1. society
2. work
3. unemployment

Markets Roundup
Research
1 3 Oc t ob e r 2 0 1 4
Falling inflation expectations in the eurozone and US
CONTENTS
Financial markets remain under pressure (p.1 – p.6).
Market Movers
2
Economics Weekly
The Chart of the Week shows medium-term inflation expectations in
Calendar
7
the eurozone and US. We wouldn’t argue that financial markets are in
Central Bank Policies
8
panic mode at the moment, but at least there is a growing amount of
Forecast Table
9
nervousness as a broader set of asset prices started to correct since
around mid-September. Indeed, we regularly discussed the past months
that relatively illiquid asset classes, such as US high yield bonds and
Interest Rates
(3M – 1yr)
small caps, were under pressure. Apart from these early warning signals,
10
the correction in financial markets shouldn’t have come as a complete
Gov’t Bond Yields
(2yr – 10yr)
surprise. After all, we and others more than once argued that central
11
banks’ aggressive monetary stimulus measures resulted in strong
Interest Rate & Bond
Futures
inflation in especially financial asset prices even though global growth
12
remained modest and debt levels high from a historical perspective.
Accordingly, valuations became detached from fundamentals, in our
Equities, Currencies &
Commodities
view. As the Fed intends to withdraw its support from the markets, it
13
should probably be replaced by private sector leverage in order to keep
DATA RELEASES
asset price inflation as strong as it was the last years. Yet, leverage in
financial markets already increased strongly as is, for example, reflected
United States
by rising margin debt. As always, market participants find all kind of
14/10 Small business index
reasons to explain why asset price inflation will remain - basically forever
15/10 Retail sales
- strong, but there always comes a time that reality kicks in and
15/10 Beige book
investors realise that ‘not all is fine and dandy’. Will this be such a
16/10 Industrial production
moment? Central bank policy makers will certainly notice the rise in
16/10 Housing market index
uncertainty as the Fed’s FOMC minutes signaled last week that some Fed
17/10 Housing starts/permits
members became more cautious in September already.
And indeed, these developments coincide with a drop in medium-term
Eurozone
inflation expectations (an important parameter for central banks).
14/10 Consumer prices (Fr)
Accordingly, 2009-2011 memories are rushing back as in each of these
14/10 EU court hearing OMT
years the Fed’s exit plans eventually remained plans.
14/10 ZEW investor conf (Ger)
14/10 Industrial production
15/10 Draghi speech
16/10 Consumer prices (final)
Chart of the Week: Inflation expectations are declining again
Percentage
3.6
3.4
3.2
United Kingdom
3.0
14/10 Consumer prices
2.8
15/10 Labour market report
09/10 BoE meeting
RESEARCH
2.6
Fed
tightening
monetary
policy???
QE2
2.4
2.2
2.0
Duncan de Vries
1.8
Erwin Langewis
Apr-2004
QE1
Apr-2006
E: [email protected]
Important disclosures appear on the final page of this document
Apr-2008
QE2 preannounced
QE3
Operation Twist
Apr-2010
Apr-2012
Five-year, five-year forward inf lat ion expectations (eurozone)
Five-year f orward breakeven inflation rate (US)
Apr-2014
M ARKET MOVERS: REVIEW & PREVIEW
witnessed in 2007, according to S&P data (6.26 times
Ebitda versus an average of 6.23 in 2007).
United States
The
combination
of
weakening
(expected)
global growth (as confirmed last week by the IMF),
It’s quite entertaining to see that at a time that
spreading
financial market volatility starts to rise, an
tighter USD liquidity
increasing
number
of
and
relatively
to
rising financial market volatility. As said many
times before the past months, why would markets
For example, the IMF considered that some equity
fight the Fed this time?
valuations are ‘frothy’ and that downside risks have
That said, this combination of factors is also a
risen, while the Fed warned that the leveraged loan,
negative development for parties that are short
small-caps,
the
stocks
starts
risks
conditions resulted in
worry about so-called bubbles in asset classes.
biotechnology
institutions
geopolitical
and
farmland
USD
(i.e.
that
borrowed
in
USDs)
as
it
‘markets’ are frothy (indeed this seems to become
strengthens the USD. Unfortunately, one of these
the new ‘buzzword’).
