Macro Weekly Here comes more QE from the ECB
Group Economics
Han de Jong +31 20 628 4201
4 September 2015 Financial markets remain volatile as worries over developments in emerging economies and the global economy continue to affect confidence. While we think that some of these concerns are exaggerated, market turmoil could lead to a self-fulfilling prophecy. Risks to the downside are rising. Policymakers are likely to react to that threat. We have therefore changed our view on the likely policy actions by the ECB and the Fed. We believe the ECB is set to step up the size of its QE programme and we think the Fed will delay its first rate hike and not raise rates in September. Manufacturing under pressure
We remain optimistic, but confidence is tested
Recent economic data has not been strong enough to reduce
Our view has consistently been that the slowdown in Chinese
fear over the global cyclical outlook. Perhaps even the
growth is inevitable, but manageable. However, that does not
contrary. Business confidence indicators in many countries
lead to a hugely optimistic view on EMs, but we do not favour a
deteriorated in August. This is especially true for many
China hard-landing scenario. We have also consistently
emerging economies. And in many of these economies the
believed that the outlook in the US and in Europe is strong
Purchasing Managers Index in the manufacturing sector is
enough to withstand any slowdown elsewhere. This view is
below 50, indicating the sector is weak. The momentum of
increasingly tested, but we are not ready to throw in the towel.
manufacturing activity in the US also seems to be softening,
Policymakers in China have the means and the ability to
though US output appears to be still expanding. Europe has so
prevent a hard landing in our view. In addition, it seems as
far managed to buck the trend and cyclical indicators continue
though the manufacturing cycle is overshooting to the down
to look good and indicate continued above-trend economic
side. Output is developing weaker than demand. Such a
growth. How long Europe can diverge remains to be seen.
divergence is temporary by definition and we think that demand will ultimately lead output. While falling commodity
China the culprit, EM vulnerabilities exposed
prices are bad news for commodity producers, they are
The most likely culprit is China. As the Chinese economy
actually beneficial to Europe.
slows, many countries exporting to China are hit. That applies to many other emerging economies, less so to Europe and the
ECB and Fed will react
US. Not too long ago, many people were arguing that risks in
The ECB and the Fed (and other central bankers, of course)
emerging economies were actually lower than in many
have to formulate their policies against this background of
advanced economies as government indebtedness is generally
uncertainty, volatility and downside risks. At his most recent
significantly lower. This is turning out to be a very wrong
press conference, ECB President Mario Draghi opened the
assessment. Emerging economies are now suffering from a
door for more action. He indicated that the ECB’s current
range of negative trends. Lower exports to China is one.
programme of asset purchases may last longer than until
Falling commodity prices is a second, though this is partly
September next year as initially planned. Draghi had never
related to China. Third, and this applies to Asian EMs, is the
excluded that possibility, but he now made the possibility of an
depreciation of the yen that has taken place during the last two
extension very explicit. He also announced that the ECB is
and a half years or so, hurting competitiveness of other Asian
willing to buy a larger portion of specific bond issues (to be
EMs. Fourth is economic imbalances such as external deficits.
judged on a case-by-case basis), which opens the door to an
A lot of money that has flown into EMs in recent years is now
increases of the size of their monthly purchases. Draghi also
leaving, putting pressure on currencies of countries with
announced downward revisions to the ECB’s inflation and
external deficits in particular and on their domestic liquidity
growth forecasts for the eurozone economy for the period
situation. Last, but not least, is poor macroeconomic
ending in 2017.
management and political instability. Given the increased risks to the downside in terms of growth, given the fact that the new inflation forecasts show that the
2
Macro Weekly - Here comes more QE from the ECB – 4 September 2015
ECB is getting further away from reaching its inflation target
Healthy labour market
and given that the ECB is actually quite happy about what it
Positive US labour market data for the month of August,
has achieved with its QE programme, we think it is likely that
released on Friday, do not change our view that the Fed will
the ECB will step up its purchases in the months ahead. They
delay until December. Employment growth was below the
will want to defend, consolidate and build on their success so
recent trend at 175K last month, but that still represents a
far.
decent pace. In addition, job growth in the previous two months was revised up by 44K. Meanwhile, the unemployment
20 bn euro extra per month to be announced in October
rate fell significantly, from 5.3% to 5.1%, and wage growth
The most likely scenario in our view is that the ECB announces
firmed.
