Macro Weekly Crimea risks contained

Macro Weekly
Group Economics
Macro Research
Crimea risks contained
17 March 2014
 Big Picture: Investor sentiment has been undermined by tensions related to Crimea and concern over China’s
economic growth. We do not expect the Crimea tensions to evolve into full military conflict or to lead to Iran-style
sanctions that would impact energy supply. In addition, we also think that China’s growth rate will not fall
dramatically. Overall, our conviction remains that prospects for the global economy remain positive and that
economic data will soon turn up as they shake off the impact of special factors.
 Interest rates: ECB officials were falling over each other last week to talk down the euro exchange rate.
However the rise since the ECB’s Governing Council meeting earlier this month is not big enough to materially
change the inflation outlook. Ultimately, we think the euro would need to rise further – possibly in the 1.42-1.44
range versus the dollar – to trigger action by the ECB. We suspect that this would come in the form of a rate cut.
Ultimately, the ECB may get relief from across the Atlantic, as improving US data support the dollar.
 FX: We have revised our forecasts for EUR/USD significantly higher, though we still expect the direction to be
lower. In the near term, euro supportive drivers such as demand for peripheral bonds, LTRO repayments and
selective safe-haven support will partly offset the impact of a strengthening of US economic data on the cross,
resulting in only a modest fall. However, we expect a stronger appreciation of the USD versus the EUR in Q4
2014, which will gain momentum in 2015, as Fed rate hike expectations become increasingly dominant.
Main economic/financial forecasts
GDP grow th (%)
2012
2013
2014e
2015e
+3M
+12M
2014e
2015e
2.8
1.9
3.3
3.9
United States
0.24
0.23
0.3
0.5
0.3
1.7
-0.6
-0.4
1.3
1.8
Eurozone
0.30
0.30
0.3
0.3
0.3
0.4
1.4
1.5
1.8
1.2
Japan
0.21
0.21
0.2
0.2
0.2
0.2
United Kingdom
0.3
1.8
3.0
2.8
United Kingdom
0.52
0.52
0.6
0.9
0.6
2.2
China
7.7
7.7
7.5
7.0
World
Inflation (%)
2.9
2012
2.8
2013
3.6
2014e
3.9
2015e
07/03/2014 14/03/2014
+3M
+12M
2014e
2015e
United States
2.1
1.5
1.7
2.0
US Treasury
2.79
2.65
3.1
3.7
3.5
4.1
Eurozone
2.5
1.3
0.5
0.8
German Bund
1.65
1.55
1.9
2.3
2.2
2.7
Japan
0.0
0.3
1.6
1.2
Euro sw ap rate
1.88
1.80
2.2
2.5
2.4
2.9
United Kingdom
2.8
2.6
1.7
2.0
Japanese gov. bonds
0.61
0.61
0.9
1.2
1.0
1.2
China
2.7
2.6
2.8
3.2
UK gilts
2.80
2.67
3.0
3.5
3.4
4.0
World
Key policy rate
3.9
14/03/2014
3.8
+3M
3.8
2014e
3.7
2015e
07/03/2014 14/03/2014
+3M
+12M
2014e
2015e
Federal Reserve
0.25
0.25
0.25
1.50
EUR/USD
1.39
1.39
1.35
1.25
1.30
1.20
European Central Bank
0.25
0.25
0.25
0.25
USD/JPY
103.3
101.4
106
112
110
120
Bank of Japan
0.10
0.10
0.10
0.10
GBP/USD
1.67
1.66
1.65
1.67
1.63
1.60
Bank of England
0.50
0.50
0.50
2.00
EUR/GBP
0.83
0.84
0.82
0.75
0.76
0.74
People's Bank of China
6.00
6.00
6.00
6.00
USD/CNY
6.13
6.15
6.00
6.00
6.00
6.05
United States
Eurozone
Japan
Source: Thomson Reuters Datastream, ABN AMRO Group Economics.