parties includes a number of emerging market
countries that gratefully used the availability of USD
Guess what; these were the institutions that
liquidity that was created by the Fed. Countries like
were
Brazil, India, Indonesia, Turkey and South Africa are
the
inflation
main
by
source
promoting
of
financial
central
bank
market
liquidity
the well-known countries that might suffer from the
injections (the IMF now argues that the ECB should
relatively tightening of USD liquidity conditions that
purchase government bonds) and actually pushing
contributed to the appreciating USD.
new money into the financial system. This helped to
facilitate debt levels to even higher levels than in
The fall in commodity, and especially oil, prices
2007 and, in our view, massive speculation in
clearly doesn’t help these countries either. This
financial markets. As a consequence of the enormous
also comes at a bad time for Russia as the country
wall
of
money,
volatility
was
reduced
to
tries to defend its currency from falling further as
extremely low levels and this created a FALSE
foreign capital leaves the country, the country failed
sense of security. For example, the chart from the
again to raise less than the amounts offered in a
NY Fed shows relative volatility since April 1994. For
bond sale and economic prospects are deteriorating.
instance, only 7% of historical monthly S&P 500
Although the country still has ample foreign exchange
observations had a lower volatility. Yet, volatility is
and gold reserves (see chart) to defend the ruble, the
clearly on the rise.
longer this situation endures the more uncertain
market parties will become. This is already reflected
Excess liquidity reduced market volatility
in cross currency basis swaps as financial parties are
Percentage
willing to pay a premium to obtain dollars for rubles
25
(see chart again).
20
Russia under pressure
15
10
5
0
2-year interest rat es 10-year int erest rates
Jul-14
M ay-13
S&P 500 index
M ay-07
Now, the Fed tries to dampen risks in specific
markets via regulatory tools. For example, the Fed
Rubble bn
Basis points
700
1200
650
1000
600
800
550
600
500
400
450
200
400
0
350
-200
300
2008
has increased oversight of the leveraged loan market
-400
2009
2010
2011
2012
Russian reseves (LS)
2013
2014
3-year cross-currency basis swap (RS)
to a deal-by-deal review as terms and structures of
deals deteriorated further this year. Total debt levels
Apart
for large leveraged buyouts rose to levels last
macroeconomic agenda was light. One of the few
from
interesting
Markets Roundup
2
financial
reports
was
markets,
the
one
last
week’s
showing
that
13 October 2014
consumer credit increased at a still strong USD
Q4, supported by credit growth, but we remain
13.5bn in August. The underlying data showed that
cautious about the strength of investment growth
revolving credit (e.g. credit cards) declined, but non-
after Q3 given global softness.
revolving credit (e.g. student and auto loans) rose
again. Consequently, this didn’t help to take away
Overall,
concerns about bubble forming in auto loan
deteriorated due to a combination of factors.
debt
Tightening USD liquidity conditions are one of these
as
subprime
lending
has
become
financial
market
sentiment
has
increasingly popular. As a share of total new
factors.
lending, subprime loans make up close to 23%,
monetary policy (US/UK versus eurozone/Japan) is
according to Fed data. We don’t buy arguments such
reflected (amongst others) in FX markets, which
as that low delinquency rates indicate that no trouble
could
is ahead, as this is forecasting the future with
participants that are short the USD. For the US, this
backward looking data. The Fed’s actions have
means that the strength of the economy will remain
resulted in a search for yield that facilitated the
highly
resurgence of strong demand for this ‘asset class’.
demand. Even though markets have started to push
True, total auto loan debt is a relatively small asset
their rate hike expectations backwards, we stick to
class (about USD 905bn in Q2), but increasing risk
our view that market expectations will move a bit
taking in this segment is a reflection of risk taking in
back further in time as central bank policy makers
other parts of the economy as well.
now openly start to discuss their concerns about
Moreover, the
have
serious
dependent
(expected)
consequences
on
(credit
divergence in
for
driven)
economic
domestic
foreign growth. Additionally, we now don’t expect
the Fed to adjust its ‘considerable time’ forward
Business investments expected to pick-up
guidance in the FOMC statement this month.
Average age at year-end of private fixed assets
25
Indeed, this should help to put some downward
20
pressures on the USD as well.
