Group Economics
Macro Weekly Resilient to EM weakness
Nick Kounis +31 20 343 5616
25 September 2015 Economic data out of the eurozone and the US suggest that advanced economies are relatively resilient to the weakness in emerging markets so far. Though downside risks from emerging economies were once again underlined by further weakness in China’s industrial sector in September as well as ongoing falls in EM currencies. Meanwhile, the Fed is trying to re-calibrate its message following the adverse reaction to the September FOMC meeting, with Chair Yellen playing down external headwinds and saying that a 2015 lift-off is still on the cards. The return of negative inflation in Japan – and before long the eurozone – means that expectations of further QE from the BoJ and ECB are likely to build. European and US data holding up Financial markets have been fretting about EM weakness for
German Ifo and analyst earnings projections
weeks and the negative sentiment has continued this week.
12m-forward, % yoy
This was fuelled by another poor China PMI reading and
30
ongoing falls in EM currencies. Against this background,
25
eurozone and US economic data painted a picture of
20
resilience. So far domestic fundamentals are offsetting external
15
drags.
10
% yoy
30 20 10 0
5
European business surveys doing well The eurozone composite PMI – which captures business activity across the whole economy – slipped to 53.9 in September from 54.3 in August. This took the indicator only back to its July level and it remains consistent with GDP growth of around 0.5% qoq or 2% on an annualised basis, so
-10
0 -20
-5 -10
-30 06
07
08
09
10
11
12
MSCI Europe, earnings projections (lhs)
13
14
15
Ifo expectations (rhs)
Source: Thomson Reuters Datastream, ABN AMRO Group Economics
not bad at all. Meanwhile, Germany’s Ifo business climate indicator edged up in September from an already high level (to 108.5 from 108.4). It was particularly encouraging that the expectations component jumped to reach its highest reading since April.
Consumer driving growth The US economy’s strength is being driven by buoyant consumer demand. Consumer spending rose by 3.6% in Q2 according to the final estimate. This means it has now grown at
Better profit growth
3.5% or above in 4 out of the last five quarters. This reflects
The expectations component is a good lead indicator of
the ongoing strength of the jobs market as well as record
analysts’ earnings expectations for Europe’s stock-listed
levels of household wealth.
companies 12-months ahead (see chart) as well as overall GDP growth. It therefore suggests that the cyclical upswing is
Housing also supportive
still firmly on track. Indeed, stronger capital spending and
In addition, the US housing market is also supporting
hiring should follow. There were signs of that in this week’s
economic activity. Residential investment surged by 9.3% in
data as well. Annual growth in bank lending to non-financial corporations rose by 0.4% in August, up from 0.3% in July. It is still modest but it has improved a lot recently after months of contraction. US economy riding high
Q2. New home sales jumped to a 7-year high in August, suggesting that the strength in homebuilding will continue. Business catching up Investment in machinery has been a missing ingredient from
On the other side of the Atlantic, US economic growth for Q2
this picture. However, core capital goods shipments are
was revised up another notch. It is now recorded at 3.9%. That
pointing to better times ahead. They were up by 4.2% in the 3-
is partly reflecting a rebound from a particularly weak start to
months to August. Finally, the Markit US manufacturing PMI
the year. Nevertheless, in the four quarters to Q2, the
was stable at 53 in September.
economy expanded by 2.7%, which is above its trend rate.
2
Macro Weekly - Resilient to EM weakness – 25 September 2015
Weakness in China’s industrial sector
Advanced economy exports to the BRIC countries
Overall, the US and eurozone look to be still on track for a
% yoy
moderate economic recovery. However, the main threat to these economies as well as to global growth is emanating from the emerging markets, and there has been more reminders of
40 30
this over recent days. The Caixin China manufacturing PMI
20
declined to 47 in September from 47.3 in August, taking it to
10
the lowest level since March 2009. Manufacturing is the weak spot of China’s economy and the larger services sector has proved more resilient, but there can be little doubt that the
0 -10 2010
authorities face a challenge to keep the slowdown in the
2012 US
economy gradual. We expect further monetary easing going forward.
