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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
June 17, 2016
Contact Us
Economics
Friday Will Be Slower In Coming Than Usual 2-4
Derek Holt
What Are Financial Markets Saying About Growth? 5-7
Derek Holt
Evidence Of A Looming US Recession Remains Non-Existent 8-9
Derek Holt
The Bank Of Japan Refrains From Easing Monetary Policy 10
Tuuli McCully
Foreign Exchange Strategy
Shaun Osborne and Eric Theoret
UK Referendum: Timeline Primer And Key Signals 11-12
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
Latest Forecast Tables
Forecasts & Data
This Week’s Featured Chart
For our latest economic, interest and exchange rate and commodity price forecasts, please see the Latest Forecast Tables, June 2, 2016 and the Foreign Exchange Outlook, June 2016, for more detailed currency forecasts and commentary.
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Bookies' Odds Favour Bremain
% implied probability*EU Referendum
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Source: Scotiabank Economics, Bloomberg, Oddschecker. *do not add to 100 due to house earnings.
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Economics
Global Views
June 17, 2016
2
Friday Will Be Slower In Coming Than Usual
Please see our full indicator, central bank, auction and event calendars on pp. A3-A8.
After a week that saw the VIX measure of stock market volatility rise to its highest reading since February (chart 1), it might be natural for markets to be hoping for a little calm next week. Don’t count on it, thanks to developments across the pond that pose the binary risk of making or breaking not just your Friday but quite possibly your week, month, quarter, and who knows, perhaps even the year as a whole. As argued in an article in this week’s Global Views, the broad risk trade is signalling relatively little concern which could mean that upside to the vote’s outcome may be relatively limited on the back of already elevated valuations in high yield, investment grade credit and stocks, while downside risk could be material. What hangs in the balance is a significant part of the outlook for Federal Reserve policy
Europe — Rolling The Dice
If only we could say something about it, a write-up about how we perceive risks surrounding next Thursday’s UK referendum on continued membership in the European Union (aka the “Brexit” vote) might actually be useful. Alas, the extra-territorial features of UK election law surrounding this referendum (read here) stymie strong positions in the debate by virtue of the requirement that all analysis be thoroughly balanced with respect to pros and cons when some don’t believe the risks to be defined as such. This point is generally well understood in the markets, and so we wish you good fortune, and advise you to watch the exit polls that may hit the wires first surrounding the 10pmGMT (6pmET) poll closing. Individual polling centres will disclose results as they are counted on the path toward a fairly clear picture perhaps within 5-6 hours later and in ample time to punt the first market reactions into the Asian overnight session although desks will be staffed throughout the world for this event which, of course, is as good a case as any for a 24 hour coffee chain. The latest composite polling results are shown in chart 2.
All other factors on the European calendar will be trivial by comparison. Purchasing managers’ indices for the month of June arrive on Thursday and will be watched for whether recent upward momentum in composite PMIs covering the manufacturing and services sector can continue to signal improving growth across the Eurozone. Pending the outcome to the Brexit vote, they could be declared past the point of expiry rather quickly. Ditto for the ZEW survey of financial market ‘experts’ a couple of days earlier, and the Friday release of Germany’s IFO survey of business confidence. Italy releases industrial sales and orders and retail sales toward the end of the week, and France revises the Q1 GDP growth estimate on Friday.
Derek Holt 416.863.7707 [email protected]
THE WEEK AHEAD
Next Week's Risk Dashboard
UK EU referendum
Yellen’s semi-annual testimony
European PMIs, ZEW, IFO
US home sales and investment
Heavy US auction calendar
CDN retail sales
Japanese exports
RBA minutes
BoT, Bankgo Sentral ng Pilipinas
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04/16 05/16 06/16
Bookies Odds Favour Bremain
% implied probability*EU Referendum
Remain in EU
Source: Scotiabank Economics, Bloomberg, Oddschecker. *do not add to 100 due to house earnings.
Leave EU
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Stock Index Volatility
index
Source: Scotiabank Economics, Bloomberg.
VIX
Chart 2
Chart 1
Economics
Global Views
June 17, 2016
3
… continued from previous page
United States — Why Not Cancel?
Absent the UK referendum and the particularly disappointing May payrolls report, Fed Chair Yellen’s testimony next week could have been relevant to markets. What further diminished the significance of the testimony is that it follows the June 15th FOMC statement, forecasts and full press conference. It is difficult to imagine what if anything new Yellen could say when she sits to testify before the Senate Banking Committee on Tuesday and for the usual re-run before the House Financial Services Committee the next day. Ditto for appearances by Governor Powell, and a pair of regional Fed Presidents including Neel Kashkari of the Minneapolis Fed (alternate) and Rob Kaplan of the Dallas Fed (alternate). The only real case for continuing with her testimony is out of respect to Congress, and to possibly further spell-out contingency planning steps that the Federal Reserve may undertake.
Data risk will be focused upon housing and investment. And boy, what a week it might be for housing data. Completed existing home sales transactions will be released for the month of May on Wednesday. Recall that completed resales follow pending home sales 30-90 days after the initial contract is signed. As chart 3 demonstrates, seasonally adjusted pending home sales have been soaring this Spring. The monthly pace of growth in pending home sales has trended upward since the weakness at the start of the year and is at its fastest since 2010 when temporary homebuying stimulus was offered. This is expected to translate into the highest level of existing home sales since early 2007. By contrast, new home sales face downside risk in next week’s May print but only because their time in the sun was the prior month when sales soared to the highest seasonally adjusted volume since January 2008. The overall Spring housing market has been a very strong one by the standards of the past nine years.
Don’t look for a repeat of the upside in the April durable goods orders print when May figures arrive at the end of the week. Recall that it was nondefense plane orders that made durable goods orders a strong upside beat (+3.4% m/m) in April. That was because all of consensus generally pays the most attention to plane orders provided monthly from Boeing, and failed to account for large orders by US airlines of 75 c-series planes from Canada’s Bombardier by Delta and 30 E-175 orders from Brazil’s Embraer by Horizon Air. As usual, the key will nevertheless be to focus upon the core capital goods orders excluding air and defense.
After upside surprises in the Empire and Philly Fed metrics with mixed details (Philly was all in prices paid), tracking risk across regional manufacturing surveys onto the next ISM-manufacturing release will be further informed by surveys from the Chicago and KC Fed.
Note that it’s also a heavy auction week as Treasury jams markets just before the UK referendum. The US auctions 2s, 5s, 7s, 30 year TIPS, and 2 year forward rate notes in a reopening.
Canada — Retail Sales To Quickly Give Way To Brexit Risks To CAD
The same message applies to Canadian markets in that the outcome of the UK referendum into the Thursday overnight and Friday sessions could be the dominant influence upon local market tone for the week. A ‘leave’ vote would probably hit CAD hard as safehaven flows would flood into the USD and yen. A ‘remain’ vote would probably pose less but not negligible risk of CAD appreciation to end the week.
Derek Holt 416.863.7707 [email protected]
THE WEEK AHEAD
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U.S. Housing Markets On A Tear
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Source: Scotiabank Economics, NAR.
Economics
Global Views
June 17, 2016
4
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Before the vote, retail sales covering wayyyy back in April will land on Wednesday. While potentially an historical footnote pending global developments, the April reading will help to inform us about Q2 GDP growth tracking risks and monthly GDP for April that arrives the following Thursday. We think retail sales could pop sharply higher if for no other reason than how they exited Q1. Recall that the dollar value of sales fell by 1% m/m in March and fell by 1.3% in volume terms. The dollar value of sales is expected to rebound by at least a half percentage point on the back of higher gasoline prices, largely unchanged auto sales versus the prior month, and core sales difficult to track other than through anecdotes and base effects.
Either way, Q2 consumption growth will struggle to keep up with growth in Q1 (chart 4). Retail sales volumes were up 6.4% q/q at a seasonally adjusted and annualized pace in the unusually mild winter that covered Q1 data. The decline at the end of Q1 put Q2 behind the eight-ball with hand-off math tracking no growth via sales momentum.
Canada auctions 10s on Wednesday at noon after the retail report.