3M interbank rate
10Y interest rate
Currencies
07/03/2014 14/03/2014
2
Macro Weekly - Crimea risks contained - 17 March 2014
Han de Jong, tel. +31 20 628 4201
The Big Picture
Light on data, but far from boring
Last week was relatively light on important economic data and
austerity but also structural reform. Industrial production in
some of the data continues to be distorted by special factors,
Spain and Portugal was up by 1.4% and 4.6%, respectively in
in particular adverse weather in the US and the Lunar New
January, while they had registered declines of 2.5% and 2.8%,
Year in China. But it certainly was not a boring week as the
respectively in August last year. This improvement is reflected
conflict over Crimea continued, concern over Chinese growth
in the employment data as well. Spain’s employment was still
further spoilt sentiment on markets for risky assets and we
0.5% down yoy in Q4, but this was a big improvement on the
revised our forecast for euro–dollar. Reading the tea leaves of
drop of 4.2% registered in Q1 last year. Employment in
the data I am still convinced that prospects for the global
Portugal is actually turning up. Q4 employment was up 0.5%
economy are positive. We do not expect the Crimea conflict to
yoy in Q4, after a 5.2% drop was seen in Q1. That is a
evolve into a full military conflict or to lead to Iran-style
significant improvement. Talking to various people, my
sanctions that would impact energy supply. In addition, we
impression is that many people don’t seem to realise what is
also think that China’s growth rate will not fall dramatically.
going on or they are not appreciating the success. I suppose
people cannot be blamed for being sceptical after so many
Crimea votes for Russian annexation, as expected
The
Crimean
referendum
on
Sunday
resulted
years of downturn and, in some cases, disappointments and
in
an
broken promises.
overwhelming majority (almost 97%) voting for Russian
annexation. This result was expected. As my colleague Arjen
US data, still not a clear picture
van Dijkhuizen wrote early today (please see ‘Russian
When weather affects economic data, it is hard to assess
Roulette’, Global Daily Insight), if Russia does not de-escalate,
when these effects ease. Last week saw an unwelcome drop
the EU and US will likely announce further sanctions today.
in sentiment among small businesses in the US in March. But
These will likely entail travel bans and asset freezes of
perhaps that was still weather related. Early indications of
individuals. The impact on cross-border trade or financial flows
consumer confidence for March also show a drop. On the
would still be limited. Although developments are still highly in
other hand, February retail sales exceeded expectations,
flux, our baseline scenario assumes that Crimea will stick to its
though previous data was revised down, somewhat. Perhaps
self-declared
Georgia’s
the most accurate data at this point in time is the weekly
breakaway regions). Russia may delay full annexation to avoid
jobless claims data. Claims fell to their lowest level of the year
more sanctions, but will keep dominating Crimea. Although
in the week of 8 March. This seems to suggest that the labour
there is a risk that sanctions could be sharpened further going
market is leaving the weather behind and the economy is
forward, a full energy blockade ‘Iran-style’ is not likely as it is in
continuing its strengthening trend.
independence
(comparable
to
no one’s interest. The EU relies on Russian energy, while it
would also seriously hit Russia’s tax revenues. It would also
Chinese worries
put upward pressure on oil prices. In the absence of military
China’s data disappointed last week. Industrial production
escalation or Iran-style sanctions, the fall-out for the global
growth over January and February taken together was up
economy is likely to be limited.
8.6% yoy, down from 9.7% in December and the lowest level
since 2009. Retail sales growth over this period eased from
Output
growth
in
Europe
unmoved,
the
periphery
13.1% to 11.8%. The statisticians in China always have a hard
impresses
time at the start of the year as the Lunar New Year jumps
Industrial production in the eurozone fell 0.2% mom in
around from year to year. I rarely comment on Chinese
January, but the yoy rate strengthened from 1.2% to 2.1%. In
monetary aggregates, but the growth of base money shows
the UK, the yoy rate of output growth rose from 1.9% in
how jumpy things can be in Chinese statistics at the start of
December to 2.9% in January. Employment growth in the
the year. M0 growth weakened to +3.3% yoy in February, after
eurozone amounted to 0.1% in Q4. On a yoy basis,
it had almost exploded in January when the growth rate stood
employment was still down 0.5%. At least as interesting as the
at 22.5%. The two months together showed stronger growth
eurozone data are the trends in individual countries. What is
that last year.
