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Foreign Exchange Strategy Fixed Income Strategy Fixed Income Research Emerging Markets Strategy Economics
Weekly commentary on economic and financial market developments
Global Views
Corporate Bond Research
Global Views is available on scotiabank.com, Bloomberg at SCOT and Reuters at SM1C
April 15, 2016
Contact Us
Economics
Earnings And The ECB 2-5
Derek Holt
Global Auto Sales Continue To Strengthen 6
Carlos Gomes
Asia-Pacific Regional Outlook 7-8
Tuuli McCully
Why Did Markets React Pessimistically To China’s Q1 GDP? 9
Derek Holt
Fixed Income Strategy
Eurozone Deflationary Pressures Receding 10-11
Frédéric Prêtet
Key Data Preview A1-A2
Key Indicators A3-A4
Global Auctions Calendar A5-A6
Events Calendar A7
Global Central Bank Watch A8
Latest Economic Statistics A9-A10
Latest Financial Statistics A11
Global Forecast Update Report
Forecasts & Data
This Week’s Featured Chart
Please see the Global Forecast Update, March 2, 2016, for our latest economic, interest and exchange rate and commodity price forecasts and the Foreign Exchange Outlook, April 2016, for more detailed currency forecasts and commentary.
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US Jobless Claims At A Record Low%
Initial Jobless Claims / Labour Force Population
Source: Scotiabank Economics, BLS.April labour force population estimate based on average year-to-date m/m % growth.
Economics
Global Views
April 15, 2016
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Earnings And The ECB
Please see our full indicator, central bank, auction and event calendars on pp. A3-A8.
United States — Earnings Season Shifts Into Higher Gear
The main focus next week will be upon the US earnings season that swings into higher gear. Data and Fed-speak will likely play secondary if not downright tertiary roles, with the main focus being upon whether the manufacturing sector can continue to build upon recently more constructive data.
103 firms listed on the S&P500 will be releasing over the course of the week. Breadth will increase from the usual focus on financials at the start of each season. There are nevertheless influential financials still on tap, including Morgan Stanley, Goldman Sachs, BoNYM, Visa, Amex and several regional banks. Beyond financials, focal points will include Amazon.com, Microsoft, Intel, Yahoo, Netflix, GM, GE, Caterpillar, PepsiCo, Coca-Cola, Southwest, Starbucks, and McDonald’s. Out of only 30 firms that have released thus far, 25 have beaten analysts’ earnings expectations while 55% have beaten on revenues. Most of the beats have been outside of financials with some important exceptions. In fact, there have been more earnings beats than misses relative to analysts’ expectations across each of the main nonfinancial market sectors.
On the fundamentals, I’d really only pay attention to the Philly Fed metric on Thursday. Not because it is a beacon of stability. Far from it, as forming a call for this highly volatile reading is very difficult. But the thing to watch for will be whether it can repeat what was a strong March for regional and national manufacturing readings in support of a manufacturing renaissance of sorts. If so, then dollar worries would dissipate in keeping with the fact that the Fed’s trade-weighted broad dollar index has fallen back to where it was last Fall and has therefore unwound all of the run-up into the December FOMC and on the back of safehaven seeking earlier this year. If not, then we risk being right back to square one on at least this segment of the US economy. My hunch is that it will be difficult to repeat the pace of improvement registered not only in March but over the past several months that has restored the Philly Fed to the highest print since a year-ago February. But a continued surge may not be necessary as opposed to simply remaining in the black. March was the only expansionary signal from this metric since last August. One has to acknowledge that this pick-up is somewhat contradicted by little progress in reducing bloated inventories across the full supply chain from manufacturers through wholesalers and retailers and particularly the role played by manufacturers in that regard (chart 1). A key question is how much of the rise in the inventory-to-sales ratio has occurred in anticipation of firmer demand, how much has been due to a fundamental shift in supply management in favour of higher inventories to more effectively meet rapid ordering capabilities (think Amazon prime…), or simply manufacturing bloat. Before the recent improvement in production signals, one might have tilted the story more toward the bloat interpretation on sub-par demand but — if constructive production-side readings continue — then it would tilt the balance more toward the other explanations.
Housing data will also be in focus with March starts and permits on Tuesday, and existing home sales on Wednesday. The results could be divided. Starts are expected to give back some of the prior month’s surge that itself unleashed pent-up construction activity following January’s harsh winter storms. Resales are expected to revert
Derek Holt 416.863.7707 [email protected]
THE WEEK AHEAD
Next Week's Risk Dashboard
US earnings
ECB
US, European manufacturing
Chinese property prices
US housing
Fed speak
CDN CPI, retail sales
BoC testimony
BoK, BI
RBA guidance
Riksbank
NY primaries
NZ CPI
UK macro
Chart 1
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High US Inventories A Barrier To A Manufacturing Recovery?
inventory / sales
Manufacturing, Wholesale & Retail
Trade I/S ratio
Source: Scotiabank Economics, U.S. Census Bureau.
Manufacturing I/S Ratio
Economics
Global Views
April 15, 2016
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higher after a 7% m/m drop in February that probably reflected lagged closing on weather-interrupted sales in January. Markets will have to wait until the week after for a fresher home sales reading sans weather influences when new home sales will be released; they typically reflect appetite within the month, versus resales which reflect lagged closures on buyer appetite since at least the beginning of the year.
There will only be two Fed speakers on the calendar next week, barring unscheduled interviews on outlets like CNBC. NY Fed President William Dudley speaks on Monday potentially on the key issue of policy divergence given the speech title is “The Transatlantic Economy: Convergence Or Divergence.” Minneapolis Fed President Kashkari (alternate 2016, voting 2017) speaks the same day.
The New York primary will be held Tuesday. This site has Hillary Clinton facing a 98% chance of victory eclipsed only by Donald Trump’s “more than” 99% chance of winning the Republican race. Dare you to make a market on the tail odds. There are only two key dates left on the primaries calendar: April 26th (Connecticut, Maryland and Pennsylvania) and June 7th (California and New Jersey). Most of these remaining primaries are thought to favour Trump and Clinton except much closer races in Connecticut (for both Republicans and Democrats) and California for the Republicans (with Cruz in the lead). The Democratic National Convention will be held on July 25-28 but the potentially hotter Republican National Convention will be a week before on July 18-21st.
Canada — Dovish Follow-Up To The BoC’s Mixed Messages
All of next week’s market risk stemming from the domestic calendar will be unveiled on Tuesday and Friday.
The main risk is likely to be expressed in the simultaneous release of March CPI and February retail sales data next Friday morning. A dovish tone is likely. Recall that consumers bolted into the new year and spent wads of cash, driving retail sales to a 2.1% m/m gain in January that was all driven by higher volumes amidst unchanged prices. That, in turn, was on the heels of a 2¼% drop in retail sales volumes during the prior month of December. We expect some payback in February’s numbers along this volatile trend. As for inflation, the key will be whether evidence mounts that core inflation pressures are indeed proving to be transitory. The variety of core inflation measures that the BoC references are mixed (chart 2) while markets still primarily focus upon the definition that excludes the eight most volatile components and the effects of indirect taxes which has been under somewhat downward pressure since last summer. Canada also releases wholesale trade on Wednesday which we’ll use as a small component in a monthly GDP add-up but that typically has little if any market effect.
Nine firms listed on the TSX will release earnings next week as Canada’s earnings season lags behind the US. Among the names will be Rogers and CP Railway. Canada auctions 10 year bonds on Wednesday.
BoC Senior Deputy Governor Carolyn Wilkins will join the Spring IMF meetings in Washington and participate in a panel on Sunday (agenda here). The panel’s topic suggests low market risk and is “Digital Disruptions To the Financial System: Opportunities And Threats.”
Higher market risk may stem from when Wilkins and her boss — Governor Poloz — testify before the House of Commons Standing Committee on Finance on Tuesday which will be preceded by an opening statement from Governor Poloz. This may be an opportunity for Poloz to further clarify the mixed set of messages provided in the latest policy statement, Monetary Policy Report and the more dovish sounding press conference following their release. See our assessment here. Rarely, however, is this testimony highly impactful to markets and in fact I struggle to recall such a time.
Derek Holt 416.863.7707 [email protected]
THE WEEK AHEAD
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Falling Or Steady Core CPI?
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Source: Scotiabank Economics, Bank of Canada.
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Chart 2
Economics
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April 15, 2016
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Asia — Politics And The Bank of Korea
A little calmer week by way of Asia-specific market risks may be welcomed following this past one that was chock full of China risk. In fact the Asian calendar is unlikely to carry significant influences upon the global risk trade versus the influence of more regional effects. That doesn’t mean it will be boring by way of local trading opportunities and for anyone with a passion for economics and markets.