Asia — Not The First To React
About the most interesting thing that will happen in Asian markets next week takes the form of getting somewhat of a jump on other global markets in reaction to the UK referendum outcome. Or not. London FX and rates desks are expected to be staffed overnight, so that may well take away much of Asia’s edge. For instruments and accounts that are more limited in where they can be traded, the effects will trickle in as markets open in Asia and then through to the North American and LatAm opens.
Otherwise, Asian market developments are unlikely to pose material risk to global markets next week as all developments will be local in nature, and perhaps confined to speaking about dated developments or contingency planning.
Only one within consensus expects the Bank of Thailand to cuts its benchmark policy interest rate on Wednesday, and no one expects Bangko Sentral ng Pilipinas to make a move on Thursday. Minutes to the June 7th RBA meeting (Monday) and Japanese export figures (Monday) round out the calendar.
Derek Holt 416.863.7707 [email protected]
THE WEEK AHEAD
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Canadian Real Retail Salesq/q % change, SAAR
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Source: Scotiabank Economics, Statistics Canada.
Chart 4
Economics
Global Views
June 17, 2016
5
What Are Financial Markets Saying About Growth?
The risk trade remains highly resilient while low sovereign bond yields reflect policy distortions and bear no resemblance to the fundamentals. Pending Brexit, the Federal Reserve may return to expressing concern over excessive risk taking.
Notwithstanding the last several days of mixed trading activity, we’re still somewhat amazed at how resilient the broad risk trade has been. In fact, if large risks overhang the balance of fortunes facing the world economy, then someone forgot to tell markets that have in a grander sense been minimally affected thus far. This carries important implications to the outlook for the Federal Reserve among other loftier issues; on the back of current valuations, markets could be more vulnerable to downside than upside risks following next Thursday’s UK referendum and the outcome could have the Federal Reserve either feeling validated in its recent dovishness or gradually returning toward expressing concerns over high risk tolerance. Consider the evidence:
Bloomberg’s US high yield index has recaptured all-time highs after hitting a three-year low back in February (chart 1) so risk appetite has been fully restored in that market especially ex-energy but also with energy high yield having recovered about half the damage since mid-2014 over recent months.
Higher grade corporate spreads have also narrowed in rather sharply over recent months so it’s not just a lower yields story (chart 2).
Oil prices are retaining the bulk of the run-up since February despite having fallen back by a so far relatively minor $4 on WTI from the recent peak.
Stocks — despite mild weakness for a few days — are still at elevated levels and not showing much concern as evidenced by various equity valuation measures. While equity markets face all manner of risks going forward and not just including next week’s Brexit vote, it’s important to have a baseline understanding of valuation parameters heading into potentially peak risks. For instance, if the evidence points to huge over-valuation of equities before potentially enormous uncertainty escalates, then that’s a bigger issue to markets than if the opposite extreme held whereby equities are undervalued ahead of such risks.
With this issue in mind, we’ve updated the eight valuation metrics we use for the S&P500 (charts 3-10). No one single valuation metric is better than others and so assessing value is always done through a blend of approaches. The net conclusion is that stocks are hardly cheap but are not obviously overbought either. Summary points for each valuation parameter are as follows:
price-earnings ratios: there are at least three ways of defining these. One is price to trailing earnings per share over the prior year. Another is price compared to analysts’ expectations for earnings per share one year forward. A third is Robert Shiller’s cyclically adjusted price-earnings ratio (CAPE) which compares price to a ten-year cycle averaged earnings per share which controls for the issue of comparing price to a single spot estimate of earnings whether trailing or forward. All of these measures are useful but don’t encompass earnings per share expectations over the full cycle ahead which in theory is what investors pay for when buying stocks.
Derek Holt 416.863.7707 [email protected]
U.S. MACRO COMMENT
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BloombergHigh YieldIndex
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Source: Scotiabank Economics, Bloomberg
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Source: Scotiabank Economics, Bloomberg
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Economics
Global Views
June 17, 2016
6
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price-to-book: this is self-evident in comparing price to the book value of a firm’s equity and so by definition it compares a market value to an estimate of firm value at the point the assets are put on the books and subject to sundry accounting policy choices that value investors then strip out to convert back to undistorted pro forma cash flow estimates.
dividend yield: dividend payments as a percentage of the stock price. Obviously excluded is any estimate of capital gains over time that could arise from assuming a non-constant divided stream.
The ‘Fed’ model: is actually not a Fed model despite popularly referenced as such because former Chairman Alan Greenspan cited its use. Benjamin Graham advanced this in his tome titled Security Analysis first published in 1940 that is to be found on every self-respecting value investor’s bookshelf. Comparing the simple earnings yield on the S&P500 to the 10 year Treasury yield in spread terms is one way of approaching the issue of whether to overweight stocks or bonds. A large positive yield spread in favour of stocks is often cited as justification for current valuations.
Tobin’s ‘Q’: this is defined as either price compared to the replacement cost of all of the firm’s assets or just its equity. This measure is elevated but not at a record.
So the broad risk trade isn’t supportive of the bias that one may have that markets in general are signalling deep concern over the outlook. Indeed, far from it. So when people say that markets are deeply concerned about the outlook,
U.S. MACRO COMMENT
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Chart 9
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Economics
Global Views
June 17, 2016
7
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What they really mean is much more specific: that sovereign bonds may be signalling deep concern. We would dispute that, however, on two counts:
First, the Treasury curve is signalling only about a 7% probability of US recession using traditional slope models such as the one run by the NY Fed (here), and even at that they have thrown off false recession signals over time — let alone addressing the usefulness of such an approach in today’s distorted markets.
Second, it’s bordering upon the outright absurd to argue that sovereign bonds are saying anything useful about the fundamentals.
On this latter point, observe the Swiss government 30 year bond yield of -0.02%. That’s right, if you hold the bond to maturity then in local currency terms you are guaranteed of losing 2bps on your investment. Since one valuation approach used to be that longer-term sovereign bond yields should roughly track nominal GDP growth, does this mean the bond market thinks the Swiss economy will achieve some combination of absolutely no long-run real growth and no long-run inflation for the next three decades? Or take German 10s at 0.03% and flirting with negative territory. Does this mean that the bond market thinks that one of the most dynamic, innovative and export-oriented economies in the world will have some combination of zero growth in real GDP and no inflation over the next decade? Even take US 10s at 1.6%; we don’t believe the US economy faces some combination of very little real GDP growth and very little inflation over the next decade.
And so therefore the question is: whether the risk trade has the outlook right (which would be encouraging); whether the sovereign bond market has it right (which would be a warning sign); or whether neither is true because bonds are divorced from fundamentals and being inflated by central bank actions to the point to which the curve is a useless forecasting tool and the risk trade may be naively positioned ahead of key risks.
Personally I lean toward the latter whereby the risk trade may be vulnerable pending the Brexit outcome but the binary risk points in both directions, while sovereign bonds are in a policy-fed bubble. Personally I think yield levels are so seriously distorted by policy measures in keeping with early-crisis theories of financial repression in the wake of major debt crises that I wouldn’t use them as tools that presage much of anything. When you can borrow down toward the ECB’s -0.4% deposit rate and TLTROs are so generous in their offerings, everything yielding anything better than that offers positive carry off the ECB balance sheet and drags the whole term structure lower. When the US Fed owns almost half of the 10s+ section of the Treasury curve and holds it off-market while pushing rising demand from pensions, life cos and others into a shrunken amount of tradeable supply and is complemented in such efforts by aggressive QE actions across the ECB, BoJ and BoE (see chart), then the result is central bank distortion of sovereign bond prices. Such actions will intensify bond scarcity as the ECB and BoJ continue to ramp up ownership of EGBs and JGBs.
The conclusion is wrapped around the issue of order of causality between rates, fundamentals and central bank influences. Of the choices below, I continue to prefer #3 in that central banks are benefiting the risk trade but not the real economy. This means low yields for long amidst largely trivial debates over precisely how low and for precisely how long. It is an experiment in central banking awaiting a highly uncertain outcome by way of the impact on investor mentality, lender attitudes, and confidence in the financial system.
1. Weak fundamentals ==> central bank actions ==> low yields and flat curves
Vs.
