Daily Insight
Group Economics Macro & Financial Markets Research Nick Kounis & Kim Liu
ECB to step up to EUR 80bn
+31 20 343 5616
8 September 2015 • • •
We expect the ECB to step up asset purchases to EUR 80bn p/m before year end German Bund yields and the EUR/USD are expected to head lower in the near term Meanwhile, ECB data showed slowing purchases in August due to the Summer lull
Adding details to our QE plus call Last week, we changed our ECB monetary policy call, to
Monthly purchases slowed down in August
include additional QE. We now set out the details of our new
In EUR bn
scenario and what it will means for the bond yield and currency
75
outlook.
60
Monthly purchase size to be upped to EUR 80bn
61
30
monthly pace of asset purchases. We think that a EUR 20bn
15
It would be big enough to have an impact, while allowing the
63
61 52
0 Mar-15 Apr-15 May-15 Jun-15
central bank to keep some of its powder dry. No major change in eligible universe right away
63
45
We think the ECB will most likely step up QE by increasing its monthly increase, taking the total to EUR 80bn is reasonable.
60
Jul-15 Aug-15
Monthly APP purchases
Source: ECB, ABN AMRO Group Economics
We do not think the ECB will need to increase the eligible universe of assets to facilitate this increase at this stage. Given the increase in the issuer limit at the last meeting (from 25% to 33% on a case-by-case basis) we think the ECB should have greater scope to increase its sovereign bond purchases. In addition, it can also delve into utility bonds, if necessary. Indeed, this is an option it already took up with a few names earlier this year.
ECB's QE purchases eased in August, but still on track Meanwhile, data released by the ECB showed that it bought EUR 51.6 bn of securities under its overall QE programme in August, after EUR 61bn in July. The decline in the pace was expected as the ECB said that it would take lower liquidity into account on the back of the summer recess. Nevertheless, the purchases are exactly on track at an average 60bn per month
Before year end, most likely in October We think the announcement of more QE will come before year end, most likely in October. The ECB has said it wants to
since the programme started in March. This could also indicate that the ECB does not have to back load in September in order to compensate for the lower purchases during the summer.
assess the impact of recent developments in markets and China – that should not take too long.
Summer break is over When looking at the different programmes, the summer
Government bond yields and EUR/USD seen lower We have lowered our 10y Bund yield forecasts. We now expect yields to drop to 0.5% by year end (previously 0.7%). US 10y Treasury yields are also seen lower but could still edge up to 2.3% on a December Fed hike (previously: 2.4%). This means the US-Germany spread is set to widen considerably over the coming months on monetary policy divergence. As such, we hold on to our view that the EUR/USD will decline to around parity by the end of this year.
slowdown has been broad-based. Purchases for both the public sector (PSPP) and covered bond programmes dropped by around 17% in August. However, last week's purchases are indicating that the summer break has ended for the ECB. Purchases undertaken in the last week are on the rise, compared to the week before. The increase was most significant for purchases under the PSPP programme. Last week's PSPP purchases accounted for EUR 11.9bn, which is in line with weekly purchases before the summer.
2
ECB to step up to EUR 80bn – 8 September 2015
Financial markets Currency markets
Close
Change 1 day
EUR/USD USD/JPY
1.1171
AUD/USD
Change 5 days
Change YTD
0.0179
-0.8872
119.36
0.0168
-0.3590
-0.4005
0.6929
-0.0433
-1.5208
-15.1378
USD/CHF
0.9749
-0.0820
1.2778
-1.9117
NZD/USD
0.6258
0.0160
-1.3089
-19.7178
GBP/USD
1.5281
-0.0196
-0.2546
-1.9254
USD/SGD
1.4279
-0.0140
1.0688
7.7986
USD/CAD
1.3307
0.0000
0.9942
14.5674
Bond markets
Close
Change 1 day
2-year German Govt Bond yield
