1. society
2. work
3. unemployment

Markets Roundup
Research
1 9 Ja n u ar y 2 0 1 5
Swiss surprised the markets as eurozone QE nears
CONTENTS
In a surprise move, the Swiss SNB attracted all attention by cutting the
Market Movers
2
target Libor rate to -75bps and abandoning the euro cap (p.2 – p.6).
Economics Weekly
Calendar
7
The
Central Bank Policies
8
programmes and 30-year US Treasury and German Bund yields.
Forecast Table
9
Chart
of
the
Week shows
the
US
Federal Reserve’s
QE
Financial markets are nervously waiting for Thursday when the ECB is
expected to ease its monetary policy stance once again. The ‘consensus
view’ is that the ABS and covered bond purchase programmes will be
Interest Rates
(3M – 1yr)
complemented by a corporate and sovereign QE programme (see also
10
the eurozone part of this MR). In other words, the ECB will have a hard
Gov’t Bond Yields
(2yr – 10yr)
time to positively surprise the markets on Thursday as expectations are
11
running high.
Interest Rate & Bond
Futures
Even though market participants already anticipate further monetary
12
easing by the ECB, market-based inflation expectations have failed to
pick-up, partly due to the continuous decline in oil prices. Judged from
Equities, Currencies &
Commodities
those inflation expectations, the ECB has lost some credibility on its
13
inflation mandate over recent months. This makes us somewhat skeptical
DATA RELEASES
that a new QE programme will boost inflation expectations this time.
What has also drawn our attention is the long-part of the yield curve. As
United States
the chart shows, the Fed’s QE programmes were - although temporarily -
20/01 Housing market index
successfully in boosting yields on the long-part of the curve as inflation
21/01 Building permits/starts
expectations also ticked up every time. We can also see that the pre-
23/01 Existing home sales
announcement of QE2 raised yields in 2010.
On the contrary, the ECB’s verbal and actual actions (e.g. Draghi’s
Eurozone
‘whatever it takes speech’, LTRO’s, TLTROs, ABS and covered bond
20/01 Producer prices (Ger)
purchase
20/01 ZEW index (Ger)
22/01 Government debt/deficit
and
the
Chart of the Week: Will the ECB raise 30-year yields this time?
Percentage
2014: The year of
ECB actions and
announcements
“Whatever it takes speech”
6
QE2 preannouncement
United Kingdom
22/01 Public finances
of
programme?
23/01 PMIs
21/01 BoE minutes
pre-announcement
Or will the ECB surprise the markets with an unexpectedly large QE
23/01 Business survey (Fr)
21/01 Labour market report
effectively
actual ECB announcement on QE next Thursday then make a difference?
22/01 ECB meeting
25/01 Greece elections
programmes,
sovereign QE) had no upward effect on long German bond yields. Will the
LTRO
OMT
announcement
5
4
3
23/01 Retail sales
2
RESEARCH
1
Duncan de Vries
0
Erwin Langewis
E: [email protected]
2007
2008
Source: Bloomberg
Important disclosures appear on the final page of this document
2009
2010
2011
2012
2013
2014
St art of QE programmes
ECB act ions/ announcements
US 30-yr Treasury yield
German 30-yr Bund yield
2015
M ARKET MOVERS: REVIEW & PREVIEW
development is taking place. The tide is clearly going
out and it is when the tide goes out that you learn
United States
who has been swimming naked as Warren Buffett
once famously quipped.
The extremely easy monetary policies pursued by the
In that sense, it seems no coincidence that ever since
major central banks and in particular by the US
the Federal Reserve started to announce tapering of
Federal Reserve in the years after the banking crisis
its QE programme one and half a year ago that
of 2008 have sown the seeds for another financial
Emerging markets are showing gradually more and
debacle in the immediate future. In that sense, last
more instability and slowing growth. Moreover, the
week’s volatility in the currency markets, due to the
Fed’s final termination of its QE programme last
Swiss National Bank’s decision to break the peg of
autumn and its stated intention to start raising
the Swiss franc with the euro, coming just on heels of
interest rates in 2015 have coincided with this sharp
a crash in the Russian ruble last month, may have
upturn of the US dollar and the downturn in oil prices,
been a next step on the road to a currency crisis.
culminating in an ultimately bearish scenario for
commodity dependent Emerging Markets and for the
Dollar and oil signal crisis is underway
USD
energy influenced US high yield markets. Not only are
falling oil prices going to hurt revenues of oil
USD per barrel (inverted axis)
130
120
0
exporting nations badly, but also loans nominated in
20
US dollars that were taken out by firms in Emerging
40
110
60
Market countries will be expensive to service in the
80
currently prevailing strong dollar market paradigm.