15
This week’s macroeconomic agenda will focus on
10
retail sales and industrial production data. Retail
5
0
1925
sales are expected to have fallen slightly, mainly
owing to falling gasoline prices and a decline in auto
1935
1945
1955
1965
1975
Financial corporates
1985
1995
2005
sales. Core retail sales growth, however, is expected
Non-f inancial corporat es
to remain solid, supported by iPhone sales.
Talking about credit growth, it could be positive for
Eurozone
short-term economic growth prospects. Yet, if the
borrowed
money
isn’t
used
for
productive
investments then economic growth is only brought
Also the macroeconomic agenda in the eurozone was
forward at best.
light with the focus being on the start of the week as
Even though there are a lot of investments in non-
German factory orders and industrial production data
productive assets, it is more encouraging to see that
were released. As was widely cited the past week in
business investments picked-up as well. The recent
the news, the collapse of German factory orders (-
levels of the ISM manufacturing index, a rising
5.7% mom) and industrial production (-4.0%)
capacity utilisation rate (78.8% in August versus a
in
long-run average rate of 80.6%) and relatively ‘old’
momentum in the eurozone weakened even
fixed assets suggest that business investments could
before the economy gained traction. True, the
pick-up further.
decline in production seems to be exacerbated by the
At the same time, however, the capacity utilisation
timing of holidays as it resulted in firms shutting
rate is still below long-run average levels and the
down production in August instead of July this year,
chart shows that especially the average age of the -
but this can certainly not explain it all.
not capital intensive - financial sector has risen.
Annual industrial production growth trended lower
Accordingly, we anticipate business investments to
from 4.9% early this year to -2.8% in August. The
positively contribute to GDP growth in Q3 and also in
sanctions imposed on Russia and a loss of global
Markets Roundup
3
August was another signal that growth
13 October 2014
growth momentum likely played an important role
developments policymakers like to see, suggesting
too. This was also confirmed by Germany’s export
that they will continue to keep their feet on the
data as exports declined 5.8% in August, which more
stimulus pedals as long as they are allowed to do so
than reversed the 4.8% jump in July. Export levels
by the markets. Indeed, those policies will aggregate
are now at the same levels as in mid-2012.
existing imbalances of which some people will benefit
Accordingly, last week’s data even increased
risks
that
Germany
will
report
a
and others certainly not.
second
consecutive quarter of contracting economic
This week’s agenda is heavy as it includes a number
activity in Q3 (i.e. after -0.2% qoq in Q2) as we are
of speeches from ECB policy makers (including Draghi
increasingly
and Weidmann), which will certainly result in a
activity
sceptical
can
fully
that
rising
compensate
service
for
sector
weakness
number of noteworthy headlines.
elsewhere.
Also, finance ministers will meet today and tomorrow
to discuss EU recommendations to member states on
So, here we are. Borrowing costs of several
fiscal and economic policy. The fiscal and economic
countries are at record low levels as the ECB cut
situation in Italy and especially France will certainly
its policy rates to basically 0%, offered almost
be
free liquidity to banks and intends to purchase
Bundesbank President Weidmann said: “France, as
loans from banks balance sheets. Yet, instead of
the second largest euro area country, is decisive and
rising growth momentum, momentum starts to
needs to serve as a role model”. Will the ‘dog that
fall. And to be clear, also the money printing central
doesn’t bite’ (i.e. the European Commission) bite
banks in the US, UK and Japan were not able to
after all? In the coming two weeks we will know
‘print’ robust economic growth. We are quite sure
more, although it seems likely that France will first be
that central bankers will not question their past
asked for a new budget. It is, however, worrisome
decisions, but will rather scratch their heads over
that French Finance Minister Sapin said that the
what else they can purchase.
Commission “cannot censure, it cannot reject” any
amongst
the
topics
being
discussed.
As
budgets. Will EU commissioner Moscovici - Hollande’s
finance minister about 6 months ago - fine France (it
Population trends spell slower growth potential
Million
can propose an interest-bearing deposit of 0.2% of
Percentage
202
30
GDP or even an actual fine of 0.2%-0.5% of GDP as
200
29
France is placed in an Excessive Deficit Procedure) for
198
28
196
budget discipline as the first ever eurozone country
27
194
26
the coming months? And what will be the response of
25
France
188
24
questions, but it doesn’t decrease uncertainty and
186
23
192
190
184
2003
2005
2007
2009
2011
Tot al populat ion ( 20 t o 64 years, LS)
Italy)?