At the top of such potential regional effects will be a pair of regional central bank announcements. Against the fanciful notion that central banks operate in a political vacuum is the very real potential impact of the recent South Korean parliamentary election on the outlook for the Bank of Korea that issues a rate decision next week. The ruling Saenuri Party had sought to introduce legislation that would have changed the act governing the Bank of Korea within 100 days of an election victory in order to enable the Bank of Korea to employ quantitative easing tools including buying mortgage-backed securities and bonds issued by the government’s Korea Development Bank. A Saenuri Party official had said that “The era is over when the central bank’s role was limited to inflation fighting.” There was a time when that would have spooked markets. At stake was a serious challenge to central bank independence in a significant market and on the heels of four new dovish candidates appointed to the BoK’s board but yet to be affirmed by President Park. The fact that the ruling party unexpectedly lost the election by a thin 103-102 seat margin to the opposition Minjoo Party threatens the ability of President Park to advance legislative initiatives due to higher odds of political gridlock. It puts a question mark over appointees to replace those who will be stepping down on April 20th and adds to uncertainty over potential changes to the BoK’s mandate now and in future. Further sacrificing central bank independence may be on hold for now, with the issue up in the air until at least the next Presidential election in December 2017 when President Park must step down after a one-term limit. It’s unclear what policy path will unfold from here; the ruling Saenuri party had favoured monetary policy easing but the victorious Minjoo party favours fiscal policy action and who knows whether either side will be able to advance a stimulus agenda. As a consequence, the won has weakened against all major foreign currencies since the election results (see chart) on concerns that pursuing broader economic reforms will be in a prolonged holding pattern that limits the government’s ability to respond to growth challenges. The risk to this thinking is therefore that the BoK cuts implicitly out of concern that growth-enhancing fiscal and regulatory policies may be more uncertain. Moody’s has already weighed in by referencing developments as ‘credit negative.’
A minority of forecasters expect Bank Indonesia to cut its reference rate by 25bps but the vast majority within consensus expect it to remain at 6.75%. Clearly the risk is tilted toward easing following 75bps in reductions this year. A complicating factor is the desire to switch toward a different policy reference rate over coming months. At present, BI uses a discount rate and it aims to replace it with a 7 day reverse repurchase rate on the hope that controlling this rate will be more impactful to markets. BI has stated that out of the 75bps in rate cuts this year, lending rates have fallen by less than 5bps, thereby implying that monetary policy transmission is ineffective under the existing rate apparatus as a means of influencing liquidity, markets and fundamentals.
New Zealand releases inflation figures on a quarterly basis, not monthly as is common elsewhere aside from its neighbour across the Tasman Sea. The first glimpse at NZ inflation this year is expected to be roughly in line with the pattern evidenced elsewhere: slightly firmer upward pressure but with big global variations. The ‘15Q4 inflation print was the softest (+0.1% y/y) since 1999 on the back of the Asian financial crisis. Next week’s consensus is for a lofty 0.4% y/y. Upward traction is expected to build fairly rapidly — as elsewhere — with the Bloomberg consensus expectation pointed toward a reading around 1½% y/y by year-end. Reflation is underway across numerous markets, but how durable it will prove to be is something that only a lot more data and commodity market developments will inform.
Derek Holt 416.863.7707 [email protected]
THE WEEK AHEAD
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New Zealand Dollar
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Source: Bloomberg, Scotiabank Economics.
KRW % change since
Apr 13, 2016
Won Loses On ElectionChart 3
Economics
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April 15, 2016
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Minutes to the April 5th Reserve Bank of Australia meeting that left open an easing bias, and a speech by RBA Governor Glenn Stevens in NYC on Tuesday evening will keep that central bank on radar screens. Chinese property prices will be released into the Monday Asian open, and trade figures will be released by Japan and India.
Europe — ECB Jawboning Post-Fed
ECB President Mario Draghi may be a frustrated man. It’s unreasonable to expect much traction on inflation this soon after introducing two rounds of stimulus additions over the past four months, but at least he may be mildly encouraged by firming evidence of a bottoming in inflation figures with upside potential over the duration of the year. Nevertheless, if the aim of the announcements in December and March was to depreciate the euro as one way of stoking more sustainable inflation expectations, then the extra stimulus has to be viewed as unsuccessful through that lens. Since the early December meeting, the euro has appreciated by over 10% versus pound sterling, almost 6% versus the USD, and 6-7% versus the onshore- and offshore-yuan. Draghi and the Monetary Policy Council will get a chance to reassess on Thursday of next week. The ECB may well jawbone the currency but hold off extra steps and leave the deposit facility rate unchanged at -0.4% for now, so soon after its actions just over one month ago, while possibly teeing up openness toward doing more. What may have thrown a wrench into the ECB’s plans continues to be our belief that part of what motivated a more dovish Federal Reserve was to push back on the efforts of other major central banks to depreciate their currencies at the expense of greenback strength. This relative policy shift and the reversal of safehaven seeking earlier this year have combined to achieve success in depreciating the USD and export disinflation right back to Draghi’s doorstep. Coordinated global central bank stimulus, meet central bank rivalry. An added complication may be grilling in the press conference over how the ECB views Brexit risks.
Sweden’s Riksbank is also expected to stand pat on the same day as the ECB and leave its rate at -50bps. Obviously the risk is slanted toward a surprise cut. To that effect, comments by a former Riksbank board member and former colleague of Ben Bernanke when the two were at Princeton heated up the debate over the effective lower bound this past week. Lars Svensson remarked that “The Riksbank can quite certainly cut rates further without significant problems but I don’t dare say how much, whether to minus 1, 1.25 or 1.5 per cent.” There is a lower effective bound that gets invoked at the point at which the incentives to avoid negative rates become overwhelming and substitution toward alternatives to holding cash — including gold — take over. We just don’t know exactly where that limit sits and may only know after it has been surpassed.
Survey data will also figure prominently on Tuesday (ZEW) and Friday (PMIs). The broad Eurozone composite purchasing managers’ index for the manufacturing sector had posted some improvement in March as part of a global upswing in manufacturing readings outside of the UK and Japan and led by China, the US, Canada and to a lesser extent the Eurozone (chart 4). The April PMI reading will further inform this debate over whether global manufacturing conditions are on the mend.
UK data will takes a backseat to the June 23rd Brexit vote for the time being. Labour market readings should, at some stage, begin to reflect uncertainty ahead of the Brexit referendum. However these data are somewhat backward looking (this week’s report is for February) and it is probably premature to expect to see much evidence at this stage. Retail sales for March and subsequent months will be watched more carefully for signs of cautious spending habits before the vote. That’s material in the sense that even if the outcome is a vote to stay, then further evidence of cautious economic activity leading up to the vote could leave a period of slack in its wake that would take some time to absorb as the Bank of England remains on the sidelines.
Derek Holt 416.863.7707 [email protected]
THE WEEK AHEAD
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Does A Global ManufacturingRebound Have Legs?
diffusion index
Source: Scotiabank Economics, ISM, Markit, China Federation of Logistics and Purchasing.
China
Euro zone
U.S.
Economics
Global Views
April 15, 2016
6
Global Auto Sales Continue To Strengthen
Autos drive Canada’s industrial revival.
Preliminary data for March indicate that global car sales accelerated last month, boosting vehicle assemblies and overall industrial activity. Purchases in countries that account for roughly 85% of the global volumes rose 5% y/y last month, up from a 4% increase during the previous two months. Asia led the advance in March, followed by Western Europe and North America. In contrast, activity continues to decline at a double-digit pace in Brazil and Russia. However, there are tentative signs that a bottom may have been reached in Russia. In March, the slide in Russian car sales moderated to only 10% y/y, the best performance since late 2014.
Rising car sales and production are helping lift global industrial activity, which rose in early 2016 at the fastest pace of the past year. Vehicle assemblies have posted double-digit gains in the U.K. and Spain so far this year, and have increased by 4% in the large Asian markets of China and India. However, Canada’s auto industry is posting the strongest gain, and is single-handedly lifting Canadian manufacturing activity and non-resource exports out of the doldrums experienced during much of 2015.
Canadian auto industry shipments surged 31% year-over-year in the opening months of 2016, accounting for nearly all of the year-over-year gain in Canada’s manufacturing activity. Much of the increase reflects rising vehicle production following an extended period of retooling at several Canadian plants last year. Canadian vehicle assemblies jumped 8% sequentially in the first quarter, climbing to the highest level since mid-2012. The rebound was driven by a 25% y/y surge in light truck output, with further gains on the way. Automakers recently lifted their North American production plans an additional 3% for the second quarter, mostly due to the surging popularity of crossover utility vehicles (CUVs). Canada is well positioned to take advantage of this trend, as CUVs account for nearly two-thirds of overall production at Canadian assembly plants.