100
100
120
In the meantime, two other major central banks have
140
gone berserk on easy money as well. The BoJ has
90
160
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
US dollar (broad) index (LS)
been on a money printing course over the last
WTI oil prices (RS invert ed)
few years that weakened the yen substantially
The economic recession and collapse of the banking
by late 2014 and this promised to be a major
system in the West in 2008/9 may have helped to
theme for 2015 as well. However, the Japanese
drive capital into Emerging Markets and commodity
problems have to wait a little while longer, as
markets in the post recession era, as they seemed
the markets have sniffed out that the situation
more promising destinations for capital compared to
in the eurozone is of a more immediate concern,
the crisis ridden West at the time. However, the
thereby reigniting the euro crisis as a major market
Federal Reserve’s QE programmes in the years after
theme in recent weeks. Confidence in the eurozone
2009 were providing extra fuel to the commodity and
has been tarnished by the latest political turmoil in
Emerging Market fires, while as a side-effect, it
Greece, which after being already 5 years in crisis
helped
easy
modus, may or may not finally leave the eurozone if
financing conditions for US shale oil investments. But
the left-wing Syriza party wins the parliamentary
after the party comes the hangover.
elections that are scheduled for Sunday. At the same
Judging from the chart above it appears that there is
time, the ECB is signalling that it is about to go the
a distinctly negative correlation between the US
same way as the Fed did and the BoJ has been doing:
dollar and the price of oil per barrel. The chart shows
printing
that the US dollar is weak and oil prices rise when
programme, throwing extra oil on an already burning
easy money prevails such as in the 2003-2007 period
euro.
and earlier this decade. It also shows that after
All in all, the situation on global markets appears
periods where easy monetary conditions have been
to favour the US dollar as the least ugly
financing
additional
oil
output
via
money
via
a
(partly)
sovereign
QE
the norm for some time, risk aversion arrives as a
currency
shock, coinciding with a surge in the US dollar and a
surprised to see a further strengthening of the
collapse in oil prices. Not coincidentally, the crisis of
world’s reserve currency in the coming weeks if
2008 was characterised by these trends, but we can
the ECB indeed throws all caution to the wind
and
as
such
we
should
not
also see that since the second half of 2014 the same
Markets Roundup
2
19 January 2015
be
and goes all in with QE and elections in Greece
Retail sales still strong on annual basis
result in an unfavourable outcome for the EU.
Domestically,
macroeconomic
influenced by recent
market
data
have
Percentage change on a year ago
10
8
6
4
2
0
-2
-4
-6
-8
-10
-12
1999
been
developments. The
relatively strong dollar and weak oil prices are having
their predicted effects on business and consumer
confidence
levels
in
the
US:
average
business
confidence levels (for large businesses) have fallen
from
recent
highs,
while
consumer
confidence
2001
2003
2005
2007
Retail sales
surveys are improving. The ISM manufacturing index,
2009
2011
2013
Personal consumpt ion on goods
which is based on a survey among many large and
Although growth seems OK for the US, inflation has
export oriented manufacturing firms, dropped from
been falling sharply due to lower oil prices. The
its high of 58.7 in November to 55.5 to December. In
Consumer Price Index for December, which was
contrast, the NFIB small business confidence indicator
published last Friday revealed that the CPI dropped
reached a multi-year high of 100.4 in December.
