Macro Weekly Draghi's lap of honour
Group Economics
Han de Jong +31 20 628 4201
29 May 2015 ECB President will undoubtedly express satisfaction with how things are going in the eurozone and claim success for his programme of quantitative easing. And fair play to him! While I still think that the programme was not really necessary as the economy was already improving, I suppose a bit of additional fuel to the fire cannot harm. In any case, the eurozone economy is on the right track. Meanwhile, Fed chair Yellen has, so far, failed to push market expectations for official interest rates by the end of this year and next up, despite her efforts to explain that the first rate hike is close. Given how assertive she, and some of her colleagues, have been, one must assume that the Fed will, indeed, raise rates before too long.
Most eurozone data was positive
is actually a better indicator for economic activity. Its growth
The eurozone economy has been improving since the second
accelerated to 10.5%. That is high and M1 has been a reliable
half of last year and that trend is continuing. Several economic
leading indicator for overall growth of the eurozone economy.
indicators released during the last couple of days confirm this.
So that is promising. Bank lending data contained in the
The European Commission's comprehensive index for overall
monetary statistics was less strong, but it is clear that the
confidence, its so called Economic Sentiment measure was
credit cycle has made a decisive turn for the better.
stable in May, but clearly above its long-term average. The index was actually fractionally higher in March, but, apart from
Deflation fears also seem to ease further as Italian and
the March reading, one has to go back to early 2011 to find
Spanish inflation came in ahead of expectations. Spain's HICP
stronger sentiment. A similar message is borne out by the
inflation amounted to -0.3% yoy in May, but that is up from -
index of producer confidence in the Netherlands. Consumer
1.5% in January. Italy's headline inflation ticked up to 0.2% yoy
confidence in Germany is even more impressive, at least
after the number had been negative in three of the previous
according to the Gfk gauge. This measure, labelled for June,
five months.
rose to the highest level I can find in my Bloomberg system
Draghi will do a lap of honour
where history goes back to 2005. Admitted, other measures of German consumer confidence are less jubilant.
ECB president Mario Draghi will most likely claim credit for all this when he meets the press in a few days' time following the ECB's upcoming policy meeting. While I would want to
Eurozone: M1 growth and GDP
begrudge him success, I think the economy was already on the 6
16 14 12 10 8 6 4 2 0
4 2 0 -2
purchasing programme. And I also think, and have argued in the past, that deflation risks are smaller than many believe. Frankly, that is not really all that relevant. The main point is that the economy is improving. Given where unemployment is and where inflation is relative to the ECB's target, there is no
-4
doubt we need the economy to continue to grow and the ECB
-6
will certainly not consider ending its asset purchasing
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 M1 (lhs, 12m moving forward)
mend long before the ECB started its large-scale asset
programme any time soon.
GDP (rhs)
Greek saga approaching the end game Source: Bloomberg
Eurozone monetary statistics for April were also better than expected. M3 growth accelerated to 5.3%, from 4.9% in March. This was the strongest since 2008. The narrow aggregate M1
As an outsider, I have no idea what's going on between Greek authorities and their partners discussing the financial situation of Greece. Nobody seems to know how much cash the Greeks have, but the end of it must be coming within sight. One must therefore assume that the end game is getting close. Mental
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Macro Weekly - Draghi's lap of honour - 29 May 2015
games still seem to be the order of the day. The Greeks
This pushed up mortgage interest rates, which had a very
recently claimed that a deal was near. Their partners were
negative effect on the housing market. This can be seen
quick to point out a deal was not exactly just around the
clearly in the graph showing pending home sales the yield on
corner. All this is understandable. Having created the
the 10yr Treasury bond. Another rude disturbance of the
impression that a deal is within reach, the Greek government
housing market recovery would be most unwelcome.
will be able to blame the other side if things do not work out in the end. Perhaps they also tried to convince deposit holds to
The Fed chair has been remarkably unsuccessful on this front.
keep their money in Greece. On the other side of the
Fed funds futures, for example, have hardly budged recently,
negotiating table the game is to get as tough a deal as
showing that markets continue to price in official rates to be
possible and declaring that a deal is near would weaken their
lower by the end of this year and next than the FOMC
hand. I still think that a deal will be reached, but it will go down
members are projecting.
to the wire and nobody seems to know when that is. I must
Erratic data
admit that one cannot feel particularly confident of a good
Perhaps this is not surprising. Economic data in the US
outcome.