Surging CUV demand and the launch of all-new Canadian-made models have led to hiring of nearly 2,000 new workers at assembly plants in Canada in recent months, especially across Southwestern Ontario. In fact, auto plants located between Windsor and Cambridge now produce 55% of all vehicles built in Canada, with output in the region expected to climb to a record 1.3 million units this year.
Employment growth is much stronger among Canada’s automotive parts suppliers. Payrolls are advancing 5% y/y through early 2016, buoyed by double-digit gains in industry output. Canadian auto parts shipments have posted back-to-back double-digit gains in the past two years — a development that had not occurred since the late 1990s. Shipments climbed last year to the highest level since 2006, and if the current pace of gains is maintained, volumes could jump to all-time highs, surpassing the 2004 peak.
Record North American vehicle demand, combined with the hefty 28% decline in the Canadian dollar since 2011, has enabled Canadian suppliers to recapture market share across North America. Each vehicle built in Canada, the United States and Mexico now contains nearly US$1600 of Canadian-made parts — a significant improvement from the recent low of only US$1437 in 2013.
Canadian suppliers are also outperforming their global peers. Canadian auto parts exports advanced by roughly 16% last year, a further acceleration from a 14% jump in 2014. This highlights the improved competitiveness of the Canadian industry and lifted its share of global exports to 3.1%, the highest level since 2008, This solid performance enabled Canada to retain its position as a global ‘top 10’ auto parts exporter.
Auto parts employment in Canada is now advancing at double the pace in the United States, and have been the main driver of the recent stabilization in overall manufacturing payrolls throughout Canada. Overall Canadian manufacturing employment edged up 0.4% last year. However, if the auto parts sector is excluded, manufacturing payrolls were largely flat.
Carlos Gomes 416.866.4735 [email protected]
AUTOS
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Source: Scotiabank Economics, Statistics Canada.
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Chart 1
Economics
Global Views
April 15, 2016
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Asia-Pacific Regional Outlook
China Will Be the World’s Economic Growth Locomotive | Regional Performance Remains Stable
The massive Chinese economy remains the engine of global activity. Nevertheless, the ongoing rebalancing will naturally lead to slower, yet higher-quality growth, with China’s real GDP expected to advance by 6.4% this year and 6.2% in 2017, down from 6.9% in 2015. Meanwhile, India should continue to outperform, recording average output gains of 7½% y/y over the next couple of years. At this pace, however, India is still operating below potential given challenges faced by policymakers in reaching an agreement regarding necessary structural adjustments. Japan’s outlook remains muted due to weak economic fundamentals and bleak demographics. Economic growth in South Korea, Australia and Hong Kong will continue to be driven by domestic demand given that the countries’ export sectors are adversely affected by weaker Chinese demand. On a regional weighted average basis, we expect real GDP to grow by 4.9% y/y in 2016-17, recording only a mild deceleration from the 5.0% gain in 2015.
Loose Monetary Policies Support Activity | Stronger Japanese Yen Adds to Policy Complexities
Most central banks, except for Hong Kong, in Asia-Pacific will maintain a monetary policy easing bias for the foreseeable future in order to support economic growth. The Bank of Japan has added a negative benchmark interest rate to its super-accommodative monetary policy stance and will likely take the rate further into negative territory over the course of the year in order to revive growth and end deflation. Regardless, the Japanese yen has appreciated substantially against the US dollar — up by over 11% year-to-date — adding to Japan’s policy challenges. This has prompted Japanese authorities to intervene verbally, describing the currency strength as “undesirable” and pointing to a willingness to “act appropriately”. Hong Kong’s monetary policy follows developments in the US very closely due to the fixed exchange rate. Nevertheless, monetary tightening dynamics in the territory will be cautious in order to properly manage the risk of a disorderly property market correction.
Capital Flows Remain Subject to Sharp Reversals | Fundamentals Determine Risk Differentials
Changing expectations regarding the US Federal Reserve’s (Fed) monetary policy actions continue to be the primary driver of capital flows in Asia-Pacific. This year commenced with elevated financial market volatility and strong capital outflows from emerging market economies. China’s foreign exchange reserves have declined by US$780 billion since June 2014. Nevertheless, increased confidence in the stability of the Chinese renminbi and accommodative central banks in major advanced economies have eased market participants’ concerns over waning global economic momentum and resulted in an improvement in risk appetite. As the US Fed is expected to resume its gradual monetary policy normalization later in the year, capital outflows from emerging markets will likely intensify once again. Individual country fundamentals — such as government finances, external balances, and the health of domestic household and corporate balance sheets — will determine the degree of forthcoming adjustments in Asia-Pacific currencies and capital markets.
Tuuli McCully 416.863.2859 [email protected]
ASIA-PACIFIC
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Source: National Statistics Agencies, Scotiabank Economics.
Chart 1
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April 15, 2016
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Sovereign Rating Ratings Diverge | Geopolitical Risks And Elections Add To Uncertainty
China’s perceived sovereign creditworthiness is weakening on the back of a “negative” outlook revision to its credit ratings by Standard & Poor’s and Moody’s in March. Given substantial economic and financial linkages between mainland China and Hong Kong, China’s adjustment resulted in a similar action on Hong Kong. While sovereign credit ratings of Australia, Japan and South Korea are set to remain unchanged over the coming quarters, India may be subject to an upgrade revision. The potential for further intensification of geopolitical risks in the Middle East and select regional disputes add to economic uncertainty in Asia-Pacific over the course of 2016. Two events shaping regional prospects are the G7 Summit in Japan in May and the G20 Summit in China in September. In addition, the electoral cycle in Asia-Pacific may cause periods of investor risk aversion: India will hold various state elections this year, Hong Kong’s election for the Legislative Council will take place in September, and Australia’s next federal election is expected in late 2016.
China’s Economic Reform Efforts Shape Regional Outlook | Risks And Opportunities Emerge
Chinese policymakers’ ability to support the country’s ongoing structural transformation away from industrial and investment dependent growth toward a more market and consumer driven economy will drastically shape Asia-Pacific’s regional outlook. The 13th Five-Year Plan for 2016-2020, approved by the National People’s Congress in mid-March, confirmed the Chinese government’s commitment to implementing further reforms in order to create a “moderately prosperous society”. Reform priorities are centered on supporting innovative economic development to enhance the nation’s productivity and promote sustainable output growth as well as on increased openness to integrate China more deeply into global markets. Given that reforms of this scale and complexity are unprecedented, substantial implementation risks exist. Indeed, with global investor sentiment being closely linked to developments in China, bouts of financial market volatility triggered by Chinese policymakers’ actions are likely to occur over the coming quarters. However, the emergence of new industries and competences in China will provide vast business opportunities globally over the coming years.
For further information on the economic outlook of Asia-Pacific economies, please refer to the Asia-Pacific Regional Outlook (Spring 2016) report, published on April 11th, at scotiabank.com/economics.
ASIA-PACIFIC Tuuli McCully 416.863.2859
Economics
Global Views
April 15, 2016
9
Why Did Markets React Pessimistically To China’s Q1 GDP?
A financing surge might have been a yuan short versus a short-lived credit binge.
China released Q1 GDP growth that came in at 6.7% y/y. That was bang on consensus expectations and only a tick slower than the prior quarter. The number was nevertheless taken negatively by global markets but we offer a more glass half-full perspective.
First, the fact that growth didn’t decelerate by more than expected was encouraging. A one tick deceleration in any country’s GDP figures — let alone China’s — would hardly be reason to get in a tizzy especially for anyone who knows how these numbers are constructed. Growth could easily have decelerated by more in light of enormous financial market volatility and confidence-sapping currency mismanagement.
But more of the concern about Chinese growth centred around the issue of whether China bought growth in Q1 by pumping liquidity and credit into a bloated credit cycle. Aggregate financing figures were simultaneously released and they set a Q1 record for aggregate financing activity. About 70% of that was in the form of new yuan-denominated loans (charts 1 and 2). On that matter lies the concern that China’s ‘zombie’ companies including state-run firms accelerated their appetite for debt to keep things afloat and that payback lies around the corner.