We
cannot
answer
these
probably raises the popularity of anti-euro parties.
22
2001
(and
2013
On Friday, new GDP estimates will be released by
Old dependency rat io (60 & over t o 20 t o 59 years, RS)
Eurostat that will show that GDP levels will be higher
Will even lower rates support economic growth? It is
than previously reported (probably by around 1.9%),
an understatement that we are sceptical about it.
mainly due to accounting adjustments.
One of our long-held views is that high indebtedness
will continue to dampen growth prospects. Moreover,
Furthermore, the European Court of Justice will
structural reforms are needed in most countries to
consider arguments on the legality of the ECB’s OMT
promote productivity. And at least as important are
programme
demographic developments. The chart shows that
whereas a growing population supported domestic
government
consumers (and typically thus results in fewer
Markets Roundup
certainly
not
purchase
debt.
In
addition,
the
anti-euro
Alternative for Germany party has built on its support
saving and less credit growth), but increases
are
could
make an announcement on (new) purchases of
population affects the ratio of producers to
These
it
continue to undermine the ECB’s willingness/ability to
turned negative recently. In addition, an ageing
spending.
which
expected until mid-2015 or so, but this process could
demand in the pre-crisis years, the population size
public
(under
government bonds) tomorrow. No final ruling is
after it won 7.1% of the vote in European Parliament
the
4
13 October 2014
election as it received between 9.7%-12.2% in three
taken so far, such as new rules to curb risky
regions the past months. The success of this party
mortgage lending, fail to prevent risks to the financial
that exists since early 2013 can be partly explained
system. We have addressed this issue before. As the
by the unease of Germans about the ECB’s actions.
BoE seems on the verge of raising interest rates (it at
Indeed, Bundesbank President Weidmann said last
least hopes to do that next year), this situation could
week that the ECB would be on “a dangerous path” if
put highly indebted households into trouble.
it starts buying government bonds. But so far,
Yet again, it was, amongst others, the IMF that
Germans have been basically the only vocal critics
supported
about the ECB’s actions. We expect more easing by
boosts inflation in certain markets. Keeping interest
the ECB, but think that the markets were hoping for
rates at artificially low levels results in risk taking
too much in the short-term.
that could become a problem once interest rates
extraordinary
monetary
support
that
normalise (or overshoot).
As regards macroeconomic data, French CPI inflation
and the German ZEW investor confidence index
Last week, a couple of housing market data
should attract most attention. After a series of
showed that the housing market stalls at high
German data disappointed recently, the ZEW index
levels, while forward looking indicators show
will
some
certainly
attract
a
lot
of
attention.
Given
cracks.
The
BoE
showed
in
its
Credit
deteriorating sentiment in financial markets and bad
Conditions survey that the mortgage availability
news headlines, we expect the index to fall again in
index fell within three months from 8.2 in Q2 to -28.5
September. French CPI (HICP) inflation is expected to
in Q3. This was the lowest level since the final
fall to 0.4%.
quarter of 2008 and the first reading below 0 since
2012. Not only the availability of mortgages declined,
but the survey also showed that demand for home
United Kingdom
loans decreased significantly over the last three
months. The survey comes amid signs of a loss of
Just as in the US and eurozone, also the UK
momentum in the housing market after the FPC took
macroeconomic calendar was light. Movements in the
steps to limit riskier lending and banks introduced
markets were, however, heavy.
affordability tests. Two weeks ago, the Nationwide
house price index showed that property values dipped
Most attention was taken by the IMF which expects
in September as house prices fell on a monthly basis
that - in sharp contrast to the eurozone - the UK
for the first time in one and a half year. However,
economy
Olivier
house prices are still 9.4% higher than a year ago.