2011
2013
2014
2015
Eurozone
Source: Thomson Reuters Datastream, ABN AMRO Group Economics
EM currency weakness resumes
ECB and BoJ set for further monetary stimulus
Apart from China, the other risk related to the EM outlook
The ECB and the BoJ look set to move in the opposite
reflects significant capital outflows. There were more signs of
direction by further expanding their QE programmes before
this as well, with EM currencies resuming their decline on
long. The BoJ’s key inflation measure (CPI ex-food) fell into
China worries, as well as Fed hike expectations (see below).
negative territory in August for the first time since April 2013.
The Malaysian Ringgit, South African Rand and Colombian
Figures next week for the eurozone could show headline
Peso saw the largest declines, with falls in excess of 3.5%
inflation becoming negative again in September. Core inflation
over the week. Capital outflows are leading to a tightening of
(ex-food and energy) is higher (closer to +1%) in both cases
financial conditions, which is bad news for economic growth.
and central banks should usually ignore the effects of energy price swings. However, both are facing a continued long-period
Coping with the drag from EM
where inflation is nowhere near the central bank target. This
The advanced economies are being negatively impacted by
raises the concern that inflation expectations will become
this weakness. For instance, US and eurozone exports to the
dislodged.
BRIC economies are down sharply this year (see chart). However, it seems that domestic positives have helped to
ECB officials grapple on timing of move
offset this external drag. This should remain the case if – as
Various ECB Governing Council members have given
we expect – China manages a soft landing and emerging
speeches over recent days. In general they point to the
markets avoid a systemic crisis. Advanced economy demand
likelihood of further monetary easing, but there are mixed
should also support EM exports over time. This should allow
messages on how quickly this may come. In general, some
the global economy to sustain a moderate pace of expansion.
Executive Board members (Draghi, Praet and Coeure) are suggesting that there will be no hesitation and that they will act
Recalibrating the Fed’s message
with force. On the other hand, some national central bank
Fed Chair Janet Yellen’s communication following the FOMC
governors have said they need more time, with no discussion
meeting earlier in the month was widely interpreted as raising
of new measures until December.
the chance that the Fed would wait even longer before hiking interest rates. It also weighed on risk sentiment, as markets
October versus December
put more emphasis on the Fed’s worries about the growth
Our base case is that the ECB will step up QE before the end
outlook rather that the prospect of low rates for longer. Since
of the year. We see October as more likely than December at
then, various FOMC officials have tried to re-calibrate the
this stage, though the mixed messages from officials have
message. Chair Yellen became the latest on Thursday,
made us less certain about this.
signalling that a rate hike this year was still likely, while trying to play down the likely impact of external headwinds.
3
Macro Weekly - Resilient to EM weakness – 25 September 2015
Main economic/financial forecasts GDP grow th (%)
2013
2014
2015e
2016e
1.5
2.4
2.7
2.9
United States
-0.2
0.9
1.6
2.0
Eurozone
Japan
1.6
-0.1
0.7
1.2
United Kingdom
1.7
3.0
2.8
2.6
China
United States Eurozone
3M interbank rate
17/09/2015 24/09/2015
+3M
+12M
2015e
0.35
0.33
0.6
1.3
0.6
2016e 1.6
-0.04
-0.04
0.00
0.00
0.00
0.00
Japan
0.17
0.17
0.2
0.2
0.2
0.2
United Kingdom
0.59
0.58
0.7
1.5
0.7
1.7
17/09/2015 24/09/2015
2016e
7.7
7.3
7.0
6.5
World Inflation (%)
3.1 2013
3.2 2014
3.0 2015e
3.5 2016e
+3M
+12M
2015e
United States
1.5
1.6
0.2
2.1
US Treasury
2.19
2.13
2.3
2.7
2.3
2.7
Eurozone
1.3
0.4
0.1
1.4
German Bund
0.79
0.59
0.5
1.3
0.5
1.4
Japan
0.3
2.8
0.7
1.0
Euro sw ap rate
1.04
0.98
0.8
1.6
0.8
1.6
United Kingdom
2.6
1.5
1.1
1.9
Japanese gov. bonds
0.34
0.33
0.7
1.0
0.7
1.0
China
2.6
2.0
1.5
2.0
UK gilts
1.96
1.76
2.0
2.6
2.0
2.7
World Key policy rate
4.3 24/09/2015
3.9 +3M
3.7 2015e
3.8 2016e
17/09/2015 24/09/2015
+3M
+12M
2015e
2016e
Federal Reserve
0.25
0.50
0.50
1.50
EUR/USD
1.13
1.13
1.00
1.05
1.00
1.10
European Central Bank
0.05
0.05
0.05
0.05
USD/JPY
120.0
120.1
128
135
128
135
Bank of Japan
0.10
0.10
0.10
0.10
GBP/USD
1.55
1.53
1.49
1.50
1.49
1.49
Bank of England
0.50
0.50
0.50
1.50
EUR/GBP
0.73
0.74
0.67
0.70
0.67
0.74
People's Bank of China
4.60
4.35
4.35
4.35
USD/CNY
6.37
6.38
6.55
6.70
6.55
6.75
10Y interest rate
Currencies
Source: Thomson Reuters Datastream, ABN AMRO Group Economics.