We wouldn’t counsel reaching such hasty conclusions. For one thing, China’s decision to scrap the widely panned 75% loan-to-deposits ceiling last year that had existed since 1995 amid broader reforms is thought to breathe new life into this lending cycle for some types of lenders while reducing distortions such as dubious practices geared toward securing faster deposit growth. The aggregate loan to deposit ratio climbed to 67.3% by the end of last year from 65% at the start of the year. That may pose risks longer term, but could prove more durable than the bearish interpretation. Second, recall that China re-sets its loan quotas on January 1st of each year and it's possible that the usual push to exhaust those quotas was more amplified earlier in the year than normal with deployment of the proceeds pending. Why this surge in financing occurred matters.
Much of the commentary assumes it was just frivolous borrowing to prop up zombie companies. Maybe, but that's anything but clear by way of substantive evidence. In fact, a wholly contrary possibility is that driving a surge in borrowings denominated in yuan was perfectly rational as a private response to China's bungled currency management. If one thinks the yuan is faced with persistent depreciation, then borrowing more in that currency and servicing it out of depreciated yuan after exchanging export receipts could make perfect sense. That’s consistent with doing all borrowing in yuan-denominated loans and none in FX-denominated loans. This essentially uses debt as a currency hedging approach on company cash flows within a leaky but more closed capital account than elsewhere across major economies and fewer cash and derivative hedging vehicles than elsewhere. If one thinks that recent yuan stabilization will persist, then it could essentially entail covering this laborious way of shorting the currency by paying back the debt in subsequent months or retaining for alternative redeployment. There may therefore be little consequence to economic activity. Hence, it may prove to be incorrect to expect growth-dampening deleveraging.
Derek Holt 416.863.7707 [email protected]
CHINA MACRO COMMENT
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China's Financing Surge
CNY, trillionsJan-Mar total
Source: Scotiabank Economics, National Bureau of Statistics of China.
YTD AggregateFinancing
Chart 2
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Non-CNY Bank Loans
Trust Loans
Domestic EquityBusiness Financing
Entrusted Loans
Corporate Bonds
CNY Bank Loans
Yuan Loans Dominate
CNY trillionsJan to Mar sum
Source: Scotiabank Economics, National Bureau of Statistics of China.
Fixed Income Strategy
Global Views
April 15, 2016
10
Eurozone Deflationary Pressures Receding
Eurozone inflation was revised up from -0.1% y/y to 0.0% y/y in the final March release. Over the past year, Eurozone inflation has oscillated around the zero line, fuelling the debate on whether Europe has a deflation problem. Based on the latest breakdown, there are signs that deflationary pressures are gradually receding.
The fall in energy prices over the past year has been the main reason for depressed inflation readings. Indeed, in term of contributions, energy subtracted 0.3% points from headline inflation over the past year. Meanwhile core inflation (excluding energy & food prices) recovered slightly, adding 0.3% points to headline inflation. Last but not least, the contribution from food prices has been broadly stable.
In terms of the specifics of underlying inflation:
Across countries: the number of countries experiencing negative y/y core inflation has decreased over the past year from 4 to 1.
Frédéric Prêtet 00.33.17037.7705 [email protected]
Chart 1: Eurozone headline & core inflation
Table1: Contribution to headline inflation
Chart 2: Main Eurozone countries with core inflation…
Source: Scotiabank, Macrobond
Fixed Income Strategy
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April 15, 2016
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Across components:
For goods excluding energy prices, the share of the items having a negative inflation rate has declined from around 50% to 20% in the basket over the past year. Meanwhile, the proportion of items with inflation below 1.0% y/y has also reduced slightly, from 80% to around 65% (which is still quite high).
For services prices, the proportion of items with a negative inflation rate has declined from around 10% to 5% of the basket. Also, the share of the items with inflation below 1.0% y/y has also reduced from close to 30% to around 15%.
All in all, this represents a picture of a gradual broad-based improvement in underlying inflation across countries as well as across sectors. This is encouraging for the medium term recovery in Eurozone inflation.
Given this gradual improvement in core inflation, energy price base effects will be the primary driver of near-term inflation. In the coming two to three months, these energy price base effects are still slightly negative. Thereafter, they will become massively positive, especially from August onwards reflecting sharp declines in energy prices a year earlier. Cumulatively this should add around 1% to headline HICP.
Eurozone 1Y inflation swaps are running at around 0.5% y/y, which is very cautious in view of this significant base effect. The inflation market may be tempted to take a cautious stance as previous “favourable base effects” have failed to materialise in recent years. However, with oil prices now down to around $40, the possibility of further falls in energy prices should be more limited. This raises the possibility of a late catch-up process on the inflation market and breakeven/inflation swaps once base effects begin to materialise in the second half of this year.
Frédéric Prêtet 00.33.17037.7705 [email protected]
Chart 3: Eurozone core inflation, distribution across sectors
Chart 4: Energy Prices Base Effects
Economics
Global Views
April 15, 2016
12
Key Data Preview
CANADA
CPI for March should show the typical seasonal upside, and we’re expecting +0.5% m/m on headline and +0.4% m/m on core inflation. The robust headline number will likely be driven by gasoline prices, which were up by 5.6% m/m in Canada (roughly half of the increase in the U.S. as the appreciation of the C$ in March mitigated the gasoline price rise somewhat). Aside from that, a couple of heavily seasonal sectors should push CPI. Clothing prices should be up on the order of 3% m/m or higher, and similarly recreation, education, and reading prices should rise in the neighbourhood of three-quarters of a percentage point. Upside could come from food prices, which have tended to be strong in Canada in recent months as the legacy of earlier C$ depreciation filters through into CPI.
Retail sales for Canada in February ought to exhibit some give-back from the strong gain achieved in January, and we’re anticipating a -1% m/m number. Aside from mean reversion following the unsustainable gains in January, soft gasoline prices on the month (-7.9% m/m) and fairly flat vehicle sales at dealers (Carlos Gomes estimates Canadian sales at 1.99m in Feb. vs. 1.97m in Jan.) don’t add very much enthusiasm. The big picture, even assuming a large decline in sales, would still have Canadian retail sales running at a strong monthly clip.
UNITED STATES
Existing home sales should pick up for March, and we’re expecting a 5.35m annualized pace of sales, which we expect suffered a one-off drop in February and will return (roughly) to stronger levels seen in December-January. Mortgage purchase applications were solid in March vs. Feb. (see chart) and pending home sales ticked up in Feb. after dropping in January, pointing to better things ahead.
Housing starts should likewise post a solid number for March, albeit perhaps a bit lower than a very strong gain posted in February, and we’re anticipating a 1.165m print. The good news for housing starts: building permits have been strong as have new home sales, so the two main leading indicators for housing starts continue to point to a constructive outcome. The bad news for housing starts: the numbers have been running strong and are essentially at their post-crisis high, so a bit of a breather and some mean reversion would not be out of the ordinary.
Dov Zigler 212.225.6631 [email protected]
Derek Holt 416.863.7707 [email protected]
A1
80
90
100
110
120
130
140
150
10 11 12 13 14 15 16
Source: Scotiabank Economics, Bloomberg.
CDN Gas Price Rebound in Mar.
Average pump price including tax, C$
250
750
1250
1750
2250
2750
60 70 80 90 00 10
Housing Starts
Long Run Average
Average Recession Trough
Thousands, SAAR
Source: Census Bureau, Scotiabank Economics
U.S.: Housing Starts
Chart 1
Chart 3
3.0
3.2
3.4
3.6
3.8
4.0
4.2
4.4150
175
200
225
250
13 14 15 16
Mortgage Purchase Applications (LHS)
US Home Mtg 30-year Fixed Rate (RHS, Inverted)
%
Source: Scotiabank Economics, Bloomberg.
Mortgage Purchase Applications &30-Year Fixed Rate Mortgage
Index
Chart 2
Economics
Global Views
April 15, 2016
13
… continued from previous page
EUROPE
Preliminary PMI data for March will be released on Friday, April 22nd for the aggregate euro area as well as Germany and France. The euro zone composite PMI edged up slightly in March to 53.1 from 53.0 in February, alongside an improvement in manufacturing. Nevertheless, the composite index remains below levels seen in late 2015, at 54.3 in December, dampened by fears of slower emerging market growth and waning global trade dynamics. In April, we expect the headline composite PMI print to edge up modestly to 53.2 as the recovery in the manufacturing component — underpinned by steady consumer demand and signs of strengthening activity in US — counterbalances the softer trend in the services component — in line with muted euro zone consumer confidence.
LATIN AMERICA
We expect Colombia’s trade deficit — to be released on April 21st — to have eased somewhat in February to US$1.45 billion from US$1.52 billion in January. Vasconia, Colombia’s mid-grade crude oil benchmark, lifted from January lows to average US$27.82 a barrel in February (up 6% m/m), which should provide some marginal relief to the country’s terms of trade. We expect Colombia’s trade deficit to shrink further as crude oil prices begin to climb back from the depths reached in early 2016.