2. Low yields and flat curves ==> souring fundamentals ==> central bank actions
Vs.
3. Central bank actions ==> low yields and flat curves ==> weak fundamentals
U.S. MACRO COMMENT Derek Holt 416.863.7707
Chart 11
Economics
Global Views
June 17, 2016
8
Evidence Of A Looming US Recession Remains Non-Existent
Neither the interest sensitives nor the macro stylized facts point to recession risks.
We continue to lean against the recessionistas among US economists who think that a long expansion to date must by some law of the heavens end imminently in a bust. True, this expansion that began in July 2009 using the NBER’s dating methodology (here) is the fourth longest on record and just a few months away from becoming the third longest one on record after next February— behind only the ones that spanned the 1991-2001 period and the 1961-69 episode (chart 1). When it trips that magical month into the third longest on record expect the recession camp to be hitting the headlines again. Substantial event risk clearly lies ahead, but that’s not what the recession camp hangs its arguments upon.
In the absence of a more rigorous theoretical framework that would enable one to define the appropriate length of a business cycle, other evidence needs to be considered. Let’s start with two specific markets that garner a considerable amount of the attention in the debate before going more macro with the arguments.
First, with housing starts still running below a long-run average, it remains rather silly to be talking about an exhausted cycle just because starts and home sales have recovered from the worst depths of past years. Of course that doesn’t even consider population growth over time. In per capita terms, housing starts today remain at levels once considered to be recessionary such as in the early 1990s or early 1980s (chart 2). And on price metrics, we offer charts 3-5 that also make it tough to reason that the price cycle is looking toppish.
Second, also consider that auto sales per capita are in a similar boat. All they have achieved is to return to close to the long-run average (chart 6). That’s from a flow perspective, but the current flow ignores the catch-up argument in that it’s likely that considerable pent-up demand for autos remains after the record depths to which sales per capita had plunged over 2008-09. Add in free financing, robust household finances as measured by the lowest debt service burden on record and the highest net worth to income ratio ever, and technological change that is constantly adding new features to today’s vehicles and the overall incentives to upgrade are strong. As evidence, despite robust sales of late, the median age of vehicles in operation on US roads remains at its highest. Ever (chart 7).
Derek Holt 416.863.7707 [email protected]
U.S. MACRO COMMENT
Chart 2 Chart 3
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Source: Scotiabank Economics, Census Bureau.
Economics
Global Views
June 17, 2016
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The charts on the interest-sensitive sectors above are a starting point in this regard in that they don’t show any compelling evidence that the interest-sensitives are over-shooting the cycle. The arguments run deeper yet, and include charts 8 and 9. Usually when expansions turn to busts, the economy is showing clear signs of overheating. It is running at excess aggregate demand that is stoking large upsides to wage and price pressures that the Federal Reserve has almost always (except the Great Depression) reacted to too late in the game and, when it did react, had to slam on the brakes hard enough to toss the economy into recession. So what’s the evidence this time so far? The US is still in net slack with spare capacity as measured by the output gap equal to about 2% of the economy by both the OECD’s and IMF’s estimates (chart 8). Being below the zero line thus connotes a very different picture than, say, the dot-com and pre-crisis periods of excess aggregate demand. Chart 9 shows that wage growth — while having picked up to around 2 ½% y/y in nominal terms, is not exhibiting the kind of acceleration that typically took place before past recessions marked by the pink vertical lines on the chart since the 1960s and again using the NBER’s definition of recessions. And the Fed is going nowhere in a hurry.
If there is a greater risk of cyclical imbalance this time around compared to past cyclical problems, then it lies in what global monetary policy has done to the financial markets. Sovereign bonds are in deep bubble territory globally and are 100% divorced from the fundamentals unless you think the German and Swiss economies, for example, will post no growth and no inflation on average over coming decades and the US economy won’t be much further ahead. I certainly don’t believe that, and a logical term premium is entirely absent from many curves as central bank actions have eliminated it. US high yield has recaptured all-time highs after the temporary ravaging effects of magnified seasonality in China’s capital account rocked global markets earlier in the year. We don’t think stocks are in bubble territory as in 1987 or the dot-com period, but they’re at the upper end of fair value using the balance of eight metrics we track for the S&P500. Monetary policy has created financial market imbalances. Whereas monetary policymakers beseech governments to pursue structural reforms and fiscal stimulus, monetary policy has played a role in ensuring they won’t. Perhaps they had no other choice, but then rein in the amazement over how governments have responded to central bank actions. Governments act when under pressure of a crisis, and being able to borrow lots of money for nothing decades into the future does not create the exigent circumstances required in order to pursue reforms. This has been among the concerns about global monetary policy that we’ve expressed for a very long period and yet monetary policymakers don’t seem to know when enough is enough.
U.S. MACRO COMMENT Derek Holt 416.863.7707
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Economics
Global Views
June 17, 2016
10
The Bank Of Japan Refrains From Easing Monetary Policy
The Bank of Japan (BoJ) decided to keep its policy of “Quantitative and Qualitative Monetary Easing with a Negative Interest Rate” unchanged following the scheduled monetary policy meeting on June 15th-16th.
The BoJ decision to maintain a wait-and-see mode reflects the current uncertain global economic backdrop. Nevertheless, we retain our view that further monetary easing is in store in the near term.
The BoJ will continue to implement its prior policy of increasing Japan’s monetary base by ¥80 trillion annually through large-scale asset purchases of government bonds, exchange-traded funds, and real estate investment trusts. In addition, the central bank continues to apply an interest rate of -0.1% to financial institutions’ excess deposits at the central bank. The decision to stay on hold likely reflects current global uncertainties, such as the June 23rd vote in the UK regarding the country’s future membership in the European Union, the U.S. Federal Reserve’s apparent hesitation to normalize monetary policy, and the approaching upper house elections in Japan on July 10th. The monetary policy announcement prompted a large market response. On June 16th, the Japanese yen (JPY) appreciated by 1.7% against the US dollar (USD) to USDJPY104.26, reaching a level last seen at the end of August 2014.
According to the monetary policy statement, the BoJ’s Policy Board assesses that Japan’s private consumption is resilient and that business fixed investment remains on a gradually increasing trend. Nevertheless, policymakers point out that the country’s exports and production activity are sluggish and this is expected to continue for the time being. While the Japanese economy avoided a technical recession in the first quarter of 2016, its real GDP has barely grown over the past year. We forecast Japan’s output to expand by 0.7% in 2016 as a whole.
Japan’s inflation outlook remains muted. The BoJ’s monetary authorities expect core consumer price inflation (CPI excl. fresh food) to remain slightly negative or around 0% y/y in the near term. However, they remain optimistic that the inflation rate will eventually start accelerating toward the BoJ’s 2% y/y target. Japan’s core inflation rate returned to negative territory in March and remained at -0.3% y/y in April; we do not anticipate the inflation target to be met in the foreseeable future. In our view, inflation will likely accelerate to 0.5% y/y by the end of the year and remain below 1% through 2017.
We assess that the Japanese economy is in need of further monetary stimulus given the recent re-emergence of deflationary pressures and lacklustre economic momentum, combined with the JPY’s strengthening bias and soft equity prices. Earlier this month, Prime Minister Shinzo Abe announced that the consumption tax rate hike from 8% to 10%, scheduled for April 2017, will be postponed until October 2019 and that a second supplementary budget will be unveiled over the coming months. We had expected coordinated policy action with an injection of fresh monetary stimulus complementing the fiscal boost; nevertheless, we now consider that July will likely bring about the missing monetary policy piece given that “Brexit” uncertainties and Japan’s upper house elections will have passed by then. This is supported by the Policy Board’s stance that the BoJ will take additional monetary easing measures if it considers them necessary for achieving the inflation target.
Tuuli McCully 65.6305.8313 [email protected]
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Headline
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Chart 1
Foreign Exchange Strategy
Global Views
June 17, 2016
11
UK Referendum: Timeline Primer And Key Signals
The UK referendum continues to monopolize the market’s focus, and risk remains elevated as we approach the vote on Thursday, June 23. The outcome is expected to become clear in the early hours on Friday, June 24 (all hours ET — Eastern Time). We provide a timeline below and identify some of the signals that will be crucial in driving the market tone as participants extrapolate the results from key council areas in consideration of their implications for the broader outcome.