0.4% compared to November and that the year-on-
Small
the
year rate fell to 0.7%. Looking forward, it can be
economy are not that much impacted by weakening
expected that the year-on-year CPI rate will fall
business
owners’
attitudes
towards
export prospects on a strong dollar, while the drop in
further in the coming months towards zero percent.
gasoline prices obviously does help them to keep
Albeit core inflation (CPI excluding the volatile food
costs down. The same can be said about consumer
and energy prices) is still at 1.6%, the doves
sentiment. The University of Michigan index surged to
within the FOMC will be up in arms to propose a
multi-year high last week, reflecting lower oil prices
delay of rate hikes by the Federal Reserve as
and relatively robust job growth (see chart below).
headline inflation is absent. Financial market
participants have already priced out many of the
Small business and consumer sentiment is up!
previously anticipated rate hikes last few weeks due
to
Index
120
recent
market
turmoil
and
falling
inflation.
Although it appears that the majority of the
110
FOMC would like to raise the Fed funds target
100
90
rate from the current lows, still the extremely
80
low inflation environment and the recent bouts
70
of volatility in financial markets will likely
60
prevent the Fed from raising rates more than
50
2000
2002
2004
2006
2008
2010
2012
NFIB small business conf idence
two times this year by 25bps. As such we have
2014
lowered our end of year forecast by 25 bps towards
M ichigan consumer sent iment index
Nonetheless,
retail
sales
figures
0.75%.
disappointed in
December according to the advanced estimate that
This week’s agenda will include a number of housing
was released last week. Still, that may have been just
market related figures. The NAHB index (on Tuesday)
a blip in an otherwise upward trend. The chart on the
is expected to climb from 57 to 58 and housing starts
right shows that year-on-year growth in both retail
and building permits are due for Wednesday and are
sales and personal spending on goods is growing at a
expected to confirm that the US housing market is
rate of around 3.5% and as headline inflation has
generally moving sideways.
collapsed close to zero this is likely the inflation
adjusted growth rate as well. Real personal spending
growth will likely continue to be relatively strong on
Eurozone
average into early 2015, helping the US economy to
grow at a rate of 3% in Q1.
We fully understand why the ECB wants to
embark
on
another
round
of
quantitative
easing: it has a price stability mandate, which is
defined as maintaining inflation rates “below, but
Markets Roundup
3
19 January 2015
close to 2%”. The CPI inflation rate is not close to
new
that percentage.
tightening
Whether
more
monetary
easing
(or,
financial
and
economic
monetary
crisis.
policy
Accordingly,
will
become
more
increasingly difficult without triggering a crisis,
specifically, QE) helps the economy is another
just as that coming with no announcement on
question. With only a few days before the ECB
Thursday is no option anymore.
meeting, we are discussing the implications of a large
scale ECB purchasing programme for the eurozone
Whether QE will help the economy in the short-term
economy.
is dubious as well as the link between rising financial
asset prices and the ‘real’ economy so to say is
As the ECB has an inflation/price stability mandate,
weaker in the eurozone than in the US. The chart
its logical to start the discussion with this topic.
shows that the savings rate in the eurozone
In the past, we regularly discussed the effects of QE
hasn’t strongly responded to wealth changes in
on official price indices and inflation expectations
the past.
(e.g. in the Special Note QE: no panacea of 5
December). We concluded that official price indices
Wealth effects haven’t boosted spending drift
and inflation expectations remained subdued
Percentage
EUR 1,000bn
(expectations rose only temporary at best),
15.5
50
despite massive QE programmes, but that there
15.0
45
has
been
widespread
inflation
in
financial
14.5
40
14.0
35
in
13.5
30
December and the GDP deflator rising at an annual
13.0
25
markets (i.e. rising asset prices).
Moreover,
with
core
CPI
inflation
at
0.7%
pace of 0.9% in Q3, we see no positive economic
12.5
2000
effects of raising inflation measures to 2%.