A2
Rory Johnston 416.862.3908 [email protected]
Erika Cain 416.866.4205 [email protected]
0
20
40
60
80
100
120
140
-2
-1.5
-1
-0.5
0
0.5
1
1.5
Feb-10 Feb-12 Feb-14 Feb-16
US$ bn
Source: Scotiabank Economics, Bloomberg.
forecast
Colombia's Crude-Linked Trade Balance
Trade Balance (LHS)
Vasconia Crude Price (RHS)
US$/bbl
50
51
51
52
52
53
53
54
54
55
55
Feb-14 Feb-15 Feb-16
Euro Zone PMIs
index, saServices PMI
Source: Scotiabank Economics, Markit.
Composite PMI
Manufacturing PMI
forecast
Chart 1
Chart 2 Colombia’s Crude-Linked
Trade Balance
Economics
Global Views
April 15, 2016
1
Key Indicators for the week of April 18 – 22
Forecasts at time of publication. Source: Bloomberg, Scotiabank Economics.
North America
A3
Europe
Country Date Time Indicator Period BNS Consensus LatestCA 04/18 08:30 International Securities Transactions (C$ bn) Feb -- -- 13.5US 04/18 10:00 NAHB Housing Market Index Apr -- 59.0 58.0
US 04/19 08:30 Building Permits (000s a.r.) Mar -- 1200 1177US 04/19 08:30 Housing Starts (000s a.r.) Mar 1165 1168 1178US 04/19 08:30 Housing Starts (m/m) Mar -- -0.9 5.2
US 04/20 07:00 MBA Mortgage Applications (w/w) APR 15 -- -- 10.0CA 04/20 08:30 Wholesale Trade (m/m) Feb -- -0.3 0.0US 04/20 10:00 Existing Home Sales (mn a.r.) Mar 5.35 5.29 5.08US 04/20 10:00 Existing Home Sales (m/m) Mar -- 4.1 -7.1
US 04/21 08:30 Initial Jobless Claims (000s) APR 16 265 265 253US 04/21 08:30 Continuing Claims (000s) APR 9 2160 -- 2171US 04/21 08:30 Philadelphia Fed Index Apr 10.0 8.0 12.4US 04/21 10:00 Leading Indicators (m/m) Mar -- 0.4 0.1
CA 04/22 08:30 Core X8 CPI (m/m) Mar 0.4 0.3 0.5CA 04/22 08:30 Core X8 CPI (y/y) Mar 1.7 1.7 1.9CA 04/22 08:30 CPI, All items (m/m) Mar 0.5 0.5 0.2CA 04/22 08:30 CPI, All items (y/y) Mar 1.2 1.2 1.4CA 04/22 08:30 CPI, All items (index) Mar -- 127.9 127.1CA 04/22 08:30 CPI SA, All items (m/m) Mar -- 0.2 -0.2CA 04/22 08:30 Core CPI SA, All items (m/m) Mar -- 0.2 0.1CA 04/22 08:30 Retail Sales (m/m) Feb -1.0 -0.9 2.1CA 04/22 08:30 Retail Sales ex. Autos (m/m) Feb -1.2 -0.8 1.2MX 04/22 09:00 Bi-Weekly Core CPI (% change) Apr 15 -- 0.1 0.0MX 04/22 09:00 Bi-Weekly CPI (% change) Apr 15 -- -0.2 0.2
Country Date Time Indicator Period BNS Consensus LatestEC 04/19 04:00 Current Account (€ bn) Feb -- -- 25.4IT 04/19 04:30 Current Account (€ mn) Feb -- -- -1067.8EC 04/19 05:00 ZEW Survey (Economic Sentiment) Apr -- -- 10.6GE 04/19 05:00 ZEW Survey (Current Situation) Apr -- 50.8 50.7GE 04/19 05:00 ZEW Survey (Economic Sentiment) Apr 7.0 8.0 4.3
GE 04/20 02:00 Producer Prices (m/m) Mar -- 0.2 -0.5UK 04/20 04:30 Average Weekly Earnings (3-month, y/y) Feb -- 2.3 2.1UK 04/20 04:30 Employment Change (3M/3M, 000s) Feb -- 60.0 116.0UK 04/20 04:30 Jobless Claims Change (000s) Mar -- -10.0 -18.0UK 04/20 04:30 ILO Unemployment Rate (%) Feb -- 5.1 5.1TU 04/20 07:00 Benchmark Repo Rate (%) Apr 20 7.50 7.50 7.50
SW 04/21 03:30 Riksbank Interest Rate (%) Apr 21 -0.50 -0.50 -0.50UK 04/21 04:30 PSNB ex. Interventions (£ bn) Mar -- 6.0 7.1UK 04/21 04:30 Public Finances (PSNCR) (£ bn) Mar -- -- 0.1UK 04/21 04:30 Public Sector Net Borrowing (£ bn) Mar -- 5.4 6.5UK 04/21 04:30 Retail Sales ex. Auto Fuel (m/m) Mar -- -0.3 -0.2UK 04/21 04:30 Retail Sales with Auto Fuel (m/m) Mar -- -0.1 -0.4EC 04/21 07:45 ECB Main Refinancing Rate (%) Apr 21 0.00 0.00 0.00EC 04/21 07:45 ECB Deposit Facility Rate Apr 21 -0.40 -0.40 -0.40EC 04/21 07:45 ECB Marginal Lending Facility Rate Apr 21 -0.40 0.25 0.25EC 04/21 10:00 Consumer Confidence Apr A -9.5 -9.3 -9.7
Economics
Global Views
April 15, 2016
2
Key Indicators for the week of April 18 – 22
Forecasts at time of publication. Source: Bloomberg, Scotiabank Economics.
A4
Europe (continued from previous page)
Asia Pacific
Country Date Time Indicator Period BNS Consensus LatestFR 04/22 03:00 Manufacturing PMI Apr P -- 49.9 49.6FR 04/22 03:00 Services PMI Apr P -- 50.0 49.9GE 04/22 03:30 Manufacturing PMI Apr P -- 51.0 50.7GE 04/22 03:30 Services PMI Apr P -- 55.1 55.1EC 04/22 04:00 Composite PMI Apr P 53.2 53.3 53.1EC 04/22 04:00 Manufacturing PMI Apr P 52.1 51.9 51.6EC 04/22 04:00 Services PMI Apr P 53.0 53.3 53.1
Country Date Time Indicator Period BNS Consensus LatestNZ 04/17 18:45 Consumer Prices (q/q) 1Q -- 0.1 -0.5NZ 04/17 18:45 Consumer Prices (y/y) 1Q -- 0.40 0.10SI 04/17 20:30 Exports (y/y) Mar -- -12.3 2.1AU 04/17 21:30 New Motor Vehicle Sales (m/m) Mar -- -- -0.1PH APR 17-22 Budget Deficit/Surplus (PHP bn) Feb -- -- -3.5
IN 04/18 02:30 Monthly Wholesale Prices (y/y) Mar -- -0.7 -0.9SK APR 18-19 BoK Base Rate (%) Apr 19 1.50 1.50 1.50HK APR 18-19 Composite Interest Rate (%) Mar 0.26 -- 0.26PH APR 18-22 Balance of Payments (US$ mn) Mar -- -- -316.0
JN 04/19 01:30 Nationwide Department Store Sales (y/y) Mar -- -- 0.2HK 04/19 04:30 Unemployment Rate (%) Mar -- 3.3 3.3SK 04/19 17:00 PPI (y/y) Mar -- -- -3.4JN 04/19 19:50 Merchandise Trade Balance (¥ bn) Mar -- 819.1 242.2JN 04/19 19:50 Adjusted Merchandise Trade Balance (¥ bn) Mar -- 450.0 166.1JN 04/19 19:50 Merchandise Trade Exports (y/y) Mar -- -7.1 -4.0JN 04/19 19:50 Merchandise Trade Imports (y/y) Mar -- -16.5 -14.2
MA 04/20 00:00 CPI (y/y) Mar -- 3.5 4.2TA 04/20 04:00 Export Orders (y/y) Mar -- -8.0 -7.4NZ 04/20 18:00 ANZ Job Ads (m/m) Mar -- -- 0.9NZ 04/20 21:00 ANZ Consumer Confidence Index Apr -- -- 118.0
JN 04/21 01:00 Supermarket Sales (y/y) Mar -- -- 3.4HK 04/21 04:30 CPI (y/y) Mar -- 3.1 3.1TA 04/21 20:30 Unemployment Rate (%) Mar -- 4.0 3.9JN 04/21 22:00 Markit/JMMA Manufacturing PMI Apr P -- 49.5 49.1ID APR 20-21 BI Reference Interest Rate (%) Apr 21 6.75 6.75 6.75
JN 04/22 00:30 Tertiary Industry Index (m/m) Feb -- -0.5 1.5TA 04/22 04:00 Industrial Production (y/y) Mar -- -5.6 -3.7MA 04/22 06:00 Foreign Reserves (US$ bn) Apr 15 -- -- 97.0
Latin America
Country Date Time Indicator Period BNS Consensus LatestBZ 04/20 09:30 Current Account (US$ mn) Mar -- -1100 -1919
CO 04/21 15:00 Trade Balance (US$ mn) Feb -1450 -1035 -1521
Economics
Global Views
April 15, 2016
3
Global Auctions for the week of April 18 – 22
North America
Europe
Source: Bloomberg, Scotiabank Economics.