Referendum voting is set to begin at 2:00am ET on Thursday, June 23, with polls scheduled to close at 5:00pm ET. Over 382 council areas will report their results, the earliest estimated to begin at 7:30pm ET and the latest expected by 2:00am ET on Friday, June 24. A strong sense of the overall result should be available between 10:00pm ET and 12:00am ET, and media outlets will likely offer projections throughout. The last UK referendum counting took more than 24 hours to deliver the final, official result.
Some of the earlier reporting areas are considered to be relatively polarized and their results may provide early clues to the outcome of the broader referendum. We look specifically to Sunderland, Oldham, Wandsworth and Swindon, given their polarized “Eurosceptic” rankings based on a recent Sky News study. All are expected to announce their results between 7:30pm ET and 8:00pm ET.
Europhobe Sunderland, Oldham and Swindon all lean quite heavily towards Leave so a strong showing for Remain would likely trigger some anticipation of a Remain win. Conversely, a strong showing for Leave in the very Europhile London borough of Wandsworth would point to Remain perhaps struggling nationally. Market participants should be familiar with these risks and deviations from the anticipated outcomes will be key in determining the market’s initial reaction to the vote counting.
Recent opinion polling has shown a tightening in the race and, over the past week, a small lead has been established by Leave. Probabilities implied by betting odds have consistently favored a Remain win this year and continue to do so. Thursdays’ murder of British MP Jo Cox has helped reverse a narrowing in probabilities that had been observed on a month-to-date basis. Remain’s probability has nudged back toward 70% following Tuesday’s drop to the low 60s.
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A M J J A S O N D J F M A M J
2015 2016
Remain/Leave Probability Gap Narrows
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Remain
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2015 2016
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Eric Theoret 416.863.7030 [email protected]
Shaun Osborne 416.945.4538 [email protected]
Foreign Exchange Strategy
Global Views
June 17, 2016
12
… continued from previous page
Market concerns are elevated and investors will be hyper-sensitive to news flow through Thursday’s NA close and into the open of Friday’s Asian trading session. With results expected to trickle out after the North American market close and over the most illiquid part of the trading day, market participants — and market regulators — will be wary of market disruptions.
Measures of implied volatility have skyrocketed in response to the tremendous amount of uncertainty created by the referendum (and the recent tightening in the race), given the binary nature of event. GBP vols have risen to levels last seen in the 2008 financial crisis, pulling the broader G7 vol complex higher. Markets have, to some extent, already priced in the risk of significant spot moves around the referendum (we have noted that break-evens on short-term GBPUSD option volatility suggest spot moves of 9-10 big figures on the day).
However, we think that illiquid or dysfunctional market conditions will prompt a response from the major central banks. This may come in the form of reassuring liquidity provisions to the banking system or direct intervention in the FX markets to ensure two-way pricing. The last, coordinated central bank response of this sort followed the March 2011 tsunami in Japan.
Eric Theoret 416.863.7030 [email protected]
Shaun Osborne 416.945.4538 [email protected]
Economics
Global Views
June 17, 2016
13
Key Data Preview
CANADA
We’re looking for a modest rebound in retail sales for April of +0.4% m/m driven by some catch-up from a quite poor March. In terms of subcomponents, an increase in oil prices at the pump (+5% m/m) should bolster headline retail sales, and our autos economist Carlos Gomes estimates that car sales hit 2m annualized in April vs. a similar level in March before falling to an annualized 1.88m in May. Looking at trends in the larger data series, March saw retail sales drop from a post-crisis high in February and, even with the decline, are still running at +3.2% y/y, down from +5.7% y/y in February. The run-rate should probably be somewhere in between, and a +0.4% m/m print would leave annual retail sales running at 4%, which fits our view on where trend should probably be.
UNITED STATES
Durable goods orders for May should show a modest increase and we’re looking for a +0.8% m/m number on headline. There are some incremental positives on the month including an increase in orders registered at Boeing (125 vs. 34) and new orders momentum (there was a small improvement in the ISM Manufacturing Index on the month though we would add that the new orders numbers were unchanged). The biggest negative on the month was a reduction in autos output, which sank to the lowest level in more than a year, and could bring with it a reduction in new orders of cars.
Home sales should be on the flat side, and we’re expecting a small increase in existing home sales (5.5m vs. 5.45m) and a leveling off in new home sales after an unexpected upside surprise in the latter in April. Coincident and leading indicators remain strong: mortgage costs are low, incomes are up solidly in year-on-year terms as is employment, and pending home sales were on a strong upswing in March and April. In terms of new home sales, traffic in model homes has been elevated for a couple of years, though the index that tracks it did slip in Feb.-May.
Dov Zigler 212.225.6631 [email protected]
Derek Holt 416.863.7707 [email protected]
A1
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CanadaRetailSales
Canada, Nominal Retail Sales
C$, Billions
Source: Scotiabank Economics, Statistcs Canada
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-08
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c-0
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-11
Sep
-11
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-12
No
v-1
2
Jun-
13
Jan-
14
Aug
-14
Mar
-15
Oct
-15
May
-16
ISM Manufacturing New Orders Index
Source: Bloomberg, Scotiabank Economics
Index
3.0
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3.4
3.6
3.8
4.0
4.2
4.4150
175
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225
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275
13 14 15 16
Mortgage Purchase Applications (LHS)
US Home Mtg 30-year Fixed Rate (RHS, Inverted)
%
Source: Scotiabank Economics, Bloomberg.
Mortgage Purcase Applications &30-Year Fixed Rate Mortgage Rate
Index
Chart 1
Chart 2
Chart 3
Economics
Global Views
June 17, 2016
14
… continued from previous page
EUROPE
Fears of a UK exit from the European Union will likely continue to fuel global uncertainty this week. Polls over the past week suggest that the leave camp is in the lead, which has weighed on the pound and increased financial market volatility. Indeed, financial markets will be eagerly awaiting the outcome of the UK’s EU referendum on June 23rd as the Bank of England and other major central banks around the world prepare for the economic and financial market impact that could arise should the UK vote to leave. Eurozone PMIs for June will also be released on June 23rd. We expect the composite index to remain roughly stable at 53.0. However, the impact of strikes and floods on France’s service sector and the UK referendum present downside risks.
LATIN AMERICA
Mexico will publish its economic activity indicator (IGAE) data for April on Thursday, June 23rd. We expect the GDP proxy to bounce back to between 3.0-3.5% y/y in April from a weak 1.2% print in the prior month. Indeed, industrial production grew stronger than expected in April, after its steepest annual drop in almost 3 years, alongside solid gains in manufacturing, construction and utilities, which provided an offset to ongoing weakness in the mining sector. However, m/m industrial output has decreased for 6 of the last 7 months. April retail sales figures will be released on Friday. We forecast that the strong trend in retail sales growth will persist, at roughly 8.0-8.5% y/y. The services sector‘s performance continues to outperform the rest of the economy thanks to formal employment gains and increases in real wages.
ASIA
The Asian data calendar is relatively light over the coming week and market participants will focus their attention on the June 23rd vote on the UK’s future membership in the European Union. Hong Kong and Singapore will release May inflation data on June 21st and 23rd, respectively. In Hong Kong, headline inflation has started to cool, reaching 2.7% y/y in April compared with a 3.0% print in February. We expect this trend to continue with prices estimated to record a 2.6% y/y rise in May. Hong Kong’s headline level is propped up by higher housing costs that reflect the government’s property tax policies. This impact will wane off in the final months of 2016 with headline inflation expected to ease significantly. In Singapore, deflationary pressures persist on the back of softer property market conditions. We estimate that consumer prices dropped by 0.8% y/y in May compared with a 0.5% decline a month earlier. Modest inflationary pressures will likely emerge in the final months of the year on the back of higher energy prices, yet the annual average inflation rate is set to remain negative in 2016 for the second consecutive year.
A2
Tuuli McCully 65.6305.8313 [email protected]
Juan Manuel Herrera 416.862.3174 [email protected]
Erika Cain 416.866.4205 [email protected]
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Eurozone Composite PMI
index
forecast
Source: Bloomberg, Scotiabank Economics.