coming through, loud and clear, is the turn-around in Spain
and Portugal. These economies have gone through significant
3
Macro Weekly - Crimea risks contained - 17 March 2014
The bottom line for China’s economy
markets. Our call for a cyclical improvement last year was spot
I am not overly concerned that Chinese growth will decelerate
on and it should have had an upward effect on the dollar
sharply this year. Recent weak data must not be over-
against the euro. That did not happen for two reasons. First,
interpreted. The quarterly Manpower survey for China, which is
dollar-positive sentiment was spoilt by the deadlock of the debt
a gauge of hiring intentions, was up by a reasonable degree.
ceiling. Second, we probably underestimated the effect of
The same actually apples to many other Asian economies. But
strengthening risk appetite, which was dollar negative and
there are more decisive reasons not to be overly concerned.
euro positive in this instance as for a large part it reflected
The Chinese government has announced a growth target of
dissipating worries on the future of the euro. So where do we
7.5% for the year as a whole. While Prime Minister Li has said
stand now? We think that risk appetite in Europe will continue
that a slightly lower rate would be acceptable as long as
to rise as the economies in the likes of Spain and Portugal are
income growth and employment growth are satisfactory, he
turning convincingly. That should limit any upward effect from
added he was thinking of a lower bound of perhaps 7.2%.
a further strengthening of growth in the US and building rate-
Nobody will lose sleep over that. I think that the policymakers
hike expectations. We have therefore revised our forecast. In
have the means to prop up growth should that be required.
the near future, we see only a moderate fall in EUR/USD. As
time progresses, we still expect the dollar to strengthen, but
The debt issue
later and by less than previously anticipated (see the FX note
China’s corporate sector is highly indebted. Total corporate
later in this publication).
debt exceeds 150% of GDP, which is very high for a country in
China’s stage of development and the sophistication of its
financial system. There is little doubt that China needs to
embark on a deleveraging process. However, as my colleague
Maritza Cabezas wrote last week (‘China’s high debt woes’,
Macro Focus, 13 March 2014), we think China’s deleveraging
process will occur against a more favourable background than
in the West. In the West, we associate deleveraging with poor
growth. We must, however, not lose sight of the fact that our
economies got themselves in trouble and we were forced to
reduce leverage. That process made a bad situation worse.
Working your way out of debt in a shrinking economy is not
easy and it hurts. The situation in China is different, they are
trying to reduce leverage against a backdrop of growth. That is
a lot easier. Even more so, it is essential for China’s leaders to
keep growth going at a decent clip in order to prevent the
painful process many Western economies went through. If
growth slow too much, the process will become much more
painful. As the policymakers have the means to stimulate the
economy, we believe they will not hesitate eventually and they
will be successful.
Revised dollar forecast
We revised our dollar forecast last week. While many of our
FX forecasts had turned out well last year, we have struggled
with euro-dollar. So we did some soul searching last week and
drew a couple of conclusions. Why did the dollar not
strengthen against the euro as we had expected? Different
factors have an impact on the FX market. And different
currencies respond to different forces. What makes things
really complicated is that forces that dominate at some stage
seem to lose that dominance later. The dollar is a currency
that benefits usually from two factors: a cyclical improvement,
driving up rate expectations and risk aversion in financial
4
Macro Weekly - Crimea risks contained - 17 March 2014
Nick Kounis, tel. +31 343 5616
Aline Schuiling, tel +31 20 343 5606
Rates
The ECB and the euro
Various ECB officials tried to talk down the euro last week. We
Euro in trade-weighted terms and against the dollar
suspect that euro strength is not yet sufficient to prompt action,
Index
probably in the form of a rate cut, and up until now the central
EUR/USD
110
1.40
109
1.38
and Fed tapering support the dollar. Indeed, we expect the Fed
108
1.36
to further reduce the pace of its asset purchases this week.