A5
Country Date Time EventUS 04/18 11:30 U.S. to Sell 3-Month BillsUS 04/18 11:30 U.S. to Sell 6-Month Bills
CA 04/19 10:30 Canada to Sell CAD5.775 Bln 98-Day BillsCA 04/19 10:30 Canada to Sell CAD2.175 Bln 168-Day BillsCA 04/19 10:30 Canada to Sell CAD2.175 Bln 350-Day BillsUS 04/19 11:30 U.S. to Sell 4-Week BillsMX 04/19 12:30 Mexico To Sell Bills - 28 daysMX 04/19 12:30 Mexico To Sell Bills - 91 daysMX 04/19 12:30 Mexico To Sell Bills - 182 daysMX 04/19 12:30 Mexico To Sell Bond - 5 yearsMX 04/19 12:30 Mexico To Sell IL Bond - 10 years
CA 04/20 12:00 Canada to Sell 10-Year Bonds
US 04/21 13:00 U.S. to Sell 5-Year TIPS
Country Date Time EventBE 04/18 05:30 Belgium to Sell 4.25% 2021 BondsNE 04/18 05:30 Netherlands to Sell BillsBE 04/18 05:30 Belgium to Sell 1% 2026 BondsBE 04/18 05:30 Belgium to Sell 1% 2031 BondsBE 04/18 05:30 Belgium to Sell 5% 2035 BondsNO 04/18 06:00 Norway Bond Auction AnnouncementFR 04/18 08:50 France to Sell Bills
MB 04/19 05:00 Malta to Sell BillsEC 04/19 05:10 ECB Main Refinancing Operation ResultSZ 04/19 05:15 Switzerland to Sell 91-Day BillsEC 04/19 06:30 ESM to Sell Bills
DE 04/20 04:30 Denmark to Sell BondsSW 04/20 05:03 Sweden to Sell BillsNO 04/20 05:05 Norway to Sell BondsNO 04/20 05:05 Norway Bond AuctionGE 04/20 05:30 Germany to Sell EUR4 Bln 0.5% 2026 BondsUK 04/20 05:30 U.K. to Sell GBP1.4 Bln 0.125% I/L 2026 BondsPO 04/20 05:30 Portugal to Sell Bills
SP 04/21 04:30 Spain to Sell BondsSW 04/21 05:03 Sweden to Sell I/L BondsFR 04/21 05:50 France to Sell I/L BondsNO 04/21 06:00 Norway Bills Auction AnnouncementFR 04/21 08:50 France to Sell Bonds
UK 04/22 06:00 U.K. to Sell Bills
Economics
Global Views
April 15, 2016
4
Global Auctions for the week of April 18 – 22
Source: Bloomberg, Scotiabank Economics.
A6
Asia Pacific
Latin America
Country Date Time EventJN 04/17 23:35 Japan to Sell 1-Year Bills
JN 04/18 23:45 Japan to Sell 5-Year Bonds
CH 04/19 02:00 Shanxi to Sell CNY2.7 Bln 3-Yr General BondsCH 04/19 02:00 Shanxi to Sell CNY8.1 Bln 5-Yr General Bonds CH 04/19 02:00 Shanxi to Sell CNY8.1 Bln 7-Yr General BondsCH 04/19 02:00 Shanxi to Sell CNY8.1 Bln 10-Yr General BondsAU 04/19 21:00 Australia Plans to Sell AUD1.2 Bln 2.75% 2027 BondsCH 04/19 23:00 China Plans to Sell 7-Year Upsized Bonds
CH 04/20 02:00 Agricultural Dev Bank to Sell BondsNZ 04/20 22:05 New Zealand Plans to Sell NZD100 Mln 2020 BondsJN 04/20 23:35 Japan to Sell 3-Month BillsJN 04/20 23:45 Japan to Sell 20-Year Bonds
AU 04/21 21:00 Australia Plans to Sell AUD800 Mln 1.75% 2020 BondsCH 04/21 23:00 China Plans to Sell 30-Year Bonds
Country Date Time EventBZ 04/20 11:00 Brazil to Sell Fixed Rate Bonds - 01/01/2023BZ 04/20 11:00 Brazil to Sell Fixed Rate Bonds - 01/01/2027BZ 04/20 11:00 Brazil to Sell Bills LTN - 04/01/2017BZ 04/20 11:00 Brazil to Sell Bills LTN - 04/01/2018BZ 04/20 11:00 Brazil to Sell Bills LTN - 01/01/2020
Economics
Global Views
April 15, 2016
5
Events for the week of April 18 – 22
Europe
Source: Bloomberg, Scotiabank Economics.
A7
North America
Asia Pacific
World
Country Date Time EventUS APR 15-17 IMF & World Bank Hold Spring Meetings; G-20 Meets on Sidelines
CA 04/16 10:30 Bank of Canada Releases Review Collection of Research Papers
CA 04/17 10:00 Bank of Canada's Wilkins Speaks at IMF Panel
US 04/18 08:30 Fed's Dudley Gives Opening Remarks at Economics ConferenceUS 04/18 12:30 Fed's Kashkari Speaks in MinneapolisUS 04/18 19:00 Fed's Rosengren to Speak at Central Conn State University
US 04/19 New York PrimaryCA 04/19 11:00 Poloz and Wilkins Testify at House of Commons Committee
CA 04/20 11:00 Poloz and Wilkins speak at Senate Banking Committee
Country Date Time EventEC 04/16 Mogherini Leads EU Delegation to Iran to Discuss Wider Ties
IT 04/17 18:00 Rome parliamentary hearings on budget
NE 04/18 09:00 ECB's Knot Speaks at Farewell Event Dutch Realtor Association
EC 04/19 04:00 ECB Bank Lending SurveyUK 04/19 10:35 BOE Governor Mark Carney Speaks in Parliament in LondonUK 04/19 Osborne Questioned by Treasury Committee on EU Vote
TU 04/20 07:00 Benchmark Repurchase RateTU 04/20 07:00 Overnight Lending RateTU 04/20 07:00 Overnight Borrowing Rate
SW 04/21 03:30 Riksbank Interest RateEC 04/21 04:00 EU Interior Ministers Hold Meeting on Refugee PolicyEC 04/21 07:45 ECB Main Refinancing RateEC 04/21 07:45 ECB Deposit Facility RateEC 04/21 07:45 ECB Marginal Lending Facility
EC 04/22 03:00 Euro-Area Finance Ministers, Central Bankers Meet in AmsterdamEC 04/22 04:00 ECB Survey of Professional ForecastersNO 04/22 Norway Sovereign Debt to Be Rated by S&PFR 04/22 France Sovereign Debt to Be Rated by S&PIT 04/22 Italy Sovereign Debt to Be Rated by Fitch
Country Date Time EventAU 04/18 21:30 RBA April Meeting MinutesHK APR 18-19 Composite Interest RateSK APR 18-19 BoK 7-Day Repo Rate
AU 04/19 09:30 RBA Governor Stevens Speech in New York
AU 04/20 21:30 RBA FX Transactions MarketID APR 20-21 Bank Indonesia Lending Facility RateID APR 20-21 Bank Indonesia Deposit Facility RateID APR 20-21 Bank Indonesia Reference Rate
Country Date Time EventWW 04/17 04:00 Oil Ministers, OPEC, to Weigh Deal to Freeze Crude Production
Economics
Global Views
April 15, 2016
6
Global Central Bank Watch
NORTH AMERICARate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsBank of Canada – Overnight Target Rate 0.50 May 25, 2016 0.50 0.50
Federal Reserve – Federal Funds Target Rate 0.50 April 27, 2016 0.50 0.50
Banco de México – Overnight Rate 3.75 May 5, 2016 3.75 --
EUROPERate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsEuropean Central Bank – Refinancing Rate 0.00 April 21, 2016 0.00 0.00
Bank of England – Bank Rate 0.50 May 12, 2016 0.50 0.50
Swiss National Bank – Libor Target Rate -0.75 June 16, 2016 -0.75 --
Central Bank of Russia – One-Week Auction Rate 11.00 April 29, 2016 11.00 --
Central Bank of the Republic of Turkey – 1 Wk Repo Rate 7.50 April 20, 2016 7.50 7.50
Sweden Riksbank – Repo Rate -0.50 April 21, 2016 -0.50 -0.50
Norges Bank – Deposit Rate 0.50 May 12, 2016 0.50 --
ASIA PACIFICRate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsBank of Japan – Policy Rate -0.10 April 28, 2016 -0.10 --
Reserve Bank of Australia – Cash Target Rate 2.00 May 3, 2016 2.00 2.00
Reserve Bank of New Zealand – Cash Rate 2.25 April 27, 2016 2.25 2.25
People's Bank of China – Lending Rate 4.35 TBA -- --
Reserve Bank of India – Repo Rate 6.50 June 7, 2016 6.50 --
Bank of Korea – Bank Rate 1.50 April 19, 2016 1.50 1.50
Bank of Thailand – Repo Rate 1.50 May 11, 2016 1.50 1.50
Bank Indonesia – Reference Interest Rate 6.75 April 21, 2016 6.75 6.75
LATIN AMERICARate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsBanco Central do Brasil – Selic Rate 14.25 April 27, 2016 14.25 --
Banco Central de Chile – Overnight Rate 3.50 May 17, 2016 3.50 --
Banco de la República de Colombia – Lending Rate 6.50 April 29, 2016 6.50 6.75
Banco Central de Reserva del Perú – Reference Rate 4.25 May 12, 2016 4.25 4.25
AFRICARate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsSouth African Reserve Bank – Repo Rate 7.00 May 19, 2016 7.00 --
Fed: Fed watchers won’t have much to chew on, with remarks from the NY Fed’s Dudley and policy speeches from the Boston Fed’s Rosengren and Minneapolis Fed’s Kashkari standing as the only Fedspeak before the pre-April 27th meeting communications blackout starts on Wednesday. BoC: BoC watchers will be paying attention to Governor Poloz and Sr. Deputy Governor Wilkins’s appearances before the House Standing Committee on Finance and the Senate Banking Committee on April 19 and 20, respectively. In terms of economic data, CPI lands on the 22nd and is expected to confirm the BoC’s intuition that inflation in Canada is somewhat sluggish. Retail sales numbers will be released as well.