Blanchard, the IMF’s Chief Economist, said that
This was also confirmed by the Halifax house price
the UK is leaving the financial crisis behind and
growth showing an increase of 9.6% 3m/yoy.
continues
to
expand
strongly.
will achieve decent growth outstripping the rest
Not all is bright and shiny anymore
of the G7, including the US, this year. For what
Percentage
it’s worth, the IMF expects the economy to expand by
75
3.2% this year and 2.7% next year (when the US
50
economy should expand 3.1% and the eurozone
25
1.3%). The IMF said that growth rebounded and
0
becomes more balanced as business investments
-25
pick-up along with household spending. But the
-50
report also noted that British household debt worth
-75
140% of disposable income remains high, despite
2007
falling from its pre-crisis peak of over 160%. This
makes households very vulnerable to interest rate
But more forward looking indicators point at slower
hikes.
growth. The RICS house price balance survey fell to a
On the same line, the IMF warned that ‘buoyant’
still relatively high 30% and the BoE credit survey
house prices pose ‘challenges’ for a number of
showed that the outlook index for prices fell from
countries, including the UK. It said that measures
0.7% in Q2 to -10.1% in Q3.
may be needed to cool the housing market if actions
Markets Roundup
2008
2009
2010
2011
2012
2013
2014
Households demand of secured lending for house purchase,
past 3 months
A bilit y of secured credit f or households, past 3 months
5
13 October 2014
Not only the housing sector seems to cool a bit
as
figures
production
surveys
showed
was
were
that
slower
manufacturing
after
weaker
PMI
two
weeks
ago.
published
Manufacturing output for August rose just 0.1%,
down from 0.3% in July. Annual growth showed an
increase from 3.5% in July to 3.9% in August, but
this growth rate was inflated by base effects as
output declined in August 2013. Total industrial
production held ground as it was up 2.5% (yoy),
although it remained flat compared to July. However,
the PMI suggests production could fall in coming
months.
All in all, financial markets reacted with a drop in
equity prices and 10-year Gilt yields fell by 13bps,
breaking the year to date lows. Money markets
almost fully priced out rate hikes for early 2015 and
now see only 3 hikes of 25bp each for the end of
2015. This is in sharp contrast to two months ago,
when rate hikes at the end of 2014 were priced in.
Accordingly, we are witnessing how addicted financial
markets and the ‘real’ economy have become to
central
bank’s
monetary
support.
Intentions
to
tighten monetary policy alone resulted in weakness in
several places. Let’s hope that economies will not be
confronted with stronger headwinds as we can only
guess what the consequences will be!
This week’s focus will be on inflation and labour
market reports. Headline inflation and core inflation
are both expected to fall to 1.4% and 1.8%,
respectively.
Average
weekly
earnings
excluding
bonus (3m/yoy) potentially moved a tat higher to
0.8%. A combination of easing CPI inflation and
subdued wage pressures will strengthen the markets’
view that there is not enough evidence for the BoE to
hike rates in the near-term.
Markets Roundup
6
13 October 2014
ECONOMIC CALENDAR 13 OCTOBER – 17 OCTOBER, 2014
UNITED STATES
Date
Time
Tuesday 14 October
13:30
14:30
14:30
14:30
14:30
14:30
14:30
20:00
15:15
15:15
15:15
16:00
14:30
14:30
14:30
14:30
15:55
Wednesday 15 October
Thursday 16 October
Friday 17 October
BN Survey
Prior
Sep
Sep
Sep
Sep
Sep
Sep
Sep
95.6
-0.10%
0.20%
0.30%
0.30%
1.80%
1.70%
96.1
0.60%
0.30%
0.50%
0.40%
1.80%
1.80%
Sep
Sep
Sep
Oct
Sep
Sep
Sep
Sep
Oct P
0.40%
79.00%
0.30%
59
1002K
4.80%
1032K
2.80%
84
-0.10%
78.80%
-0.40%
59
956K
-14.40%
998K
-5.60%
84.6
Indicator
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
NFIB Small Business Optimism
Retail Sales Advance MoM