107
1.34
Meanwhile, government bonds have been supported by safe
106
1.32
haven demand related to the conflict in Ukraine.
105
1.30
Mr. Draghi and company make a verbal intervention
104
May-13
bank has been ‘all talk and no trousers’. Ultimately, the ECB
may get relief from across the Atlantic, as improving US data
ECB officials were falling over each other last week to talk
1.28
Aug-13
Nov-13
Euro effective exchange rate (lhs)
Feb-14
EUR/USD (rhs)
down the euro exchange rate. Ironically, the euro has been
strong because of the ECB’s failure to ease monetary policy
Source: Bloomberg
further earlier this month, which added to the familiar narrative
of it being the least aggressive of the major central banks. The
Governor of the Banque de France said that the euro was ‘a
very
important
input
in
the
economic
and
inflation
development’. He went on to add that ‘when the euro tends to
strengthen, it creates additional downward pressure on the
economy and inflation, which in both cases isn’t warranted. So
ECB forecasts for inflation look too high given the
economic outlook
We have taken a closer look at the new ECB staff projections
for inflation and the assumptions behind them. They appear to
be on the high side, considering their projections for economic
growth and the labour market. The ECB’s scenario for the real
side of the economy is not too different from our own, although
we’re not happy at the moment.’ Meanwhile, ECB President
our projections for GDP growth are a bit higher than the ECB’s.
Mario Draghi noted that ‘the strengthening of the effective euro
The central bank forecasts a gradual pick-up in GDP growth
exchange over the past one and a half years has certainly had
(to 1.2% in 2014, 1.5% in 2015 and 1.8% in 2016), which will
a significant impact on our low rate of inflation, and, given
go hand in hand with a sluggish labour market recovery and
current levels of inflation, is therefore becoming increasingly
slowly declining unemployment. The unemployment rate is
relevant in our assessment of price stability’.
forecast to fall from 11.9% in 2014 to 11.4% in 2016, which is
still well above the long-term average rate and also above the
Euro rise up until now not sufficient to trigger action
The rise of the euro over the last year (around 5% in trade
weighted terms) has been significant. However the rise since
the ECB’s Governing Council meeting earlier this month has
only left it around 1.5% above the central bank’s base line
scenario. This would reduce inflation by less than 0.1%. So it is
level that will probably trigger significant acceleration in wage
growth. Still, the ECB expects the annual rise in compensation
per employee to increase from 1.7% in 2014 to 2.3% in 2016.
However, unit labour costs are forecast to rise more
moderately as labour productivity growth should pick up
somewhat. Therefore, the ECB’s forecast for core HICP
inflation (from 1.1% in 2014, to 1.4% in 2015 and 1.7% in
actually a bit odd that the Mr. Draghi has changed his tone so
2016) seems to be somewhat too high, also because the
much on this basis. It could be that the central bank is taking
central bank assumes that the upward impact on inflation of
pre-emptive action against a further surge in the euro.
indirect taxes will decrease from around 0.2 percentage points
Ultimately, we think the euro would need to rise further –
in 2014 to zero in 2015 and 2016. Overall, we expect inflation
possibly in the 1.42-1.44 range versus the dollar – to trigger
to undershoot the ECB’s projections in the coming months, but
action by the ECB. We suspect that this would come in the
we suspect that it would take a significant further rise in the
form of a rate cut. Ultimately, the ECB may get relief from
euro (see above) or a faltering of the economic recovery to
across the Atlantic, as improving US data and Fed tapering
bring the ECB into action given its reluctance so far.
support the dollar.
5
Macro Weekly - Crimea risks contained - 17 March 2014
Fed set to continue taper, could alter guidance
On the other side of the Atlantic, the FOMC meets this week.