Policymakers at the Central Bank of the Republic of Turkey (CBRT) will announce a monetary policy decision on Wednesday, April 20th, followed by the European Central Bank (ECB) and the Swedish Riksbank on April 21st. We do not expect any changes to benchmark interest rates to come out of these meetings.
North America
Europe
Asia Pacific
Latin America
Africa
Forecasts at time of publication. Source: Bloomberg, Scotiabank Economics.
A8
Economics
Global Views
April 15, 2016
7
North America
Canada 2015 15Q3 15Q4 Latest United States 2015 15Q3 15Q4 Latest Real GDP (annual rates) 1.2 2.4 0.8 Real GDP (annual rates) 2.4 2.0 1.4 Current Acc. Bal. (C$B, ar) -65.7 -61.2 -61.5 Current Acc. Bal. (US$B, ar) -484 -520 -501 Merch. Trade Bal. (C$B, ar) -23.1 -20.0 -19.9 -22.9 (Feb) Merch. Trade Bal. (US$B, ar) -759 -762 -749 -777 (Feb) Industrial Production -0.9 -0.3 0.1 -1.4 (Feb) Industrial Production 0.3 0.2 -1.7 -2.5 (Mar) Housing Starts (000s) 194 213 194 204 (Mar) Housing Starts (millions) 1.11 1.16 1.14 1.18 (Feb) Employment 0.8 0.9 0.8 0.9 (Mar) Employment 2.1 2.1 2.0 2.0 (Mar) Unemployment Rate (%) 6.9 7.0 7.0 7.1 (Mar) Unemployment Rate (%) 5.3 5.2 5.0 5.0 (Mar) Retail Sales 2.2 2.0 2.6 6.4 (Jan) Retail Sales 1.5 1.6 1.3 1.3 (Mar) Auto Sales (000s) 1898 1949 1952 1977 (Jan) Auto Sales (millions) 17.3 17.8 17.8 16.5 (Mar) CPI 1.1 1.2 1.3 1.4 (Feb) CPI 0.1 0.1 0.5 0.9 (Mar) IPPI -0.9 -0.3 0.1 1.4 (Feb) PPI -3.3 -3.3 -3.3 -1.9 (Mar) Pre-tax Corp. Profits -15.2 -16.4 -18.6 Pre-tax Corp. Profits 3.3 2.0 -2.9
Mexico Real GDP 2.5 2.8 2.5 Current Acc. Bal. (US$B, ar) -32.4 -32.7 -30.8 Merch. Trade Bal. (US$B, ar) -14.5 -25.9 -15.8 -8.7 (Feb) Industrial Production 1.0 1.3 0.2 2.6 (Feb) CPI 2.7 2.6 2.3 2.6 (Mar)
Euro Zone 2015 15Q3 15Q4 Latest Germany 2015 15Q3 15Q4 Latest Real GDP 1.3 1.3 1.3 Real GDP 1.4 1.7 1.3 Current Acc. Bal. (US$B, ar) 366 429 472 82 (Jan) Current Acc. Bal. (US$B, ar) 257.5 307.4 284.3 265.7 (Feb) Merch. Trade Bal. (US$B, ar) 356.8 362.7 397.4 153.7 (Jan) Merch. Trade Bal. (US$B, ar) 274.5 278.6 270.1 268.9 (Feb) Industrial Production 1.6 1.9 1.3 0.8 (Feb) Industrial Production 0.6 1.2 -0.3 1.2 (Feb) Unemployment Rate (%) 10.9 10.7 10.5 10.4 (Feb) Unemployment Rate (%) 6.4 6.4 6.3 6.2 (Mar) CPI 0.0 0.1 0.2 0.0 (Mar) CPI 0.2 0.1 0.3 0.3 (Mar)
France United Kingdom Real GDP 1.2 1.2 1.4 Real GDP 2.3 2.2 2.1 Current Acc. Bal. (US$B, ar) -4.7 2.8 -1.7 -144.2 (Feb) Current Acc. Bal. (US$B, ar) -96.2 -80.4 -130.6 Merch. Trade Bal. (US$B, ar) -40.6 -36.5 -47.4 -56.0 (Feb) Merch. Trade Bal. (US$B, ar) -191.6 -197.3 -202.0 -205.2 (Feb) Industrial Production 1.8 1.5 2.3 0.6 (Feb) Industrial Production 1.0 1.2 0.8 -0.5 (Feb) Unemployment Rate (%) 10.4 10.5 10.2 10.2 (Feb) Unemployment Rate (%) 5.4 5.3 5.1 5.1 (Dec) CPI 0.0 0.1 0.1 -0.1 (Mar) CPI 0.0 0.0 0.1 0.5 (Mar)
Italy Russia Real GDP 0.6 0.8 1.0 Real GDP -3.7 -3.8 Current Acc. Bal. (US$B, ar) 35.8 52.4 62.2 -12.8 (Jan) Current Acc. Bal. (US$B, ar) 69.6 8.0 15.0 Merch. Trade Bal. (US$B, ar) 49.8 53.6 66.7 51.3 (Feb) Merch. Trade Bal. (US$B, ar) 12.4 9.6 10.1 7.4 (Feb) Industrial Production 0.9 1.8 1.4 1.3 (Feb) Industrial Production -3.7 -4.2 -3.9 -0.5 (Mar) CPI 0.0 0.2 0.2 -0.2 (Mar) CPI 15.5 15.7 14.5 7.3 (Mar)
Europe
All data expressed as year-over-year % change unless otherwise noted.
Economic Statistics
Source: Bloomberg, IHS Global, Scotiabank Economics.