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4
Macro Weekly - Resilient to EM weakness – 25 September 2015
Key Macro Events Day
Date
Time
Country
Key Economic Indicators and Events
Period
Latest outcome
Consensus
Monday Monday Monday Monday Monday
28/09/2015 28/09/2015 28/09/2015 28/09/2015 28/09/2015
. 14:30:00 14:30:00 15:45:00 16:00:00
CH US US EC US
Total Sight Deposits bn PCE deflator core - % mom PCE deflator core - % yoy ECB announces weekly QE details Pending home sales - % mom
Aug Aug
495 0.1 1.2
0.1 1.3
Aug
0.5
0.3
0.4
Tuesday Tuesday Tuesday Tuesday Tuesday
29/09/2015 29/09/2015 29/09/2015 29/09/2015 29/09/2015
07:30:00 11:00:00 14:00:00 15:00:00 16:00:00
IN EC DE US US
Repo rate - % Economic sentiment monitor - index CPI - % yoy S&P/Case Shiller house price index Conference Board cons. confidence - index
Sep 29 Sep Sep P Jul Sep
7.3 104.2 0.2 -0.1 101.5
7.0 104.1 0.0 0.1 96.1
104.3 0.0 0.2 96
Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday
30/09/2015 30/09/2015 30/09/2015 30/09/2015 30/09/2015 30/09/2015 30/09/2015 30/09/2015 30/09/2015
01:50:00 09:55:00 09:55:00 10:30:00 11:00:00 11:00:00 11:00:00 14:15:00 15:45:00
JP DE DE GB EC EC EC US US
Industrial production - % mom Unemployment - % Unemployment change - thousands GDP - % qoq Core inflation - % yoy CPI - % yoy Unemployment - % ADP nat. employment report - thousands Chicago Fed - business confidence - index
Aug P Sep Sep 2Q F Sep A Sep Aug Sep Sep
-0.8 6.4 -7.0 0.7 0.9 0.1 10.9 190.3 54.40
0.9 6.4 -4.3 0.7 0.9 0.0 10.9 183.6 53.20
0.9 -0.1 10.9 180.0 52.0
Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday
01/10/2015 01/10/2015 01/10/2015 01/10/2015 01/10/2015 01/10/2015 01/10/2015 01/10/2015 01/10/2015
01:50:00 03:00:00 03:45:00 10:00:00 10:30:00 14:30:00 15:45:00 16:00:00
JP CN CN EC GB US US US RU
Tankan business conditions large enterprises PMI manufacturing - index (official) PMI manufacturing - index (HSBC) - flash PMI manufacturing - index PMI manufacturing - index Initial jobless claims - thousands Markit - Flash PMI ISM manufacturing - index GDP - % yoy
3Q Sep Sep F Sep F Sep Sep 25 Sep F Sep 2Q F
15.0 49.7 47.0 52.0 51.5 267.0 53.0 51.1 -4.6
13.0 49.6 47.1 52.0 51.4
50.7 -4.6
50 -4.6
Friday Friday Friday Friday
02/10/2015 02/10/2015 02/10/2015 02/10/2015
01:30:00 14:30:00 14:30:00 14:30:00
JP US US US
Unemployment - % Change in employment private employment - thousands Change in employment total - thousands Unemployment - %
Aug Sep Sep Sep
3.3 140.0 173.0 5.1
3.3 195.0 201.0 5.1
190 195 5.1
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
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