20
2002 2004
2006 2008
Household saving rate (LS)
2010
2012
2014
Household asset s (housing and f inancial asset s) (RS)
Nevertheless, the ECB may hope that the programme
itself will support economic growth. Such support can
The ongoing deleveraging process is one reason not
come from wealth effects, lower interest rates or the
to expect much from the positive effects of QE. That
improvement
said, banks do not seem to want another round
of
purchasing
power
via
a
lower
exchange rate.
of liquidity given the relatively limited take-up in the
First, starting with so-called wealth effects and
ECB’s TLTROs even though another EUR 210bn of the
interest rates; asset prices have been boosted to
old LTRO’s will be repaid this and next month. Excess
elevated levels due to the creation of new money by
liquidity in the eurozone’s financial system is close to
central banks over recent years. Valuations of most
EUR 186bn. In such an environment, pushing extra
risky asset classes are above longer-run levels, while
liquidity in the markets can only result in
bond yields for the public and private sector are close
misallocations of capital. The past years, financial
to or at record low levels (e.g. 5-year German
markets have been the main beneficiaries and it is
government bond yields being negative is - besides
therefore tempting to point to that direction again,
being a historical anomaly - an indirect tax for
but money can easily ‘run’ to other places. Indeed,
citizens). Such policies promote a misallocation of
we previously expressed our concerns about rising
capital, lowering longer-term growth potential and
volatility not only in financial markets, but also in FX
making the economy vulnerable to shocks (e.g.
markets.
triggered by a collapse of asset prices). Can and
should the ECB raise asset prices to even higher
As
levels?
depreciating since May last year and it is probably no
regards
FX
markets,
the
euro
has
been
The risk that financial markets become even
coincidence that this was the moment that Draghi
more
hinted for further actions a month later. Monetary
addicted
to
central
banks
than
they
already are - due to more money ‘printing’ - is
policy
high. Boosting asset prices via QE increase the
especially as the extremeness of those policies poses
importance of financial markets for the economy as a
risks for volatility in currencies. Nevertheless, the
whole as a collapse of asset prices could result in a
ECB can increase inflationary pressures via the
Markets Roundup
4
is
very
important
for
FX
developments,
19 January 2015
depreciation of the euro as it raises import prices.
especially for the eurozone. Last week’s decision felt
And that is another effect that is not necessarily a
a little bit like a ‘Lehman’ moment. More than ever
positive one.
before (to quote Draghi) it’s up to the ECB to do
Indeed, a falling exchange rate helps to improve the
whatever it takes to save the euro!
competitive position of exporters, but the fact is that
It was a fascinating, non-anticipated move from the
the
current
central bank that raised questions about the
account surplus (i.e. it exports more than it
credibility of the SNB (three days earlier the SNB’s
imports).
vice-chairman said that “we are convinced that the
eurozone
already
Domestic
has
demand
a
large
has
to
increase,
exporters don’t need additional support.
minimum exchange rate must remain the cornerstone
of
Not an export, but domestic demand problem
our
monetary policy”), the effects on the
economy (e.g. banks that operate in other countries,
export industry and tourism) and the deflationary
Percentage of GDP
3.0
impact. Moreover, there are concerns about non-
2.0
Swiss banks with exposures to loans in Swiss francs
1.0
in Poland and Austria. Swiss equity prices declined
and the 10!-year bond yield went temporarily
0.0
negative.
-1.0
-2.0
2000
2002
2004
2006
2008
2010
2012
As regards the deflationary impact, CPI inflation was
2014
already
Eurozone current account balance
-0.1%
(yoy)
in
December.
Apparently,
something happened that made the Swiss fear for the
Second, but a related topic, imported inflation makes
consequences of maintaining the pledge. It’s quite
products and services more expensive. This hurts the
easy to see what that may have been (see chart).
purchasing power of consumers and raise costs of
The Swiss probably acknowledged that maintaining
businesses. In other words, it is dubious whether a
the cap was the work of a madman as the ECB keeps
falling currency boosts national income and
on pushing the euro down. In our view, it was
therefore solves the domestic demand problem.
another example of the limits of monetary
policy. Second, it confirms our expectation that FX
Indeed, there may be another reason for engaging in
volatility will be higher this year… all caused by
sovereign QE: monetising public debt. It is highly
central bank aggressiveness.
controversial and not consistent with EU primary law,
All in, this was certainly not a happy start of the year.
but
we
can’t
help
to
think
that
public
debt
purchases have a lot in common with pure debt
monetisation
whereas
in
potential
current
circumstances.
purchases
under
Limits of monetary policy in Switzerland?
And,
the
% of nominal GDP
OMT
90
programme were subject to certain conditions, this
80
week we may see the ECB announcing a
60
70
QE
50
programme without any conditions attached. Will
40
governments really spend the same amounts as if
30
borrowing rates would be at higher levels (i.e.