We expect it to continue to reduce the monthly amount of its
asset purchases. In recent communication, officials have
suggested that they still suspected that the patch of weak US
data is due to the weather and that the bar to pausing the
tapering of asset purchases is relatively high. In addition, the
most recent economic numbers have provided tentative
evidence that economic growth is starting to regain some
momentum. Overall, we think that monthly purchases of
Treasury securities will likely be reduced by USD 5bn to USD
30bn and those of mortgage backed securities by USD 5bn to
USD 25bn. Meanwhile, the FOMC might also change its
forward guidance in the statement. It could already drop the
unemployment rate threshold of 6.5% (which has already been
downplayed over recent months) in favour of a more qualitative
guidance based on the state of the economy, labour market
and inflation more widely. Looking forward, we expect US
economic growth to accelerate strongly in coming months.
Against this background, we think a gradual tapering will
continue, with the programme coming to a halt at the October
FOMC. In addition, we see the first policy rate hike at around
the middle of next year.
Government bonds benefit from safe haven
US Treasury yields and German Bund yields fell during the
course of last week, as core government bonds were
supported by safe haven demand related to the geopolitical
tensions emanating from the situation in Ukraine. Our central
view is that the global economy is set to step up a gear, led by
the US, where economic data are likely to rebound in coming
months from temporary weakness caused by bad weather and
an inventory correction. Meanwhile, we assume a benign
outcome in Ukraine, which should lead to a waning of safe
haven support. As such we expect US Treasury yields to move
higher on the 3M horizon. Meanwhile, we expect Bund yields
to also rise but somewhat more modestly. The upward pull
from improving global developments should be offset by
ongoing weak eurozone inflation and the possibility that the
ECB will ease policy further. The gap between US Treasury
and Bund yields should continue to widen over our forecasting
horizon reflecting stronger economic growth in the US than the
eurozone and an early move to rate hikes by the Fed. The
spread widening should be relatively marked on the short end
(2Y) and the belly of the curve (5Y).
6
Macro Weekly - Crimea risks contained - 17 March 2014
Georgette Boele, tel. +31 20 629 7789
FX
The resilient euro
We have revised our forecasts for EUR/USD significantly
sovereign risk and euro break-up risk more generally, as
higher, though we still expect the direction to be lower. We
captured by sovereign CDS spreads for Italy and Spain. In
think that up to the fourth quarter of 2014, euro supportive
other words, when investors started to become more
drivers such as demand for peripheral bonds, LTRO
concerned about the future of the single currency area and the
repayments and selective safe-haven support will partly offset
risks of peripheral sovereign defaults, reflected by wider
the impact of a strengthening of US economic data on the
sovereign CDS spreads, the euro moved lower. But since the
cross, resulting in only a modest fall. However, we expect a
famous Draghi speech in July 2012 announcing the ECB OMT
stronger appreciation of the USD versus the EUR in Q4 2014,
programme, sentiment has dramatically improved, which has
which will gain momentum in 2015, as the USD cyclical drivers
given a strong support to the euro.
and in particular Fed rate hike expectations become
increasingly dominant.
The turnaround in sentiment opened investors’ eyes to the
opportunities in the eurozone bond markets. With significantly
Revisions to our EURUSD forecasts
lower systemic risk, yields on peripheral bonds looked very
For almost nine months now, the EUR/USD has defied our
attractive. This has resulted in a flight into, for example
expectations that a downward trend would take shape1. Euro
Spanish government bonds, leading to the narrowing of
supportive factors have had a bigger impact than previously
spreads over Germany. Flows did not only come from
expected, while the ECB has been more tolerant of lower
eurozone investors, but also from foreign investors supporting
inflation than we thought it would be. As such, we have revised
the EUR. The single currency area not only offered EUR
our forecasts for EUR/USD significantly higher, though we still
investments for risk averse investors (German Bunds), but
expect the direction to be lower. We think that up to the fourth
also investments for risk seeking investors seeking yield.
quarter of 2014, euro supportive drivers such as demand for
peripheral bonds, LTRO repayments and selective safe-haven
Periphery spreads, EUR/USD
support will partly offset the impact of a strengthening of US
Yield spread in %
EUR/USD (reverse scale)
economic data on the cross, resulting in only a modest fall.