an increase in the size of its asset purchases each month by some 20 bn EUR and that this will be announced following the
Draghi’s view on China and other EMs.
next ECB Governing Council meeting in October. We believe
In his press conference, Mario Draghi said a couple of things I
that will push borrowing costs lower and also the euro. Indeed,
thought deserve to be highlighted explicitly. I was most
we have revised our bond yield forecasts lower as well. The
surprised by something the ECB President said about China.
result of this easing will be that the economic recovery will
He was asked by a journalist if he had received any
remain on track, which is why we are not lowering our growth
information from the Chinese authorities about what was going
forecasts for the eurozone at this stage.
on in their economy. He answered he hadn’t but that he hoped and expected he would get some at the G20 meeting in
Fed delays
Ankara on 4 September and Friday 5 September. The way he
Until now, we had assumed the Fed was going to implement
said it sounded as though at present he really does not have a
its first rate hike in September. But given turmoil in financial
particularly good idea of what is going on in China.....
markets and the downside risks to the growth outlook this
Also interesting I thought, was Draghi’s repeated remark that
implies, we think it will more postpone the rate hike. Assuming
the challenges confronting emerging economies these days
calm will return to financial markets during the weeks or
are not going to disappear any time soon. This adds to our
months ahead, we believe that December is now a more
conviction that the ECB will feel compelled to take additional
realistic moment for the first Fed rate hike.
policy measures.
Find out more about Group Economics at: http://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").
3
Macro Weekly - Here comes more QE from the ECB – 4 September 2015
Main economic/financial forecasts GDP grow th (%)
2013
2014
2015e
2016e
1.5
2.4
2.7
3.1
United States
-0.3
0.9
1.5
2.2
Eurozone
Japan
1.6
-0.1
1.0
1.2
Japan
0.17
United Kingdom
1.7
3.0
2.8
2.6
United Kingdom
0.59
China
27/08/2015 03/09/2015
United States Eurozone
3M interbank rate
27/08/2015 03/09/2015
+3M
+12M
2015e
0.32
0.33
0.6
1.3
0.6
2016e 1.6
-0.03
-0.03
0.00
0.00
0.00
0.00
0.17
0.2
0.2
0.2
0.2
0.58
0.7
1.5
0.7
1.7
7.7
7.4
7.0
7.0
World Inflation (%)
3.1 2013
3.3 2014
3.1 2015e
3.8 2016e
+3M
+12M
2015e
2016e
United States
1.5
1.6
0.4
2.4
US Treasury
2.19
2.16
2.3
2.7
2.3
2.7
Eurozone
1.3
0.4
0.2
1.5
German Bund
0.74
0.73
0.5
1.3
0.5
1.4
Japan
0.3
2.8
0.7
1.4
Euro sw ap rate
1.06
1.04
0.8
1.6
0.8
1.6
United Kingdom
2.6
1.5
1.1
1.9
Japanese gov. bonds
0.39
0.38
0.7
1.0
0.7
1.0
China
2.6
2.0
1.5
2.0
UK gilts
1.98
1.90
2.0
2.6
2.0
2.7
World Key policy rate
4.3 03/09/2015
3.9 +3M
3.8 2015e
3.8 2016e
27/08/2015 03/09/2015
+3M
+12M
2015e
2016e
Federal Reserve
0.25
0.50
0.50
1.50
EUR/USD
1.12
1.11
1.00
1.05
1.00
1.10
European Central Bank
0.05
0.05
0.05
0.05
USD/JPY
121.0
120.1
128
135
128
135
Bank of Japan
0.10
0.10
0.10
0.10
GBP/USD
1.54
1.52
1.49
1.50
1.49
1.49
Bank of England
0.50
0.50
0.50
1.50
EUR/GBP
0.73
0.73
0.67
0.70
0.67
0.74
People's Bank of China
4.60
4.35
4.35
4.35
USD/CNY
6.41
6.36
6.55
6.70
6.55
6.75
10Y interest rate
Currencies
Source: Thomson Reuters Datastream, ABN AMRO Group Economics.
Key Economic Indicators and Events 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
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
96.0
-4.5
0.25 2.75
0.8
10.5
92.0 1.50