20
10
without the ECB)? We doubt they will.
0
1997
1999
2001 2003
SNB asset s
Staying in the world of FX. The Swiss central
2005
2007 2009
2011
2013
M onet ary base (M 0)
bank (SNB) abandoned the EUR/CHF floor of
1.20 on Thursday. The decision to lower the interest
Two events will dominate this week. First, the ECB
rate on sight deposit account balances that exceed a
meeting will be on Thursday. A big buyer of euro
given exemption threshold of -0.75% couldn’t initially
assets (the SNB) withdrew from the markets a week
prevent an appreciation of the Swiss franc of 41%
before the ECB is expected to announce actions that
against
franc
basically contradict the Bundesbank’s norms and
weakened again, but remained close to 1.03 per
values. A corporate, government and potentially
euro. This decision has been huge for the Swiss, but
agency bond purchase programme is expected to be
the
Markets Roundup
euro.
Somewhat
later,
the
5
19 January 2015
announced with purchases taking place via national
Apart from the political landscape, macroeconomic
central banks (see also the MR of last week).
data has softened a bit the past months. Yet, with
Second, the Greek elections on Sunday will attract
PMI
attention. Opposition party Syriza is still leading
‘neutral’ 50 level and the continuing strong
opinion
polls
over
the ruling conservative
business
surveys
still
well
above
the
New
improvement of labour market conditions, there
Democracy. Based on the polls, these parties will not
is nothing to be too worried about for the short-
be able to secure an outright majority (151 seats)
term.
and therefore require support from other parties even
What is, however, important to consider is that
though
seats.
the UK’s private and public sector debt levels
Additionally, whether Syriza can secure an outright
are at elevated levels. The housing market, for
majority will also depend on the percentage of the
example,
vote that goes to parties that don’t enter parliament
housing market survey confirmed last week. The
(i.e. not obtain at least 3% of the votes) as those
survey suggests that prices in London may stagnate
the
winner
receives
50
‘bonus’
remains
under
pressure
as
the
RICS
votes will be ‘redistributed’ to the other parties.
at
Accordingly, uncertainty could remain also after the
materialisation of risks (e.g. political events) could
election, which is bad news for the country as there
easily trigger a crisis event.
are
tax
Developments in the rest in the world, combined with
payments and banks that having resorted to the
low CPI inflation rates, are therefore probably one of
Emergency Liquidity Assistance programme.
the main reasons why market participants started to
As regards macroeconomic data, the German ZEW
push back a first rate hike to Q1 of next year out of
investor confidence index and PMIs will attract most
fear for the impact on the UK economy.
already
reports
about
people
delaying
best
the
coming
months.
Consequently,
a
attention. Small improvements are expected.
That
said,
CPI
inflation
was
only
0.5%
in
December after 1.0% in November. Expect the
United Kingdom
annual rate to drop into negative territory the coming
months. And with the BoE having an inflation
Given all the fireworks in the rest of the world,
mandate, we have become sceptical about a June
developments in the UK are getting relatively little
rate hike as well, even though the core inflation rate
attention at the moment.
rose 0.1% to 1.3%. Therefore, we now expect a
But this will probably change the coming months as
first
the general elections will be held on 7 May. Most polls
underlining that risks are clearly for an even
show a small lead for the Labour party over the
later rate hike.
25bps
rate
hike
only
in
Q4,
while
Tories/Conservatives, each grabbing close to 30%
of the votes. Indeed, Cameron was heavily criticised
This week’s agenda will focus on the labour market
for not explicitly mentioning immigration or health
report. Even though employment growth probably
services as a top six issue of the Tories last week.
slowed in November, it remained solid. Accordingly,
Let’s see what this means for support for the party
the unemployment rate may decline to 5.9%, while
the next few weeks. That said, if this affects the polls,
wage growth may pick-up.
the
UK
independence
party
may
be
the
main
The BoE minutes should show whether we were right
beneficiary, which is currently on about 16% in the
by delaying our expectation for a first rate hike.
polls.