However, we expect a stronger appreciation of the USD
7.5
1.20
versus the EUR in Q4 2014, which will gain momentum in
6.5
1.25
2015, as the USD cyclical drivers and in particular Fed rate
5.5
hike expectations become increasingly dominant. This will
4.5
result in a lower EUR/USD.
3.5
1.30
1.35
1.40
2.5
EUR TWI vs. average Italian/Spanish CDS spread
1.5
Jan 12
Jul 12
Jan 13
Spain-Germany (lhs)
EUR/USD inverse scale (rhs)
90-days rolling correlation
1.0
1.45
Jul 13
Jan 14
Italy - Germany (lhs)
0.5
Source: Bloomberg
0.0
Over the coming quarters, we expect spreads between
Italy/Spain and Germany to narrow further. As a part of the
-0.5
demand may come from non-euro based investors, the euro
will continue to be supported by these investor flows. However,
-1.0
04
05
06
07
08
09
10
11
12
13
14
EUR TWI vs IT-Sp CDS 5yr
Source: Bloomberg, ABN AMRO Group Economics
significant part of the move is behind us.
…and banks cleaning up their balance sheet also support
Over the past year, banks have been cleaning up their balance
sheets and have become less dependent on ECB liquidity as
Sentiment on the eurozone matters…
funding markets thawed. This manifested itself in the sale of
Over the year, the EUR Trade Weighted Index (TWI) has
foreign assets and repayments of LTRO funds. The former led
developed a strong negative correlation with eurozone
to flows into euros, though eurozone bank external assets
7
Macro Weekly - Crimea risks contained - 17 March 2014
have recently stabilised. Meanwhile, LTRO repayments have
Selective safe-haven demand unlikely to stay…
meant that the excess liquidity is the financial system fell
Before
sharply and this put upward pressure on short-term interest
developments in Russia as we now have regarding Ukraine,
rates. Indirectly this also supported the EUR. The maturity for
would have been negative for the Deutsche Mark. This year,
the first three-year LTRO is 29 January 2015 and 26 February
we have not seen any of this. In fact, the euro appears to
2015 for the second LTRO. The repayment of the LTROs will
receive some kind of safe-haven support from the tensions
likely result in a further shrinking of the ECB’s balance sheet,
between Ukraine and Russia. This has manifested itself in a
though some of the impact might be offset by banks switching
positive correlation between equity market volatility (VIX) and
to the ECB’s other refinancing facilities, which will be at full
the EUR Trade Weighted Index. However, the overall
allotment through the middle of next year or longer. Overall,
sentiment in currency markets has been quite constructive. For
we think that LTRO repayments will continue to be a euro-
example, there are no signs of risk aversion reflected by a
supportive factor in coming months.
strong rally in the Japanese yen or the US dollar. Moreover,
the
introduction
of
the
euro,
tensions
and/or
emerging market currencies have done relatively well. In the
EUR/USD, ECB excess liquidity in bn
near-term, tensions between Ukraine and Russia could
EUR/USD
continue to provide some support to the EUR. But we expect
ECB Excess liquidity (reverse scale)
100
1.40
200
fact, such escalation would result in risk aversion in financial
markets supporting the JPY and the USD.