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Mexican IGAE and Retail Salesy/y % change, 3mma
Source: Scotiabank Economics, INEGI.
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Retail Sales
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Inflation in Hong Kong & Singapore
y/y % change
Source: Scotiabank Economics.
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Hong Kong
Forecast
Chart 3
Economics
Global Views
June 17, 2016
1
Key Indicators for the week of June 20 – 24
Forecasts at time of publication. Source: Bloomberg, Scotiabank Economics.
North America
A3
Europe
Country Date Time Indicator Period BNS Consensus LatestCA 06/20 08:30 Wholesale Trade (m/m) Apr 0.4 0.5 -1.0
US 06/22 07:00 MBA Mortgage Applications (w/w) JUN 17 -- -- -2.4CA 06/22 08:30 Retail Sales (m/m) Apr 0.4 0.9 -1.0CA 06/22 08:30 Retail Sales ex. Autos (m/m) Apr 0.2 0.8 -0.3US 06/22 10:00 Existing Home Sales (mn a.r.) May 5.5 5.6 5.5US 06/22 10:00 Existing Home Sales (m/m) May -- 1.8 1.7
US 06/23 08:30 Initial Jobless Claims (000s) JUN 18 270 270 277US 06/23 08:30 Continuing Claims (000s) JUN 11 2150 2150 2157MX 06/23 09:00 Bi-Weekly CPI (% change) Jun 15 -- 0.1 0.2MX 06/23 09:00 Bi-Weekly Core CPI (% change) Jun 15 -- 0.1 0.1MX 06/23 09:00 Global Economic Indicator IGAE (y/y) Apr 3.3 3.0 1.2US 06/23 10:00 Leading Indicators (m/m) May -- 0.2 0.6US 06/23 10:00 New Home Sales (000s a.r.) May 575.0 560.0 619.0
US 06/24 08:30 Durable Goods Orders (m/m) May P 0.8 -0.6 3.4US 06/24 08:30 Durable Goods Orders ex. Trans. (m/m) May P 0.1 0.1 0.5MX 06/24 09:00 Retail Sales (INEGI) (y/y) Apr 8.3 8.5 6.4US 06/24 10:00 U. of Michigan Consumer Sentiment Jun F -- 94.3 94.3
Country Date Time Indicator Period BNS Consensus LatestGE 06/20 02:00 Producer Prices (m/m) May -- 0.3 0.1
UK 06/21 04:30 PSNB ex. Interventions (£ bn) May -- 9.5 7.2UK 06/21 04:30 Public Finances (PSNCR) (£ bn) May -- -- -2.4UK 06/21 04:30 Public Sector Net Borrowing (£ bn) May -- 9.4 6.6EC 06/21 05:00 ZEW Survey (Economic Sentiment) Jun -- -- 16.8GE 06/21 05:00 ZEW Survey (Current Situation) Jun -- 53.0 53.1GE 06/21 05:00 ZEW Survey (Economic Sentiment) Jun 3.0 4.5 6.4TU 06/21 07:00 Benchmark Repo Rate (%) Jun 21 7.50 7.50 7.50
EC 06/22 10:00 Consumer Confidence Jun A -7.0 -7.0 -7.0
FR 06/23 03:00 Manufacturing PMI Jun P -- 48.8 48.4FR 06/23 03:00 Services PMI Jun P -- 51.6 51.6GE 06/23 03:30 Manufacturing PMI Jun P -- 52.0 52.1GE 06/23 03:30 Services PMI Jun P -- 55.0 55.2EC 06/23 04:00 Composite PMI Jun P 53.1 53.0 53.1EC 06/23 04:00 Manufacturing PMI Jun P 51.7 51.4 51.5EC 06/23 04:00 Services PMI Jun P 53.0 53.2 53.3NO 06/23 04:00 Norwegian Deposit Rates (%) Jun 23 0.50 0.50 0.50
FR 06/24 02:45 GDP (q/q) 1Q F 0.6 0.6 0.6GE 06/24 04:00 IFO Business Climate Survey Jun 107.9 107.4 107.7GE 06/24 04:00 IFO Current Assessment Survey Jun 115.0 114.0 114.2GE 06/24 04:00 IFO Expectations Survey Jun 101.0 101.2 101.6FR 06/24 12:00 Total Jobseekers (000s) May 3531.0 -- 3511.1FR 06/24 12:00 Jobseekers Net Change (000s) May 20.0 -- -19.9
Economics
Global Views
June 17, 2016
2
Key Indicators for the week of June 20 – 24
Forecasts at time of publication. Source: Bloomberg, Scotiabank Economics.
A4
Asia Pacific
Country Date Time Indicator Period BNS Consensus LatestSK 06/19 17:00 PPI (y/y) May -- -- -3.1JN 06/19 19:50 Merchandise Trade Balance (¥ bn) May -- 70.0 823.2JN 06/19 19:50 Adjusted Merchandise Trade Balance (¥ bn) May -- 113.4 426.6JN 06/19 19:50 Merchandise Trade Exports (y/y) May -- -10.0 -10.1JN 06/19 19:50 Merchandise Trade Imports (y/y) May -- -13.8 -23.3PH JUN 19-20 Balance of Payments (US$ mn) May -- -- 184.0
JN 06/20 01:30 Nationwide Department Store Sales (y/y) May -- -- -3.8TA 06/20 04:00 Export Orders (y/y) May -- -7.0 -11.2AU 06/20 21:30 House Price Index (y/y) 1Q -- 7.5 8.7
JN 06/21 00:30 All Industry Activity Index (m/m) Apr -- 1.2 0.1JN 06/21 01:00 Supermarket Sales (y/y) May -- -- -0.7HK 06/21 04:30 CPI (y/y) May 2.6 2.6 2.7TA 06/21 20:30 Unemployment Rate (%) May 4.0 4.0 4.0
TH 06/22 03:30 BoT Repo Rate (%) Jun 22 1.50 1.50 1.50JN 06/22 22:00 Markit/JMMA Manufacturing PMI Jun P -- -- 47.7
JN 06/23 01:00 Coincident Index CI Apr F 112.2 -- 112.2JN 06/23 01:00 Leading Index CI Apr F 100.5 -- 100.5SI 06/23 01:00 CPI (y/y) May -0.8 -0.8 -0.5PH 06/23 04:00 Overnight Borrowing Rate (%) Jun 23 3.00 3.00 3.00TA 06/23 04:00 Industrial Production (y/y) May -- -1.2 -4.1HK 06/23 04:30 BoP Current Account (HK$ bns) 1Q -- -- 25.8PH 06/23 21:00 Imports (y/y) Apr -- 15.1 11.7PH 06/23 21:00 Trade Balance (US$ mn) Apr -- -1800.0 -1747.0TH 06/23 23:30 Customs Exports (y/y) May -- -4.1 -8.0TH 06/23 23:30 Customs Imports (y/y) May -- -5.0 -14.9TH 06/23 23:30 Customs Trade Balance (US$ mn) May -- 2299.5 721.3VN JUN 23-24 CPI (y/y) Jun -- -- 2.3SK JUN 23-30 Department Store Sales (y/y) May -- -- 4.3
SI 06/24 01:00 Industrial Production (y/y) May -- 1.1 2.9
Latin America
Country Date Time Indicator Period BNS Consensus LatestCO 06/20 15:00 Trade Balance (US$ mn) Apr -- -1035.2 -1116.9
CO 06/22 Overnight Lending Rate (%) Jun 22 7.50 7.50 7.25
BZ 06/24 09:30 Current Account (US$ mn) May -- 1500.0 412.0
Economics
Global Views
June 17, 2016
3
Global Auctions for the week of June 20 – 24
North America
Europe
Source: Bloomberg, Scotiabank Economics.