As
a
reminder,
promised
a
the
Conservative
referendum
on
the
Party
UK’s
law
EU
membership in 2017, while the UKIP party is no
fan of the EU at all as we know (they want a
BREXIT referendum next year already). Gains in the
polls and especially elections for these parties would
be a blow for the EU (even though it may ultimately
be a blow for the UK as well), which may mean that
the EU will get a little bit more flexible towards the
UK’s demands the coming months (or years).
Markets Roundup
6
19 January 2015
ECONOMIC CALENDAR 19 JANUARY – 23 JANUARY, 2015
UNITED STATES
Date
Time
Tuesday 20 January
16:00
14:30
14:30
14:30
14:30
15:00
17:00
14:30
15:45
16:00
16:00
Wednesday 21 January
Thursday 22 January
Friday 23 January
Indicator
US
US
US
US
US
US
US
US
US
US
US
NAHB Housing Market Index
Housing Starts
Housing Starts MoM
Building Permits
Building Permits MoM
FHFA House Price Index MoM
Kansas City Fed Manf. Activity
Chicago Fed Nat Activity Index
Markit US Manufacturing PMI
Existing Home Sales
Existing Home Sales MoM
GE
EC
EC
GE
GE
EC
EC
EC
EC
EC
FR
GE
GE
GE
EC
EC
EC
BE
GE
PPI YoY
ECB Survey of Professional Forecasters
Euro Area Q3 Government Deficit
ZEW Survey Current Situation
ZEW Survey Expectations
Euro Area Q3 Government Debt
ECB Main Refinancing Rate
ECB Deposit Facility Rate
ECB Marginal Lending Facility
Consumer Confidence
Business Confidence
PMI
Markit Germany Services PMI
Markit/BME Germany Composite PMI
Markit Eurozone Manufacturing PMI
Markit Eurozone Services PMI
Markit Eurozone Composite PMI
Business Confidence
Import Price Index YoY
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
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
Bank of England Minutes
Public Finances (PSNCR)
Public Sector Net Borrowing
PSNB ex Banking Groups
CBI Trends Total Orders
CBI Trends Selling Prices
CBI Business Optimism
Retail Sales Ex Auto YoY
Retail Sales Incl. Auto YoY
Jan
Dec
Dec
Dec
Dec
Nov
Jan
Dec
Jan P
Dec
Dec
BN Survey
Prior
58
1042K
1.30%
1055K
0.30%
0.30%
10
-54
5.07M
2.70%
57
1028K
-1.60%
1035K
-5.20%
0.60%
8
0.73
53.9
4.93M
-6.10%
EUROZONE
Date
Time
Tuesday 20 January
08:00
10:00
11:00
11:00
11:00
11:00
13:45
13:45
13:45
16:00
08:45
09:30
09:30
09:30
10:00
10:00
10:00
15:00
01/28
Thursday 22 January
Friday 23 January
BN Survey
Prior
Dec
-1.40%
-0.90%
Jan
Jan
13
40
10
34.9
0.05%
-0.20%
0.30%
-10.5
95
51.7
52.5
52.4
51
52
51.7
-6.2
--
0.05%
-0.20%
0.30%
-10.9
94
51.2
52.1
52
50.6
51.6
51.4
-6.9
-2.10%
Indicator
Jan-22
Jan-22
Jan-22
Jan A
Jan
Jan P
Jan P
Jan P
Jan P
Jan P
Jan P
Jan
Dec
UNITED KINGDOM
Date
Time
Wednesday 21 January
10:30
10:30
10:30
10:30
10:30
10:30
10:30
10:30
10:30
10:30
12:00
12:00
12:00
10:30
10:30
Thursday 22 January
Friday 23 January
BN Survey
Prior
Dec
Dec
Nov
Nov
Nov
Nov
2.60%
-25.0K
1.70%
1.90%
5.90%
74K
2.70%
-26.9K
1.40%
1.60%
6.00%
115K
Dec
Dec
Dec
Jan
Jan
Jan
Dec
Dec
-9.0B
9.7B
5
--3.40%
3.00%
6.7B
13.4B
14.1B
5
7
8
6.90%
6.40%
Indicator
Source: Bloomberg News
Weekly snapshot of financial market developments in the United States, euro zone and United Kingdom
CENTRAL BANK POLICIES
United States – FOMC
Policy interest rate: Federal funds target rate
Next Meetings: 28 January, 18 March, 29 April
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. The QE3 programme has ended. We expect the
first interest rate hike in June 2015.