-0.2250
10-year German Govt Bond yield Yield curve Germany
Change 5 days
-7.6777
Change YTD
0.0090
-0.0220
-0.1270
0.6750
0.0070
-0.1230
0.1340
0.9000
-0.0020
-0.1010
0.2610
2-year US Treasury Bond yield
0.7067
0.0000
-0.0308
0.0422
10-year US Treasury Bond yield
2.1244
0.0000
-0.0935
-0.0468
Yield curve US
1.4177
0.0000
-0.0627
-0.0890
US 2-year sw ap rate
0.8392
-0.0113
-0.0108
-0.0551
US 10-year sw ap rate
2.1719
0.0000
-0.0490
-0.1142
US sw ap curve
1.3327
0.0113
-0.0382
-0.0591
EU 2-year sw ap rate
0.0810
0.0000
-0.0130
-0.0940
EU 10-year sw ap rate
0.9980
0.0000
-0.1180
0.1860
EU sw ap curve Euribor 3 Month ACT/360 ICE LIBOR USD 3 Month
0.9170
0.0000
-0.1050
0.2800
-0.0340
0.0000
-0.0010
-0.1120
0.3320
-0.0015
0.0030
0.0764
JPMorgan EMBI Plus Sovereign S
425.0500
4.3700
5.4000
37.6100
Equity markets
Close
Change 1 day % Change 5 days %Change YTD%
Nikkei 225
17,860
0.38
-5.45
2.35
Hang Seng Index
20,584
-1.23
-4.76
-12.80
Hang Seng China Enterprises Index
9,103
-0.72
-6.64
-24.04
Australian Stock Exchange S&P/ASX 200 Index
5,030
-0.20
-3.39
-7.03
Singapore Straits Times Index
2,852
-0.40
-2.36
-15.24
Euro Stoxx 50 Index
3,198
0.56
-2.19
1.64
S&P 500 Index
1,921
-1.53
-3.40
-6.69
MSCI World Daily Total Return Gross USD
721
-1.67
-3.73
-6.14
AEX Index
436
0.59
-2.14
2.60
8.55
6.72
44.79
Chicago Board Options Exchange Volatility Index
Commodity markets Reuters/Jefferies CRB Total Return
28
Close
Change 1 day % Change 5 days %Change YTD%
197
-0.91
-0.20
-14.45
1,119
-0.37
-1.36
-5.53
Generic first NYMEX Crude Light future
44
-3.89
-10.04
-16.91
Generic first Brent Crude Oil future
48
-3.99
-12.04
-16.92
5,148
0.55
0.25
-18.29
468
0.54
-1.94
-20.69
Gold spot USD/Oz
LME Copper 3 Months Rolling Forw ard Generic first Wheat future Chicago Board of Trade Source: Bloomberg
3
ECB to step up to EUR 80bn – 8 September 2015
Day
Date
Time
Country
Monday Monday Monday
07/09/2015 07/09/2015 07/09/2015
08:00:00 09:00:00 15:45:00
DE CH EC
Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday
08/09/2015 08/09/2015 08/09/2015 08/09/2015 08/09/2015 08/09/2015 08/09/2015
01:50:00 11:00:00 12:00:00 21:00:00
Wednesday Wednesday Wednesday Wednesday
09/09/2015 09/09/2015 09/09/2015 09/09/2015
Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Friday Friday Friday Friday Friday Friday Friday
Key Economic Indicators and Events
Period
Latest outcome
Consensus
ABN AMRO
Industrial production - % mom Foreign currency reserves - CHF mln ECB announces weekly QE details
Jul Aug
-1.4 531820
1.1
1.0
JP EC US US CN CN RU
GDP - % qoq GDP - Q2 final estimate and components, % qoq NFIB small business optimisme - index Fed Reserve consumer credit - USD bn Exports Imports GDP - % yoy
2Q F 2Q P Aug Jul Aug Aug 2Q P
-0.4 0.3 95.4 20.7 -8.3 -8.1 -4.6
-0.5 0.3 95.9 18.9 -6.5 -8.0 -4.5
10:30:00 16:00:00 16:00:00 23:00:00
GB US CA NZ
Trade balance - GDP mln US Job Openings by Industry Policy rate - % Policy rate - %
Jul Jul Sep 9 Sep 10
-1601.0 5249 0.5 3.0
-1866.7 5323 0.50 2.76
10/09/2015 10/09/2015 10/09/2015 10/09/2015 10/09/2015 10/09/2015 10/09/2015 10/09/2015
01:50:00 03:30:00 09:30:00 13:00:00 13:00:00 15/09/2015 15/09/2015 15/09/2015
JP CN NL GB GB CN CN CN
Machinery orders private sector - % mom CPI - % yoy CPI - % yoy Policy rate - % BoE size of asset purchase programme - GBP bn New Yuan loans - CNY bn Aggregate financing - CNY bn M2 growth - %yoy
Jul Aug Aug Sep 10 Sep Aug Aug Aug
-7.9 1.6 1.0 0.5 375 1480 718.8 13.3
3.9 1.9 0.5 375 850 1035.0 13.3
11/09/2015 11/09/2015 11/09/2015 11/09/2015 11/09/2015 11/09/2015 11/09/2015
08:00:00 12:30:00 14:30:00 14:30:00 16:00:00
DE RU US US US KR EC
CPI - % yoy Key rate % Prod. prices index - % mom Prod. prices index excl food and energy - % mom Univ. of Michigan cons. confidence - index Policy rate - % Euro finance ministers, central bankers meet in Luxembourg
Aug F Sep 11 Aug Aug Sep P Sep 11
0.2 11.0 0.2 0.3 91.9 1.50
0.2 11.0 -0.1 0.1 91.5 1.50
96.0
-4.5
0.25 2.75
0.8
10.5
92.0 1.50
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").