A5
Country Date Time EventUS 06/20 11:30 U.S. to Sell USD31 Bln 3-Month BillsUS 06/20 11:30 U.S. to Sell USD26 Bln 6-Month BillsUS 06/20 13:00 U.S. to Sell USD26 Bln 2-Year Notes
US 06/21 11:30 U.S. to Sell USD20 Bln 52-Week BillsUS 06/21 11:30 U.S. to Sell 4-Week BillsUS 06/21 13:00 U.S. to Sell USD34 Bln 5-Year Notes
US 06/22 11:30 U.S. to Sell USD13 Bln 2-Year Floating Rate Notes ReopeningUS 06/22 11:30 U.S. to Sell USD5 Bln 30-Year TIPS ReopeningCA 06/22 12:00 Canada to Sell CAD3 Bln 1.5% 2026 BondsUS 06/22 13:00 U.S. to Sell USD28 Bln 7-Year Notes
Country Date Time EventBE 06/20 05:30 Belgium to Sell 1% 2026 BondsBE 06/20 05:30 Belgium to Sell 1% 2031 BondsBE 06/20 05:30 Belgium to Sell 1.9% 2038 BondsNE 06/20 05:30 Netherlands to Sell Up to EUR2 Bln 70-Day BillsNE 06/20 05:30 Netherlands to Sell Up to EUR2 Bln 161-Day BillsFR 06/20 08:50 France to Sell Up to EUR3.5 Bln 91-Day BillsFR 06/20 08:50 France to Sell Up to EUR1.5 Bln 154-Day BillsFR 06/20 08:50 France to Sell Up to EUR1.2 Bln 336-Day Bills
SP 06/21 04:30 Spain to Sell BillsMB 06/21 05:00 Malta to Sell 91-Day BillsMB 06/21 05:00 Malta to Sell 182-Day BillsEC 06/21 05:10 ECB Main Refinancing Operation ResultSZ 06/21 05:15 Switzerland to Sell 91-Day BillsEC 06/21 06:30 ESM to Sell Up to EUR1.5 Bln 182-Day Bills
SW 06/22 05:03 Sweden to Sell SEK3.5 Bln 4.25% 2019 BondsGE 06/22 05:30 Germany to Sell EUR1 Bln 2.5% 2046 Bonds
NO 06/23 06:00 Norway Bills Auction Announcement
IC 06/24 06:00 Iceland to Sell BondsUK 06/24 06:00 U.K. to Sell GBP500 Mln 28-Day BillsUK 06/24 06:00 U.K. to Sell GBP1.5 Bln 91-Day BillsUK 06/24 06:00 U.K. to Sell GBP1.5 Bln 184-Day Bills
Economics
Global Views
June 17, 2016
4
Global Auctions for the week of June 20 – 24
Source: Bloomberg, Scotiabank Economics.
A6
Asia Pacific
Latin America
Country Date Time EventCH 06/19 21:30 Jilin to Sell Bonds
CH 06/21 02:00 Jiangxi to Sell BondsJN 06/21 04:00 Japan Auction for Enhanced-LiquidityAU 06/21 21:00 Australia Plans to Sell AUD900 Mln 4.25% 2026 BondsCH 06/21 23:00 China to Sell CNY38 Bln 3-Yr Bonds
AU 06/22 20:30 Australia Plans to Sell AUD500 Mln Bills Maturing Oct. 2016NZ 06/22 22:00 Hunan to Sell BondsNZ 06/22 22:05 New Zealand Plans to Sell NZD150 Mln 2033 BondsJN 06/22 23:35 Japan to Sell 3-Month BillsJN 06/22 23:45 Japan to Sell 20-Year Bonds
CH 06/23 02:00 Inner Mongolia to Sell BondsAU 06/23 21:00 Australia Plans to Sell AUD1 Bln 1.75% 2020 BondsCH 06/23 21:30 Shanxi to Sell BondsCH 06/23 23:00 China Plans to Sell CNY26 Bln 30-Year Bonds
CH 06/24 02:30 Shanxi to Sell Bonds
Country Date Time EventBZ 06/21 11:00 Brazil to Sell I/L Bonds
BZ 06/23 11:00 Brazil to Sell LFT - 03/01/2022BZ 06/23 11:00 Brazil to Sell Bills LTN - 01/01/2020
Economics
Global Views
June 17, 2016
5
Events for the week of June 20 – 24
Europe
Source: Bloomberg, Scotiabank Economics.
A7
North America
Latin America
Asia Pacific
Country Date Time EventUS 06/20 12:15 Fed's Kashkari Gives Prepared Remarks on TBTF
US 06/21 10:00 Yellen Testifies on Monetary Policy to Senate Banking PanelUS 06/21 14:30 Fed's Powell Makes Introductory Remarks at Panel in New York
US 06/22 10:00 Fed Chair Yellen Speaks Before House Financial Services Panel
US 06/23 19:00 Fed's Kaplan Speaks in New York
Country Date Time EventAU 06/20 19:25 RBA's Debelle Speech in SydneyAU 06/20 21:30 RBA June Meeting MinutesAU 06/20 21:30 RBA's Heath Speech in Sydney
TH 06/22 03:30 BoT Benchmark Interest RateAU 06/22 19:00 RBA's Ellis Participation at a PanelJN 06/22 21:30 BOJ Kiuchi makes a speech in Kanazawa
PH 06/23 04:00 BSP Overnight Borrowing RateAU 06/23 04:15 RBA's Debelle Remarks at Sydney Event
JN 06/24 02:36 BOJ Nakaso speaks at National credit union association
Country Date Time EventCO 06/22 Overnight Lending Rate
Country Date Time EventUK 06/19 13:45 Cameron in BBC TV `Question Time' Program on EU Vote
FR 06/20 02:30 Bank of France's Villeroy speaks on bank digitalization.EC 06/20 09:00 ECB's Yves Mersch speaks at conference in BrusselsEC 06/20 12:30 ECB Board Member Lautenschlaeger Speaks in Frankfurt
SW 06/21 02:00 Riksbank Deputy Governor Skingsley SpeaksGE 06/21 04:00 German Constitutional Court Rules on Legality of ECB OMTTU 06/21 07:00 Benchmark Repurchase RateHU 06/21 08:00 Central Bank Rate DecisionEC 06/21 09:00 ECB's Draghi Speaks at European Parliament in BrusselsUK 06/21 BBC TV Final Debate Before EU Vote
NO 06/23 04:00 Deposit RatesEC 06/23 04:15 SSM Chair Daniele Nouy Speaks in FrankfurtUK 06/23 U.K. Referendum on EU Membership
GE 06/24 Germany Sovereign Debt to Be Rated by Moody's
Economics
Global Views
June 17, 2016
6
Global Central Bank Watch
NORTH AMERICARate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsBank of Canada – Overnight Target Rate 0.50 July 13, 2016 0.50 0.50
Federal Reserve – Federal Funds Target Rate 0.50 July 27, 2016 0.50 0.50
Banco de México – Overnight Rate 3.75 June 30, 2016 4.00 --
EUROPERate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsEuropean Central Bank – Refinancing Rate 0.00 July 21, 2016 0.00 --
Bank of England – Bank Rate 0.50 July 14, 2016 0.50 --
Swiss National Bank – Libor Target Rate -0.75 September 15, 2016 -0.75 --
Central Bank of Russia – One-Week Auction Rate 10.50 July 29, 2016 11.00 --
Central Bank of the Republic of Turkey – 1 Wk Repo Rate 7.50 June 21, 2016 7.50 7.50
Sweden Riksbank – Repo Rate -0.50 July 6, 2016 -0.50 --
Norges Bank – Deposit Rate 0.50 June 23, 2016 0.50 0.50
ASIA PACIFICRate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsBank of Japan – Policy Rate -0.10 July 29, 2016 -0.20 --
Reserve Bank of Australia – Cash Target Rate 1.75 July 5, 2016 1.75 1.75
Reserve Bank of New Zealand – Cash Rate 2.25 August 10, 2016 2.25 2.00
People's Bank of China – Lending Rate 4.35 TBA -- --
Reserve Bank of India – Repo Rate 6.50 August 9, 2016 6.25 --
Bank of Korea – Bank Rate 1.25 July 14, 2016 1.25 --
Bank of Thailand – Repo Rate 1.50 June 22, 2016 1.50 1.50
Bank Indonesia – Reference Interest Rate 6.50 July 21, 2016 6.50 --
LATIN AMERICARate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsBanco Central do Brasil – Selic Rate 14.25 July 20, 2016 14.25 --
Banco Central de Chile – Overnight Rate 3.50 July 14, 2016 3.50 --
Banco de la República de Colombia – Lending Rate 7.25 June 22, 2016 7.50 7.50
Banco Central de Reserva del Perú – Reference Rate 4.25 July 14, 2016 4.25 --
AFRICARate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsSouth African Reserve Bank – Repo Rate 7.00 July 21, 2016 7.00 --
Fed: The Federal Reserve Chair will offer testimony on Capitol Hill on both the 21st and 22nd. While this would normally be a major event from a monetary policy perspective, and of course the Chair’s remarks will be closely watched and parsed, as the appearances will be made before the UK’s vote on continued EU membership on the 23rd, we think that, at least from a market impact perspective, they should be somewhat less impactful than usual. BoC: The BoC monetary policy discussion calendar is pretty empty next week. Economic data will have to keep Canada watchers busy with retail sales on the 22nd standing as the only major release.