FOMC minutes: 28 January, 18 March, 29 April, 17 June
Eurozone – ECB
Policy interest rate: Main refinancing rate
Next Meetings: 22 January, 5 March, 15 April, 3 June
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 2017 at least. In
addition to liquidity injections (TLTROs), the ECB is
purchasing private sector assets (ABS and covered bonds).
As the central bank is still dovish, we anticipate more
actions in January.
United Kingdom - Bank of England
Policy interest rate: Repo rate
Next Meetings: 5 February, 5 March, 9 April, 11 May
Last action: -50 bps on 5 March 2009
Policy Outlook:
Inflation rates are falling due to lower energy prices. We
expect the BoE to keep rates unchanged at 0.50% at least
till mid-2015. Rate hikes are expected by late-2015, but
risks to our forecast are skewed towards a later start.
BOE minutes: 21 January, 18 February, 18 March
Markets Roundup
8
19 January 2015
FORECAST TABLE
2013
2014
2015
2013 2014 2015
Yearly averages
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
United States
GDP
(quarter-on-quarter)
(year-on-year)
1.1
2.3
0.9
3.1
-0.5
1.9
1.1
2.6
1.2
2.7
0.9
2.7
0.9
4.2
0.7
3.7
0.3
2.7
0.3
2.2
2.2
2.5
3.2
Consumer Price Index
(year-on-year)
1.5
1.2
1.4
2.1
1.8
1.2
0.3
0.0
0.3
1.2
1.5
1.6
0.5
Federal funds rate *
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.50
0.75
1.00
0.25
0.25
0.63
10 yr Treasury yield *
2.61
3.03
2.72
2.53
2.49
2.17
1.80
2.00
2.20
2.30
2.61
2.48
2.08
0.1
-0.3
0.2
0.4
0.5
1.2
0.1
0.8
0.2
0.8
0.2
1.0
0.2
0.8
0.2
0.9
0.2
0.9
0.2
0.9
-0.4
1.0
0.9
1.3
0.8
0.6
0.6
0.3
0.2
-0.3
-0.4
-0.3
0.2
1.3
0.4
-0.3
0.50
0.25
0.25
0.25
0.05
0.05
0.05
0.05
0.05
0.05
0.75
0.05
0.05
0.3
0.6
0.4
1.4
0.7
2.2
-0.1
1.3
0.1
1,,1
0.3
1.1
0.2
0.5
0.2
0.8
0.3
0.8
0.2
1.0
0.2
1.3
0.8
1.6
1.3
1.2
1.1
0.8
0.5
0.0
0.0
0.0
0.4
1.5
0.9
0.1
1.80
1.94
1.56
1.25
0.94
0.67
0.70
0.80
1.00
1.00
1.63
1.11
1.00
0.2
-0.6
0.6
0.7
-0.4
0.1
0.6
1.1
0.1
1.0
0.4
0.8
0.5
1.6
0.4
1.4
0.5
1.8
0.3
1.7
-0.7
0.8
1.6
2.8
1.6
1.1
1.0
0.9
0.9
0.4
0.3
0.4
0.7
2.5
1.0
0.5
0.9
1.7
0.6
2.7
0.7
2.9
0.9
3.2
0.7
3.0
0.5
2.8
0.3
2.4
0.3
1.8
0.3
1.4
0.3
1.3
1.7
3.0
1.7
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
2.7
2.1
1.7
1.7
1.5
0.9
0.0
0.3
0.5
0.8
2.6
1.5
0.4
BoE bank rate *
(year-on-year)
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.75
0.50
0.50
1.00
10 yr bond yield *
2.71
3.03
2.73
2.67
2.36
1.76
1.50
1.80
1.80
2.00
2.34
2.38
1.78
*end of period
Markets Roundup
9
19 January 2015
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
19/01/2013
19/01/2014
United States
-100
19/01/2013
19/01/2015
Eurozone
19/01/2014
United States
United Kingdom
3m Interest Rates (%)
19/01/2015
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
19/01/2013
19/01/2014
USD Libor
Euribor
-75
19/01/2013
19/01/2015
19/01/2014
United States
GBP Libor
12m Interest Rates (%)
19/01/2015
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
19/01/2013
19/01/2014
USD Libor
Source: Bloomberg
Euribor
0
19/01/2013
19/01/2015
GBP Libor
19/01/2014
Eurozone
19/01/2015
United Kingdom
Update: 1/19/15 8:03
GOVERNMENT BOND YIELDS (2YR – 10YR): ACTUALS & CURVE
Markets Roundup
10
19 January 2015
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
19/01/2013
19/01/2014
United States
-1.0
19/01/2013
19/01/2015
Eurozone
United Kingdom
19/01/2014
United States
10 yr Benchmark govt Bond Yields (%)
Eurozone
19/01/2015