Retail Sales Ex Auto MoM
Retail Sales Ex Auto and Gas
Retail Sales Control Group
PPI Final Demand YoY
PPI Ex Food and Energy YoY
Federal Reserve Beige Book
Industrial Production MoM
Capacity Utilization
Manufacturing (SIC) Production
NAHB Housing Market Index
Housing Starts
Housing Starts MoM
Building Permits
Building Permits MoM
Univ. of Michigan Confidence
GE
FR
FR
GE
GE
EC
EC
GE
GE
EC
EC
EC
EC
EC
EC
EC
EC
Wholesale Price Index YoY
CPI EU Harmonized MoM
CPI EU Harmonized YoY
ZEW Survey Current Situation
ZEW Survey Expectations
Industrial Production SA MoM
Industrial Production WDA YoY
CPI EU Harmonized MoM
CPI EU Harmonized YoY
Trade Balance SA
CPI MoM
CPI YoY
CPI Core YoY
EU27 New Car Registrations
Construction Output MoM
Construction Output YoY
After ESA 2010 Adoption
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
CPI YoY
CPI Core YoY
RPI YoY
RPI Ex Mort Int.Payments (YoY)
PPI Input NSA YoY
PPI Output NSA YoY
PPI Output Core NSA YoY
Claimant Count Rate
Jobless Claims Change
Average Weekly Earnings 3M/YoY
Weekly Earnings ex Bonus 3M/YoY
ILO Unemployment Rate 3Mths
Employment Change 3M/3M
EUROZONE
Date
Time
Monday 13 October
08:00
08:45
08:45
11:00
11:00
11:00
11:00
08:00
08:00
11:00
11:00
11:00
11:00
08:00
11:00
11:00
12:00
Tuesday 14 October
Wednesday 15 October
Thursday 16 October
Friday 17 October
Indicator
Sep
Sep
Sep
Oct
Oct
Aug
Aug
Sep F
Sep F
Aug
Sep
Sep F
Sep F
Sep
Aug
Aug
BN Survey
Prior
--0.30%
0.40%
15
0
-1.60%
-0.90%
0.00%
0.80%
13.3B
0.40%
0.30%
0.70%
----
-0.60%
0.50%
0.50%
25.4
6.9
1.00%
2.20%
0.00%
0.80%
12.2B
0.10%
0.30%
0.70%
2.10%
0.00%
0.40%
UNITED KINGDOM
Date
Time
Tuesday 14 October
10:30
10:30
10:30
10:30
10:30
10:30
10:30
10:30
10:30
10:30
10:30
10:30
10:30
Wednesday 15 October
Indicator
Sep
Sep
Sep
Sep
Sep
Sep
Sep
Sep
Sep
Aug
Aug
Aug
Aug
Source: Bloomberg News
Weekly snapshot of financial market developments in the United States, euro zone and United Kingdom
BN Survey
Prior
1.40%
1.80%
2.30%
2.40%
-6.70%
-0.30%
0.90%
2.80%
-35.0K
0.70%
0.80%
6.10%
30K
1.50%
1.90%
2.40%
2.50%
-7.20%
-0.30%
0.90%
2.90%
-37.2K
0.60%
0.70%
6.20%
74K
CENTRAL BANK POLICIES
United States – FOMC
Policy interest rate: Federal funds target rate
Next Meetings: 29 October, 17 December, 28 January
Last action: -75/100 bps on 16 December 2008
Policy Outlook:
The Fed funds rate has been cut to an unprecedented target
range of 0-0.25%. Furthermore, the Fed started to purchase
assets and after Operation Twist ended in 2012, decided to
increase the size of asset purchases per month by a further
USD 40bn. A total of USD 15bn of agency MBSs and
Treasury securities are purchased per month. The QE
programme is expected to end next month, while interest
rate hikes are expected in June 2015.
FOMC minutes: 19 November, 7 January, 28 January
Eurozone – ECB
Policy interest rate: Main refinancing rate
Next Meetings: 6 November, 4 December, 22 January
Last action: -10 bps on 4 September 2014
Policy Outlook:
The
ECB
lowered
its
key
policy
rates
by
10bps
in
September. The refi rate is at 0.05% (deposit rate at 0.20%) and expected to remain at this level for an extended
period. No rate hikes are expected before 2016 at least. In
addition to liquidity injections (TLTROs), the ECB will start
purchasing private sector assets (ABS and covered bonds)
in October. As the central bank is still relatively dovish,
there are risks for more actions later this year.
United Kingdom - Bank of England
Policy interest rate: Repo rate
Next Meetings: 6 November, 4 December, 8 January
Last action: -50 bps on 5 March 2009
Policy Outlook:
Even though inflation rates are expected to remain at
elevated levels, we expect the BoE to keep rates unchanged
at 0.50% for the foreseeable future given a still weak
economic recovery. The MPC purchased about GBP 375bn of
assets. Rate hikes are expected in Q2 2015, but risks have
shifted somewhat to Q1 2015.