Policymakers at the Central Bank of the Republic of Turkey (CBRT) will announce a monetary policy decision on Tuesday June 21st, followed by the Norges Bank on June 23rd. We do not expect any changes to benchmark interest rates to come out of these meetings.
We expect Banco de la República de Colombia (Banrep) to increase its lending rate by 25 bps to 7.50% at the bank's meeting on Wednesday, marking ten consecutive increases in Banrep's policy rate. Mauricio Cardenas - Minister of Finance and Banrep board member- has indicated that the hiking cycle "is nearing its end, or has concluded already". Colombian inflation remains significantly above the central bank's target of 3 ±1% and shows no clear signs of subsiding. Indeed, consumer prices increased by 8.2% y/y in April and are expected to end the year above 6% y/y.
The Bank of Thailand will hold a monetary policy meeting on June 22nd. Accommodative monetary conditions will remain the norm in Thailand over the coming quarters with the benchmark interest rate kept at 1.50%. We do not expect further cuts to the key rate in the near term; however, monetary authorities have highlighted the need to preserve policy space should the economy underperform the central bank’s expectations. Thailand’s inflation outlook remains muted, yet the headline inflation rate has returned to positive territory and reached 0.5% y/y in May.
North America
Europe
Asia Pacific
Latin America
Africa
Forecasts at time of publication. Source: Bloomberg, Scotiabank Economics.
A8
Economics
Global Views
June 17, 2016
7
North America
Canada 2015 15Q4 16Q1 Latest United States 2015 15Q4 16Q1 Latest Real GDP (annual rates) 1.1 0.5 2.4 Real GDP (annual rates) 2.4 1.4 0.8 Current Acc. Bal. (C$B, ar) -62.6 -62.8 -67.1 Current Acc. Bal. (US$B, ar) -484 -454 -499 Merch. Trade Bal. (C$B, ar) -22.5 -20.1 -25.4 -35.2 (Apr) Merch. Trade Bal. (US$B, ar) -763 -754 -746 -706 (Apr) Industrial Production -0.8 0.1 -0.5 -1.6 (Apr) Industrial Production 0.3 -1.7 -1.9 -1.4 (May) Housing Starts (000s) 194 194 198 189 (May) Housing Starts (millions) 1.11 1.13 1.15 1.16 (May) Employment 0.8 0.8 0.7 0.8 (May) Employment 2.1 2.0 1.9 1.7 (May) Unemployment Rate (%) 6.9 7.0 7.2 6.9 (May) Unemployment Rate (%) 5.3 5.0 4.9 4.7 (May) Retail Sales 1.7 2.2 5.4 3.2 (Mar) Retail Sales 1.6 1.4 2.2 2.0 (May) Auto Sales (000s) 1897 1948 1992 1998 (Mar) Auto Sales (millions) 17.3 17.8 17.1 17.4 (May) CPI 1.1 1.3 1.5 1.5 (May) CPI 0.1 0.5 1.1 1.0 (May) IPPI -0.8 0.1 -0.5 1.6 (Apr) PPI -3.3 -3.4 -1.7 -2.3 (May) Pre-tax Corp. Profits -15.8 -19.6 -9.1 Pre-tax Corp. Profits 3.3 -2.9 -3.2
Mexico Real GDP 2.5 2.4 2.6 Current Acc. Bal. (US$B, ar) -31.9 -29.1 -28.0 Merch. Trade Bal. (US$B, ar) -14.6 -15.1 -15.9 -25.0 (Apr) Industrial Production 0.9 0.2 0.4 1.9 (Apr) CPI 2.7 2.3 2.7 2.6 (May)
Euro Zone 2015 15Q4 16Q1 Latest Germany 2015 15Q4 16Q1 Latest Real GDP 1.3 1.4 1.3 Real GDP 1.4 1.3 1.6 Current Acc. Bal. (US$B, ar) 366 472 218 463 (Apr) Current Acc. Bal. (US$B, ar) 257.2 283.3 327.6 391.6 (Apr) Merch. Trade Bal. (US$B, ar) 356.8 397.4 318.1 441.5 (Apr) Merch. Trade Bal. (US$B, ar) 274.7 270.9 263.3 350.2 (Apr) Industrial Production 1.6 1.3 1.5 2.0 (Apr) Industrial Production 0.5 -0.3 1.6 1.2 (Apr) Unemployment Rate (%) 10.9 10.5 10.4 10.2 (Apr) Unemployment Rate (%) 6.4 6.3 6.2 6.1 (May) CPI 0.0 0.2 0.0 0.1 (May) CPI 0.2 0.3 0.3 0.5 (May)
France United Kingdom Real GDP 1.2 1.4 1.4 Real GDP 2.3 2.1 2.0 Current Acc. Bal. (US$B, ar) -4.7 -1.7 -26.5 -42.8 (Apr) Current Acc. Bal. (US$B, ar) -96.2 -130.6 Merch. Trade Bal. (US$B, ar) -41.4 -49.0 -48.4 -55.2 (Apr) Merch. Trade Bal. (US$B, ar) -191.6 -202.0 -195.4 -180.8 (Apr) Industrial Production 1.8 2.4 0.5 1.9 (Apr) Industrial Production 1.0 0.8 0.1 1.6 (Apr) Unemployment Rate (%) 10.4 10.2 10.1 9.9 (Apr) Unemployment Rate (%) 5.4 5.1 5.1 5.0 (Mar) CPI 0.0 0.1 0.0 0.3 (May) CPI 0.0 0.1 0.3 0.2 (May)
Italy Russia Real GDP 0.6 1.1 1.0 Real GDP -3.8 Current Acc. Bal. (US$B, ar) 36.0 60.8 10.1 55.9 (Apr) Current Acc. Bal. (US$B, ar) 69.6 15.0 Merch. Trade Bal. (US$B, ar) 49.8 66.7 40.5 61.5 (Apr) Merch. Trade Bal. (US$B, ar) 12.4 10.1 7.5 6.8 (Apr) Industrial Production 0.9 1.5 1.7 1.7 (Apr) Industrial Production -3.7 -3.9 -0.7 0.7 (May) CPI 0.0 0.2 -0.1 -0.3 (May) CPI 15.5 14.5 8.3 7.3 (May)
Europe
All data expressed as year-over-year % change unless otherwise noted.
Economic Statistics
Source: Bloomberg, IHS Global, Scotiabank Economics.