300
1.35
1.30
400
EUR TWI vs VIX
500
90-days rolling correlation
600
1.25
Jan 13
this impact to fade as we do not expect full-blown crisis. In
1.0
700
Apr 13
Jul 13
Oct 13
Jan 14
EUR/USD (lhs)
ECB Excess liquidity (rhs)
0.5
0.0
Source: Bloomberg
-0.5
Reluctance by the ECB to ease monetary policy in the
near-term will haunt the EUR in 2015
The market is disappointed about the ECB’s reluctance to
ease monetary policy further. On the one hand, many time
comments from ECB officials have hinted in the direction of
-1.0
10
11
12
13
14
EUR TWI vs VIX
Source: Bloomberg, ABN AMRO Group Economics
more aggressive steps to come. On the other hand, Mr Draghi
has repeated his mantra that the central bank is closely
…and US dynamics to take over later this year
watching the developments, is standing ready to act, while
US economic data have let us down at two crucial points in
taking no policy action. The market has thrown in the towel on
time. In the second half of 2013, the US economy was gaining
further ECB monetary easing and so have we. Even though
momentum, which should have been dollar supportive. But this
we expect inflation to fall further and to come in even lower
momentum was interrupted by the US government shutdown.
than the central bank expects, it is proving to be more tolerant
Then it took some time to regain this momentum and the
of lower inflation than we expected. The ECB’s approach is in
market to react on it. But again the momentum in US economy
our view complacent and raises deflationary risks, but as long
was abruptly disrupted. This time around, unusually cold
as a gradual economic recovery continues, it should get away
weather is the culprit. Both unexpected disruptions came at a
with this gamble. Overall, we no longer expect monetary policy
crucial time for the US dollar, which was about to start rallying.
easing this year, which is in line with market expectations. So,
We are very positive on US cyclical prospects and think that
this driver has become neutral for EUR/USD. However, the
economic data will turn up sharply as the weather returns to
consequence of no monetary policy easing in the near-term is
more normal patterns, which appears to be happening this
that inflation continues to move lower (especially given a
month. This turn in the data should support the dollar, but the
strong euro) and that the ECB will likely stay on hold with
impact on EUR/USD will be partly offset by the euro positives
interest rates for even longer. This policy will seriously hurt the
described above. Ultimately however, we think that the dollar
EUR versus the USD once the market starts anticipating Fed
positives will increasingly dominate later this year, driven by
rate hikes. We expect expectations to build in from Q4 of 2014.
the expected divergence in monetary policy on either side of
the Atlantic. We hold an above consensus view on US interest
8
Macro Weekly - Crimea risks contained - 17 March 2014
rate hikes in 2015 and US economic growth in 2014 and 2015.
We expect the Federal Reserve to move from the middle of
next year, but market expectations will likely start to seriously
build from Q4 of this year onwards. This should be the trigger
for a more decisive turn in the dollar. At that point, positive
medium-term fundamentals such as an improvement in the
fiscal balance, a sustainable current account deficit, and
attractive valuation will likely add to the greenback’s
momentum. Overall, we expect the EUR/USD to decline much
more modestly in the coming months than previously, but it
should move more significantly lower in 2014 Q4 and in 2015
(see table).
New forecasts EUR/USD
EUR/USD new
EUR/USD old
Q1 2014
1.37
1.30
Q2 2014
1.35
1.28
Q3 2014
1.35
1.25
Q4 2014
1.30
1.20
Q4 2015
1.20
1.15
Source: ABN AMRO Group Economics
1
This note first appeared as part of our FX Monthly last week.
