflation lower again. Swiss economic growth is still vulnerable and disinflationary forces need to ease further. We expect that the SNB will continue its current strategy as long as: 1.
the ECB is easing monetary policy
2.
the global economy remains weak
3.
global trade remains weak
4.
Europe’s political situation remains uncertain, due to for instance the Brexit referendum (23 June) and Spanish elections (26 June 2016)
We expect EUR/CHF to stay close to 1.10 as SNB’s actions, loose monetary policy abroad and waves of risk aversion will balance each other out. Eurozone Q1 GDP growth driven by private consumption … The final estimate for Q1 GDP growth in the eurozone showed it came out at 0.6% qoq, in line with the first flash estimate. Growth in 2015Q4 was revised higher to 0.4% qoq from 0.3%. The details of GDP were published for the first time. Private consumption was the main driver behind the rise in GDP growth, it increased by 0.6% qoq, up from 0.3% in 2015Q4. Total fixed investment growth, in contrast, slowed down to 0.8% from 1.4% in Q4, while growth in government consumption declined to 0.4% from 0.5%. As the exceptionally mild winter weather seems to have had a one-off positive impact on residential investment, the slowdown in overall investment growth implies that investment in machinery and equipment probably cooled down in Q1. Meanwhile, net exports continued to reduce growth in Q1, shaving 0.1ppts off qoq growth after -0.3ppts in Q4. … slowdown in growth expected in Q2 Meanwhile, a string of economic reports has signalled that GDP growth probably slowed down in Q2. Surveys such as the composite PMI and Economic Sentiment for April and May have remained consistent with GDP growth of around 0.2-0.3% qoq, while industrial production and retail sales lost momentum at the end of Q1-start of Q2. Overall our scenario for the eurozone economy remains one of ongoing modest recovery.
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Daily Insight - EM central banks take centre stage- 08 June 2016
Day
Date
Time
Country
Monday Monday Monday
06/06/2016 06/06/2016 06/06/2016
08:00:00 08:00:00 18:30:00
DE US US
Manufacturing orders - % mom Rosengran gives keynote at Helsinki Central Bank Conf Yellen in Philadelphia
Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday
07/06/2016 07/06/2016 07/06/2016 07/06/2016 07/06/2016 07/06/2016 07/06/2016
07:30:00 08:00:00 09:00:00 11:00:00 14:30:00 21:00:00
CN IN DE CH EC US US
Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday
08/06/2016 08/06/2016 08/06/2016 08/06/2016 08/06/2016 08/06/2016 08/06/2016
Thursday Thursday Thursday Thursday Thursday Thursday Thursday
09/06/2016 09/06/2016 09/06/2016 09/06/2016 09/06/2016 09/06/2016 09/06/2016
01:50:00 03:30:00 03:30:00 06:30:00 10:30:00
Friday Friday Friday Friday Friday Friday Friday
10/06/2016 10/06/2016 10/06/2016 10/06/2016 10/06/2016 10/06/2016 10/06/2016 10/06/2016
08:00:00
01:50:00
23:00:00
16:00:00
09:00:00
Key Economic Indicators and Events
Period
Latest outcome
Consensus
Apr
-2.0
-0.7
Foreign Reserves - USD bn Repo rate - % Industrial production - % mom Foreign currency reserves - CHF mln GDP - % qoq Output per hour nonfarm business sector - % qoq Fed Reserve consumer credit - USD bn
May Jun 7 Apr May 1Q F 1Q F Apr
3192 6.50 0.8 602.1bn 0.6 -0.6 13.4
3200 6.50 0.4
JP CN CN US NZ PL BR
GDP - % qoq Imports - % yoy Exports - % yoy US Job Openings by Industry Policy rate - % Reference rate - % Policy rate - %
1Q F May May Apr Jun 9 Jun 8 Jun 8
0.5 -10.9 -1.8 5757 2.3 1.5 14.25
0.5 -6.7 -4.1
JP CN CN NL GB KR BE
Machinery orders private sector - % mom CPI - % yoy PPI - % yoy CPI - % yoy Trade balance - GDP mln Policy rate - % Draghi Economic Forum BXL
Apr May May May Apr Jun 9
5.5 2.3 -3.4 0.0 -3830 1.50
1.50
1.50
DE RU US CN CN CN GE GE
CPI - % yoy Key rate % Univ. of Michigan cons. confidence - index Money supply M 2 - % yoy Aggregate financing - CNY bn New loans - CNY bn Weidman in Eltville am Rhine Constancio in Eltville am Rhine
May F Jun 10 Jun P May May May
0.1 11.0 94.7 12.8 751 556
0.1 10.8 94.4 12.5 950 750
0.1
0.5 -0.6 17.7
ABN AMRO
6.50 0.2 0.5
2.1 14.25 -3.9 2.3 -3.1 0.0
94.0
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
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