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
19/01/2013
19/01/2014
-50
19/01/2013
19/01/2015
19/01/2014
United States
United States
Eurozone
Eurozone
19/01/2015
United Kingdom
United Kingdom
Real govt indexed Bond Yields (%)
Estimate of Inflation Expectations (%)*
4
0
2
-2
0
-4
19/01/2013
US TIPS 2017 (indexed to CPI)
19/01/2014
FR OATei 2017 (indexed to Euro CPI)
-2
19/01/2013
19/01/2015
UK IL Gilts 2017 (indexed to RPI)
19/01/2014
United States (CPI)
Eurozone (CPI)
19/01/2015
United Kingdom (RPI)
* Difference between nominal government bond yield and inflation-indexed bond yield ("breakeven inflation") with the same maturity (2017)
Source: Bloomberg
Update: 1/19/15 8:03
INTEREST RATE & BOND FUTURES: MARKET EXPECTATIONS
Markets Roundup
11
19 January 2015
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
MAR 15
JUN 15
SEP 15
DEC 15
1.0
Current
MAR 16
Euro zone: 3m Euribor
MAR 15
JUN 15
SEP 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
MAR 15
JUN 15
SEP 15
DEC 15
1.0
Current
MAR 16
United Kingdom: 3m Sterling
MAR 15
JUN 15
SEP 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
MAR 15
Current **
JUN 15
SEP 15
0.0
Current
DEC 15
Two weeks ago
MAR 15
JUN 15
One month ago
* Forward interest rates and bond yields implied by futures contracts.
Source: Bloomberg
Markets Roundup
Update: 1/19/15 8:03
12
19 January 2015
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
19/01/2013
3000
19/01/2015
19/01/2014
S&P 500 (LS)
FTSE Eurotop300 (LS)
0.8
19/01/2013
EUR/USD (LS)
FTSE100 (RS)
Commodity Prices
0.4
19/01/2015
19/01/2014
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
19/01/2013
31/07/2013
DJAIG Index
Source: Bloomberg;
Update:
19/01/2014
Spot price (USD)
19/01/2015
Spot price (EUR)
1/19/15 8:03
* West Texas Intermediate (WTI) Cushing Crude Oil Spot Price
Disclaimer
Certain statements in this presentation prepared by NIBC Bank N.V. (“NIBC”) are not historical facts but “forward-looking”
statements. Words such as “believe”, “anticipate”, “estimate”, “expect”, “intend”, “predict”, “project”, “could”, “may”, “will”, “plan”
and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such
statements. These statements are largely based on NIBC’s current view with respect to future events and financial trends that we
believe may affect the economy, the credit market in general and interest rates. By their very nature, forward-looking statements
involve uncertainties and are subject to certain risks, including, but not limited to, the risks and uncertainties as addressed in this
presentation, and/or changes in general economic conditions, changes in credit spreads or interest rates. The forward-looking
statements speak only as of the date of this presentation. NIBC does not undertake any obligation to update or revise forwardlooking statements contained in this presentation, whether as a result of new information, future events or otherwise. The
information and opinions presented here have been obtained or derived from public sources believed by NIBC to be reliable at the
date of publication of this presentation. No warranty, prediction or representation is made as to their accuracy or completeness and
they are subject to change without notice. NIBC does not make any representation, warranty or prediction that the results
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Markets Roundup
13
19 January 2015