9
Macro Weekly - Crimea risks contained - 17 March 2014
WEEKLY ECONOMIC CALENDAR
Day
Date
Time
Country
Market indicator
Period
Monday
Monday
Monday
Monday
Monday
Monday
17/03/2014
17/03/2014
17/03/2014
17/03/2014
17/03/2014
17/03/2014
01:30:00
09:30:00
11:00:00
13:30:00
14:15:00
15:00:00
SG
HK
EC
US
US
US
Non oil domestic exports - % yoy
Feb
Unemployment - %
Feb
HICP inflation - % yoy
Feb F
Empire State PMI - Manuf. general business conditions - index Mar
Industrial production - % mom
Feb
NAHB home builders' confidence index
Mar
13-Jan
Tuesday
Tuesday
Tuesday
Tuesday
Tuesday
Tuesday
Tuesday
Tuesday
18/03/2014
18/03/2014
18/03/2014
18/03/2014
18/03/2014
18/03/2014
18/03/2014
18/03/2014
18/03/2014
11:00:00
11:00:00
13:30:00
13:30:00
13:30:00
13:30:00
13:30:00
22:00:00
EC
DE
US
US
US
US
US
KR
RU
Trade balance external EU - EUR bn
ZEW index (expectation economic growth)
Inflation excl food and energy - % mom
Inflation excl food and energy - % yoy
Inflation (CPI) - % mom
Inflation (CPI) - % yoy
Housing starts - % mom
Producer prices index - % yoy
Industrial production - % yoy
Wednesday
Wednesday
Wednesday
Wednesday
Wednesday
Wednesday
Wednesday
Wednesday
19/03/2014
19/03/2014
19/03/2014
19/03/2014
19/03/2014
19/03/2014
19/03/2014
19/03/2014
00:50:00
09:00:00
10:30:00
10:30:00
12:00:00
19:00:00
19:00:00
JP
ZA
GB
GB
ZA
US
US
HK
Thursday
Thursday
Thursday
Thursday
Thursday
Thursday
Thursday
Thursday
Thursday
20/03/2014
20/03/2014
20/03/2014
20/03/2014
20/03/2014
20/03/2014
20/03/2014
20/03/2014
20/03/2014
08:00:00
09:30:00
09:30:00
12:00:00
13:00:00
13:00:00
13:30:00
15:00:00
15:00:00
Friday
Friday
Friday
Friday
Friday
Friday
Friday
Friday
21/03/2014
21/03/2014
21/03/2014
21/03/2014
21/03/2014
21/03/2014
21/03/2014
21/03/2014
09:30:00
10:30:00
13:30:00
13:30:00
13:30:00
15:00:00
16:00:00
16:00:00
Latest outcome
-3.3
3.1
0.8
4.5
-0.3
46
Jan
Mar
Feb
Feb
Feb
Feb
Feb
Feb
Feb
13.7
55.7
0.1
1.6
0.1
1.6
-16.0
-0.3
-0.2
Merchandise trade exports - % yoy
CPI - % yoy
Claimant count unemployment rate - %
Change in claimant count - thousands
Retail sales - % mom
Policy rate - %
Fed QE3 pace $bn
Composite interest rate - %
Feb
Feb
Feb
Feb
Jan
Mar 19
Mar-19
Feb
9.5
5.8
3.6
-27.6
1.4
0.25
65
0.4
CH
NL
CH
GB
RU
RU
US
US
US
Trade balance - CHF bn
Unemployment - %
Policy rate - %
CBI industrial orders - balance (%)
Retail sales - % yoy
Unemployment - %
Initial jobless claims - thousands
Philadelphia Fed - business confidence - index
Existing home sales - % mom
Feb
Feb
Mar 20
Mar
Feb
Feb
Mar 15
Mar
Feb
2.6
8.6
0.0
3.0
2.4
5.6
315
-6.3
-5.1
NL
GB
CA
CA
CA
MX
EC
MX
Consumer confidence - index
Public sector net borrowing - GBP mln
Retail sales - % mom
CPI core - % yoy
CPI - % yoy
Retail sales - % yoy
Consumer confidence - index
Policy rate - %
Mar
Feb
Jan
Feb
Feb
Jan
Mar A
Mar 21
-10
-6
-1.8
1.4
1.50
2.20
-12.7
3.5
ABN AMRO
Expectation
consensus
0.7
7.0
0.1
50
9.1
3.1
0.8
6.9
0.1
49
50.0
0.2
1.7
0.2
1.6
5.0
53.9
0.1
1.6
0.2
1.3
4.3
0.5
12.4
3.6
-24.2
0.25
55
8.7
0.0
320
5.0
0.0
0.25
55
0.0
6.0
2.5
5.7
4.9
0.0
-7
-12.0
7.8
0.9
1.1
0.90
0.80
-12.5
3.5
Source: Bloomb erg, Reuters, ABN Amro Group Economics
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