BOE minutes: 22 October, 19 November, 17 December
Markets Roundup
8
13 October 2014
FORECAST TABLE
2012
2013
2014
2012 2013 2014
Yearly averages
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
(quarter-on-quarter)
(year-on-year)
0.7
3.1
0.1
2.0
0.4
1.3
0.6
1.6
1.0
2.0
0.7
2.6
-0.7
1.6
0.8
1.8
0.7
1.4
0.8
1.5
2.8
1.9
1.6
(year-on-year)
1.7
1.9
1.7
1.4
1.6
1.2
1.4
1.6
1.6
1.8
2.2
1.5
1.6
Federal funds rate *
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
10 yr Treasury yield *
1.63
1.76
1.85
2.49
2.65
2.95
2.72
2.53
2.49
2.50
1.76
2.95
2.56
-0.2
-0.7
-0.5
-1.0
-0.2
-1.2
0.3
-0.6
0.1
-0.3
0.3
0.5
0.2
0.9
0.0
0.7
0.2
0.8
0.2
0.7
-0.5
-0.4
0.7
2.6
2.2
1.7
1.6
1.1
0.8
0.5
0.5
0.5
0.7
2.5
1.3
0.6
0.75
0.75
0.75
0.50
0.50
0.25
0.25
0.25
0.05
0.05
0.75
0.25
0.15
0.2
0.9
-0.5
0.3
0.0
-0.3
0.7
0.5
0.3
0.6
0.4
1.4
0.7
2.1
-0.2
1.2
0.3
1.5
0.4
1.5
0.9
0.6
1.7
2.0
2.0
1.4
1.8
1.6
1.3
1.2
1.2
1.2
1.4
2.0
1.5
1.3
1.44
1.32
1.29
1.73
1.80
1.90
1.57
1.25
1.00
1.10
1.32
1.90
1.23
-0.6
-1.9
-0.8
-1.7
0.3
-1.3
-0.3
-1.5
0.2
-0.6
0.6
0.7
-0.4
0.1
0.5
0.9
0.0
0.8
0.1
0.3
-1.3
-0.7
0.4
2.3
2.9
3.0
2.9
2.4
1.7
0.8
0.9
1.0
1.0
2.3
2.8
1.0
0.8
0.2
-0.1
0.2
0.5
0.7
0.8
2.0
0.8
1.8
0.7
2.7
0.9
3.1
0.6
3.0
0.3
2.7
0.2
2.4
0.3
1.8
2.8
United States
GDP
Consumer Price Inflation
Eurozone
GDP
(quarter-on-quarter)
(year-on-year)
Consumer Price Inflation
(year-on-year)
ECB refi rate *
Germany
GDP
(quarter-on-quarter)
(year-on-year)
Consumer Price Inflation
(year-on-year)
10 yr bond yield *
Netherlands
GDP
(quarter-on-quarter)
(year-on-year)
Consumer Price Inflation
(year-on-year)
United Kingdom
GDP
(quarter-on-quarter)
(year-on-year)
Consumer Price Inflation
2.2
2.7
2.8
2.7
2.8
2.1
1.7
1.9
1.7
1.6
2.7
2.6
1.8
BoE bank rate *
(year-on-year)
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
10 yr bond yield *
1.73
1.83
1.77
2.44
2.70
3.00
2.74
2.67
2.43
2.70
1.83
3.00
2.60
*end of period
Markets Roundup
9
13 October 2014
INTEREST RATES (3M – 1YR): ACTUALS & CURVE
Policy Interest Rates (%)
3m Interest Rates minus Policy Rate (bps)
7
350
6
300
250
5
200
4
150
3
100
50
2
0
1
-50
0
13/10/2012
13/10/2013
United States
Eurozone
-100
13/10/2012
13/10/2014
13/10/2013
United States
United Kingdom
3m Interest Rates (%)
13/10/2014
Eurozone
United Kingdom
12m minus 3m Interest Rates (%)
7.0
125
6.0
100
75
5.0
50
4.0
25
3.0
0
2.0
-25
1.0
-50
0.0
13/10/2012
13/10/2013
USD Libor
Euribor
-75
13/10/2012
13/10/2014
13/10/2013
United States
GBP Libor
12m Interest Rates (%)
13/10/2014
Eurozone
United Kingdom
1 yr Interest Rate Swap Spread (bps)
7.0
250
6.0
225
200
5.0
175
4.0
150
125
3.0
100
2.0
75
50
1.0
25
0.0
13/10/2012
13/10/2013
USD Libor
Source: Bloomberg
Markets Roundup
Euribor
0
13/10/2012
13/10/2014
13/10/2013
Eurozone
GBP Libor