A9
Economics
Global Views
April 15, 2016
8
Asia Pacific
Australia 2015 15Q3 15Q4 Latest Japan 2015 15Q3 15Q4 Latest Real GDP 2.5 2.7 3.0 Real GDP 0.5 1.7 0.8 Current Acc. Bal. (US$B, ar) -56.4 -64.6 -63.5 Current Acc. Bal. (US$B, ar) 136.5 160.2 113.6 254.0 (Feb) Merch. Trade Bal. (US$B, ar) -12.7 -15.0 -22.3 -17.3 (Feb) Merch. Trade Bal. (US$B, ar) -23.2 -28.1 -3.0 17.3 (Feb) Industrial Production 1.6 1.8 1.9 Industrial Production -1.2 -0.4 -1.1 -5.6 (Feb) Unemployment Rate (%) 6.1 6.2 5.8 5.7 (Mar) Unemployment Rate (%) 3.4 3.4 3.3 3.3 (Feb) CPI 1.5 1.5 1.7 CPI 0.8 0.2 0.3 0.3 (Feb)
South Korea China Real GDP 2.6 2.8 3.1 Real GDP 6.9 6.9 6.8 Current Acc. Bal. (US$B, ar) 105.9 116.4 105.6 90.1 (Feb) Current Acc. Bal. (US$B, ar) 330.6 Merch. Trade Bal. (US$B, ar) 90.3 81.1 95.0 118.3 (Mar) Merch. Trade Bal. (US$B, ar) 594.0 645.1 699.0 358.3 (Mar) Industrial Production -0.9 0.1 0.0 0.6 (Feb) Industrial Production 5.9 5.7 5.9 5.9 (Dec) CPI 0.7 0.7 1.1 1.0 (Mar) CPI 1.6 1.6 1.6 2.3 (Feb)
Thailand India Real GDP 2.8 2.9 2.8 Real GDP 7.0 7.5 7.1 Current Acc. Bal. (US$B, ar) 31.6 6.9 10.2 Current Acc. Bal. (US$B, ar) -22.6 -8.7 -7.1 Merch. Trade Bal. (US$B, ar) 2.9 3.2 3.2 6.0 (Feb) Merch. Trade Bal. (US$B, ar) -10.5 -11.9 -10.4 -6.5 (Feb) Industrial Production 0.4 0.9 0.3 0.0 (Apr) Industrial Production 3.2 4.8 1.6 2.0 (Feb) CPI -0.9 -1.1 -0.9 -0.5 (Mar) WPI -2.7 -4.6 -2.3 -0.9 (Feb)
Indonesia Real GDP 4.8 4.7 5.0 Current Acc. Bal. (US$B, ar) -17.8 -4.2 -5.1 Merch. Trade Bal. (US$B, ar) 0.6 0.9 0.1 0.5 (Mar) Industrial Production 4.8 4.0 5.0 2.9 (Feb) CPI 6.4 7.1 4.8 4.4 (Mar)
Brazil 2015 15Q3 15Q4 Latest Chile 2015 15Q3 15Q4 Latest Real GDP -3.8 -4.5 -5.9 Real GDP 2.1 2.2 1.3 Current Acc. Bal. (US$B, ar) -59.2 -47.1 -38.3 Current Acc. Bal. (US$B, ar) -15.9 -11.5 -8.3 Merch. Trade Bal. (US$B, ar) 19.7 32.1 37.7 53.2 (Mar) Merch. Trade Bal. (US$B, ar) -3.0 -4.0 0.3 7.3 (Mar) Industrial Production -8.3 -9.3 -12.2 -13.2 (Feb) Industrial Production -0.3 -1.7 -1.0 1.8 (Feb) CPI 9.0 9.5 10.4 9.4 (Mar) CPI 4.3 4.8 4.1 4.5 (Mar)
Peru Colombia Real GDP 3.3 3.2 4.7 Real GDP 3.1 3.2 3.3 Current Acc. Bal. (US$B, ar) -2.4 Current Acc. Bal. (US$B, ar) -18.9 -5.2 -4.3 Merch. Trade Bal. (US$B, ar) -0.2 -0.3 0.0 -0.2 (Feb) Merch. Trade Bal. (US$B, ar) -1.3 -1.5 -1.6 -1.5 (Jan) Unemployment Rate (%) 6.4 6.3 5.8 7.2 (Mar) Industrial Production 0.9 1.7 3.4 8.2 (Feb) CPI 3.5 3.8 4.1 4.3 (Mar) CPI 5.0 4.9 6.4 8.0 (Mar)
Latin America
Economic Statistics
All data expressed as year-over-year % change unless otherwise noted.
Source: Bloomberg, IHS Global, Scotiabank Economics.
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Financial Statistics
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Interest Rates (%, end of period)
Canada 15Q4 16Q1 Apr/08 Apr/15* United States 15Q4 16Q1 Apr/08 Apr/15*BoC Overnight Rate 0.50 0.50 0.50 0.50 Fed Funds Target Rate 0.50 0.50 0.50 0.50 3-mo. T-bill 0.51 0.45 0.48 0.52 3-mo. T-bill 0.16 0.20 0.22 0.22 10-yr Gov’t Bond 1.39 1.23 1.23 1.26 10-yr Gov’t Bond 2.27 1.77 1.72 1.75 30-yr Gov’t Bond 2.15 2.01 1.95 1.97 30-yr Gov’t Bond 3.02 2.61 2.55 2.56 Prime 2.70 2.70 2.70 2.70 Prime 3.50 3.50 3.50 3.50 FX Reserves (US$B) 79.7 81.3 (Feb) FX Reserves (US$B) 106.5 106.2 (Feb)
Germany France 3-mo. Interbank -0.09 -0.24 -0.25 -0.25 3-mo. T-bill -0.45 -0.42 -0.43 -0.49 10-yr Gov’t Bond 0.63 0.15 0.10 0.13 10-yr Gov’t Bond 0.99 0.49 0.43 0.47 FX Reserves (US$B) 58.5 60.3 (Feb) FX Reserves (US$B) 55.2 56.4 (Feb)
Euro Zone United Kingdom Refinancing Rate 0.05 0.05 0.00 0.00 Repo Rate 0.50 0.50 0.50 0.50 Overnight Rate -0.13 -0.30 -0.33 -0.34 3-mo. T-bill 0.48 0.48 0.47 0.48 FX Reserves (US$B) 333.9 335.9 (Feb) 10-yr Gov’t Bond 1.96 1.42 1.36 1.41
FX Reserves (US$B) 119.0 120.7 (Feb)
Japan Australia Discount Rate 0.30 0.30 0.30 0.30 Cash Rate 2.00 2.00 2.00 2.00 3-mo. Libor 0.02 -0.07 -0.07 -0.08 10-yr Gov’t Bond 2.88 2.49 2.40 2.56 10-yr Gov’t Bond 0.27 -0.03 -0.08 -0.12 FX Reserves (US$B) 46.5 40.5 (Feb) FX Reserves (US$B) 1207.0 1223.7 (Feb)
Exchange Rates (end of period)
USDCAD 1.38 1.30 1.30 1.28 ¥/US$ 120.22 112.57 108.07 108.63CADUSD 0.72 0.77 0.77 0.78 US¢/Australian$ 0.73 0.77 0.76 0.77GBPUSD 1.474 1.436 1.413 1.423 Chinese Yuan/US$ 6.49 6.45 6.46 6.48EURUSD 1.086 1.138 1.140 1.130 South Korean Won/US$ 1175 1143 1154 1146JPYEUR 0.77 0.78 0.81 0.81 Mexican Peso/US$ 17.208 17.279 17.776 17.527USDCHF 1.00 0.96 0.95 0.97 Brazilian Real/US$ 3.961 3.592 3.590 3.532
Equity Markets (index, end of period)
United States (DJIA) 17425 17685 17577 17898 U.K. (FT100) 6242 6175 6204 6344 United States (S&P500) 2044 2060 2048 2079 Germany (Dax) 10743 9966 9622 10052 Canada (S&P/TSX) 13010 13494 13397 13639 France (CAC40) 4637 4385 4303 4495 Mexico (IPC) 42978 45881 44859 45522 Japan (Nikkei) 19034 16759 15822 16848 Brazil (Bovespa) 43350 50055 50293 53169 Hong Kong (Hang Seng) 21914 20777 20370 21316 Italy (BCI) 1218 1056 1021 1061 South Korea (Composite) 1961 1996 1972 2015
Commodity Prices (end of period)
Pulp (US$/tonne) 940 940 940 940 Copper (US$/lb) 2.13 2.20 2.11 2.18 Newsprint (US$/tonne) 505 545 545 545 Zinc (US$/lb) 0.73 0.81 0.79 0.84 Lumber (US$/mfbm) 274 303 308 294 Gold (US$/oz) 1060.00 1237.00 1239.50 1227.10 WTI Oil (US$/bbl) 37.04 38.34 39.72 40.61 Silver (US$/oz) 13.82 15.38 15.16 16.17 Natural Gas (US$/mmbtu) 2.34 1.96 1.99 1.93 CRB (index) 176.14 170.52 171.04 174.13
* Latest observation taken at time of writing. Source: Bloomberg, Scotiabank Economics.
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Global Views
April 15, 2016