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Economics
Global Views
June 17, 2016
8
Asia Pacific
Australia 2015 15Q4 16Q1 Latest Japan 2015 15Q4 16Q1 Latest Real GDP 2.5 2.9 3.1 Real GDP 0.6 0.8 0.0 Current Acc. Bal. (US$B, ar) -58.9 -69.8 -57.0 Current Acc. Bal. (US$B, ar) 136.5 113.6 205.9 205.2 (Apr) Merch. Trade Bal. (US$B, ar) -12.9 -23.2 -13.8 -1.4 (Apr) Merch. Trade Bal. (US$B, ar) -23.1 1.0 21.1 46.6 (Apr) Industrial Production 1.6 2.0 4.8 Industrial Production -1.2 -1.1 -3.2 -1.7 (Apr) Unemployment Rate (%) 6.1 5.8 5.8 5.7 (May) Unemployment Rate (%) 3.4 3.3 3.2 3.2 (Apr) CPI 1.5 1.7 1.3 CPI 0.8 0.3 0.1 -0.3 (Apr)
South Korea China Real GDP 2.6 3.1 2.8 Real GDP 6.9 6.8 6.7 Current Acc. Bal. (US$B, ar) 105.9 105.6 96.3 40.5 (Apr) Current Acc. Bal. (US$B, ar) 330.6 Merch. Trade Bal. (US$B, ar) 90.3 95.0 88.1 83.8 (May) Merch. Trade Bal. (US$B, ar) 593.7 698.9 501.9 599.8 (May) Industrial Production -0.9 0.0 -0.2 -1.1 (Apr) Industrial Production 5.9 5.9 6.8 6.0 (May) CPI 0.7 1.1 1.0 1.4 (May) CPI 1.6 1.6 2.3 2.0 (May)
Thailand India Real GDP 2.8 2.8 Real GDP 6.9 6.9 Current Acc. Bal. (US$B, ar) 31.6 10.2 16.4 Current Acc. Bal. (US$B, ar) -22.4 -7.1 Merch. Trade Bal. (US$B, ar) 2.9 3.2 4.4 2.5 (Apr) Merch. Trade Bal. (US$B, ar) -10.4 -10.4 -6.4 -6.3 (May) Industrial Production 0.4 0.3 -1.0 1.5 (Apr) Industrial Production 3.2 1.7 0.2 -0.8 (Apr) CPI -0.9 -0.9 -0.5 0.5 (May) WPI -2.7 -2.3 -0.8 0.8 (May)
Indonesia Real GDP 4.8 5.0 Current Acc. Bal. (US$B, ar) -17.7 -5.1 Merch. Trade Bal. (US$B, ar) 0.6 0.1 0.6 0.4 (May) Industrial Production 4.8 4.8 4.2 1.6 (Apr) CPI 6.4 4.8 4.3 3.3 (May)
Brazil 2015 15Q4 16Q1 Latest Chile 2015 15Q4 16Q1 Latest Real GDP -3.8 -5.9 -5.4 Real GDP 2.1 1.3 2.0 Current Acc. Bal. (US$B, ar) -59.2 -38.3 -30.5 Current Acc. Bal. (US$B, ar) -15.9 -8.3 2.1 Merch. Trade Bal. (US$B, ar) 19.7 37.7 33.6 77.2 (May) Merch. Trade Bal. (US$B, ar) -3.0 0.3 8.4 8.9 (May) Industrial Production -8.2 -11.9 -11.7 -9.3 (Apr) Industrial Production -0.3 -1.0 -0.8 -3.4 (Apr) CPI 9.0 10.4 10.1 18.1 (May) CPI 4.3 4.1 4.6 4.2 (May)
Peru Colombia Real GDP 3.3 4.7 Real GDP 3.1 3.4 Current Acc. Bal. (US$B, ar) -8.4 -1.5 Current Acc. Bal. (US$B, ar) -18.9 -4.3 Merch. Trade Bal. (US$B, ar) -0.2 0.0 -0.2 0.0 (Apr) Merch. Trade Bal. (US$B, ar) -1.3 -1.6 -1.2 -1.1 (Mar) Unemployment Rate (%) 6.4 5.8 6.9 7.1 (May) Industrial Production 0.8 3.2 5.5 8.4 (Apr) CPI 3.5 4.1 4.5 3.5 (May) CPI 5.0 6.4 7.7 8.2 (May)
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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9
Financial Statistics
A12
Interest Rates (%, end of period)
Canada 15Q4 16Q1 Jun/10 Jun/17* United States 15Q4 16Q1 Jun/10 Jun/17*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 0.52 0.51 3-mo. T-bill 0.16 0.20 0.24 0.26 10-yr Gov’t Bond 1.39 1.23 1.13 1.13 10-yr Gov’t Bond 2.27 1.77 1.64 1.61 30-yr Gov’t Bond 2.15 2.01 1.80 1.78 30-yr Gov’t Bond 3.02 2.61 2.45 2.42 Prime 2.70 2.70 2.70 2.70 Prime 3.50 3.50 3.50 3.50 FX Reserves (US$B) 79.7 82.2 83.9 (Apr) FX Reserves (US$B) 106.5 108.7 110.0 (Apr)
Germany France 3-mo. Interbank -0.09 -0.24 -0.27 -0.27 3-mo. T-bill -0.45 -0.42 -0.50 -0.50 10-yr Gov’t Bond 0.63 0.15 0.02 0.02 10-yr Gov’t Bond 0.99 0.49 0.39 0.42 FX Reserves (US$B) 58.5 60.8 61.8 (Apr) FX Reserves (US$B) 55.2 57.2 55.3 (Apr)
Euro Zone United Kingdom Refinancing Rate 0.05 0.00 0.00 0.00 Repo Rate 0.50 0.50 0.50 0.50 Overnight Rate -0.13 -0.30 -0.33 -0.33 3-mo. T-bill 0.48 0.48 0.46 0.45 FX Reserves (US$B) 333.9 340.7 340.6 (Apr) 10-yr Gov’t Bond 1.96 1.42 1.23 1.14
FX Reserves (US$B) 119.0 125.2 129.9 (Apr)
Japan Australia Discount Rate 0.30 0.30 0.30 0.30 Cash Rate 2.00 2.00 1.75 1.75 3-mo. Libor 0.02 -0.07 -0.10 -0.09 10-yr Gov’t Bond 2.88 2.49 2.10 2.08 10-yr Gov’t Bond 0.27 -0.03 -0.14 -0.15 FX Reserves (US$B) 46.5 46.1 47.0 (Apr) FX Reserves (US$B) 1207.0 1231.6 1230.8 (Apr)
Exchange Rates (end of period)
USDCAD 1.38 1.30 1.28 1.29 ¥/US$ 120.22 112.57 106.97 104.18CADUSD 0.72 0.77 0.78 0.78 US¢/Australian$ 0.73 0.77 0.74 0.74GBPUSD 1.474 1.436 1.426 1.426 Chinese Yuan/US$ 6.49 6.45 6.56 6.59EURUSD 1.086 1.138 1.125 1.125 South Korean Won/US$ 1175 1143 1165 1173JPYEUR 0.77 0.78 0.83 0.85 Mexican Peso/US$ 17.208 17.279 18.633 18.895USDCHF 1.00 0.96 0.96 0.96 Brazilian Real/US$ 3.961 3.592 3.420 3.434
Equity Markets (index, end of period)
United States (DJIA) 17425 17685 17865 17618 U.K. (FT100) 6242 6175 6116 6023 United States (S&P500) 2044 2060 2096 2065 Germany (Dax) 10743 9966 9835 9623 Canada (S&P/TSX) 13010 13494 14038 13901 France (CAC40) 4637 4385 4307 4188 Mexico (IPC) 42978 45881 45178 45243 Japan (Nikkei) 19034 16759 16601 15600 Brazil (Bovespa) 43350 50055 49422 49670 Hong Kong (Hang Seng) 21914 20777 21043 20170 Italy (BCI) 1218 1056 1021 963 South Korea (Composite) 1961 1996 2018 1953
Commodity Prices (end of period)
Pulp (US$/tonne) 940 950 980 980 Copper (US$/lb) 2.13 2.20 2.04 2.05 Newsprint (US$/tonne) 505 545 545 545 Zinc (US$/lb) 0.73 0.81 0.94 0.90 Lumber (US$/mfbm) 274 303 320 320 Gold (US$/oz) 1060.00 1237.00 1275.50 1290.70 WTI Oil (US$/bbl) 37.04 38.34 49.07 47.45 Silver (US$/oz) 13.82 15.38 17.32 17.37 Natural Gas (US$/mmbtu) 2.34 1.96 2.56 2.62 CRB (index) 176.14 170.52 192.89 191.08
* Latest observation taken at time of writing. Source: Bloomberg, Scotiabank Economics.
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Global Views
June 17, 2016
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Global Views
June 17, 2016