13/10/2014
United Kingdom
Update: 10/13/14 8:13
10
13 October 2014
GOVERNMENT BOND YIELDS (2YR – 10YR): ACTUALS & CURVE
2 yr Benchmark govt Bond Yields (%)
10 yr minus 2 yr govt Bond Yields (%)
4.0
2.0
3.0
1.0
2.0
1.0
0.0
0.0
-1.0
13/10/2012
13/10/2013
United States
Eurozone
-1.0
13/10/2012
13/10/2014
United Kingdom
13/10/2013
United States
10 yr Benchmark govt Bond Yields (%)
Eurozone
13/10/2014
United Kingdom
10 yr Interest Rate Swap Spread (bps)
4.0
100
3.5
75
3.0
50
2.5
2.0
25
1.5
0
1.0
-25
0.5
0.0
13/10/2012
13/10/2013
-50
13/10/2012
13/10/2014
13/10/2013
United States
United States
Eurozone
Estimate of Inflation Expectations (%)*
0
4
-2
2
US TIPS 2017 (indexed to CPI)
13/10/2014
United Kingdom
United Kingdom
Real govt indexed Bond Yields (%)
-4
13/10/2012
Eurozone
13/10/2013
0
13/10/2012
13/10/2014
13/10/2013
13/10/2014
FR OATei 2017 (indexed to Euro CPI)
United States (CPI)
Eurozone (CPI)
United Kingdom (RPI)
UK IL Gilts 2017 (indexed to RPI)
* Difference between nominal government bond yield and inflation-indexed bond yield ("breakeven inflation") with the same maturity (2017)
Source: Bloomberg
Markets Roundup
Update: 10/13/14 8:13
11
13 October 2014
INTEREST RATE & BOND FUTURES: MARKET EXPECTATIONS
United States: 3m Eurodollar*
United States: 10yr treasury yield*
3.0
4.0
2.5
3.5
2.0
3.0
1.5
2.5
1.0
2.0
0.5
1.5
0.0
Current
DEC 14
MAR 15
JUN 15
SEP 15
1.0
Current
DEC 15
Euro zone: 3m Euribor
DEC 14
MAR 15
JUN 15
Euro zone: 10yr govt Bond Yield
4.0
4.5
3.5
4.0
3.0
3.5
2.5
3.0
2.0
2.5
1.5
2.0
1.0
1.5
0.5
0.0
Current
DEC 14
MAR 15
JUN 15
SEP 15
1.0
Current
DEC 15
United Kingdom: 3m Sterling
DEC 14
MAR 15
JUN 15
United Kingdom: 10yr GILT Yield
5.0
4.0
4.5
3.5
4.0
3.0
3.5
2.5
3.0
2.0
2.5
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
Current
DEC 14
Current **
MAR 15
JUN 15
0.0
Current
SEP 15
Two weeks ago
DEC 14
MAR 15
One month ago
* Forward interest rates and bond yields implied by futures contracts.
Source: Bloomberg
Markets Roundup
Update: 10/13/14 8:13
12
13 October 2014
EQUITIES, CURRENCIES AND COMMODITIES
Major Equity Markets
Major Currencies
2200
1.6
7000
1.0
1.5
2000
1800
0.9
1.4
6000
0.8
1.3
1600
1400
1.2
5000
0.7
1.1
1200
1000
4000
0.6
1.0
800
0.5
0.9
600
13/10/2012
3000
13/10/2014
13/10/2013
S&P 500 (LS)
FTSE Eurotop300 (LS)
0.8
13/10/2012
EUR/USD (LS)
FTSE100 (RS)
0.4
13/10/2014
13/10/2013
Commodity Prices
EUR/GBP (RS)
USD/GBP (RS)
Oil Price*
150
200
130
180
110
160
90
70
140
50
120
30
100
31/07/2012
10
13/10/2012
31/07/2013
DJAIG Index
Source: Bloomberg;
Update:
13/10/2013
Spot price (USD)
13/10/2014
Spot price (EUR)
10/13/14 8:13
* West Texas Intermediate (WTI) Cushing Crude Oil Spot Price
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Markets Roundup
13
13 October 2014