continues to be erratic. GDP growth for the first quarter was
Yellen trying to push market expectations: to little avail
revised down from +0.2% to -0.7%, which was actually
Federal Reserve chair Jannet Yellen argued, once more, that a
marginally better than feared. True, at this stage, the first
rate hike is coming closer and closer. It seems like a done deal
quarter is ancient history and we all knew that the number
that the first US rate hike in nine (!!) years will occur within a
would we revised down. What is more annoying is that the
few months' time. There still is a wide gap between the median
data has failed to show a comprehensive and compelling
forecast of where the Fed funds rate will be by the end of this
improvement recently. Durable goods orders for April were
year and next. Yellen presumably fears that if the Fed carries
ahead of expectations, particularly if one considers the
out what it now considers the most likely path of monetary
revisions to earlier published data. Capital goods orders for
policy, financial markets will be taken by surprise. If markets
non-defence items, excluding aircraft, rose 1.0% mom in April
then have to adjust their expectations, the result could be a
while the march number was revised from -0.5% to +1.5%.
sharp increase in market volatility. By repeating her message
Perhaps the weak spell of corporate investment spending is
time and time again, Yellen is probably hoping to shift
over. The recovery of the housing market seems to be
expectations in the right direction so that such volatility can be
continuing and house prices continue to tick up gradually.
avoided. Such volatility would include a sharp rise in bond
On the side of disappointments, the Chicago PMI fell hard in
yields. 1994 shows that such a development is not a walk in
May. The index fell dramatically in February and stayed low in
the park. More recently, the announcement by Ben Bernanke in May 2013 that the Fed might taper its asset purchasing
March only to bounce relatively sharply in April, suggesting that the adverse weather over the winter had been left behind.
programme led to a violent move of bond yields.
But the May reading was a big disappointment and pushed the index materially below its long-term average.
US: Pending homes sales vs 10yr UST
We remain confident that the US economy will gain momentum 30
1
20
in months to come. And despite the mixed data, we think the Fed will raise rates, most likely in September, as zero interest
10
2
0
rates simply look odd against an economy in its sixth year of recovery after the last recession.
-10
3
-20 -30
4 11
12
13
Pending home sales (% yoy, lhs) Source: Bloomberg
14
15
10yr UST (%, rev. scale, rhs)
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Macro Weekly - Draghi's lap of honour - 29 May 2015
Main economic/financial forecasts GDP grow th (%)
2013
2014
2015e
2016e
2.2
2.4
2.7
3.1
United States
-0.4
0.9
1.8
2.3
Eurozone
Japan
1.6
-0.1
1.1
1.2
United Kingdom
1.7
2.8
2.8
2.6
China
United States Eurozone
3M interbank rate
21/05/2015 28/05/2015
+3M
+12M
2015e
0.28
0.28
0.4
1.2
0.9
2016e 2.4
-0.01
-0.01
0.00
0.00
0.00
0.10
Japan
0.17
0.17
0.2
0.2
0.2
0.2
United Kingdom
0.57
0.57
0.6
1.2
1.0
2.0
21/05/2015 28/05/2015
2016e
7.7
7.4
7.0
7.0
World Inflation (%)
3.2 2013
3.2 2014
3.2 2015e
3.8 2016e
+3M
+12M
2015e
United States
1.5
1.6
0.1
2.5
US Treasury
2.20
2.14
2.3
2.8
2.7
2.9
Eurozone
1.3
0.4
0.4
1.7
German Bund
0.63
0.54
0.3
1.0
0.5
1.4
Japan
0.3
2.8
0.8
1.4
Euro sw ap rate
0.97
0.88
0.6
1.3
0.8
1.6
United Kingdom
2.6
1.5
1.1
1.9
Japanese gov. bonds
0.41
0.40
0.6
1.0
0.7
1.0
China
2.6
2.0
2.0
2.5
UK gilts
1.98
1.82
1.6
2.3
2.0
2.7
World Key policy rate
4.3 28/05/2015
3.9 +3M
3.7 2015e
3.8 2016e
21/05/2015 28/05/2015
+3M
+12M
2015e
2016e
Federal Reserve
0.25
0.25
0.75
2.25
EUR/USD
1.11
1.09
1.10
1.05
1.00
1.15
European Central Bank
0.05
0.05
0.05
0.05
USD/JPY
121.0
124.0
122
130
128
135
Bank of Japan
0.10
0.10
0.10
0.10
GBP/USD
1.57
1.53
1.55
1.52
1.49
1.51
Bank of England
0.50
0.50
0.75
1.75
EUR/GBP
0.71
0.71
0.71
0.69
0.67
0.76
People's Bank of China
5.10
5.10
4.85
4.85
USD/CNY
6.20
6.20
6.22
6.35
6.30
6.40
10Y interest rate
Currencies
Source: Thomson Reuters Datastream, ABN AMRO Group Economics.
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Macro Weekly - Draghi's lap of honour - 29 May 2015
KEY MACRO EVENTS 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
-2.8 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
0.3 524.5 0.4 212 222 5.4 16.9
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey 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
0.5 0.4 225 235 5.4