Market Views For 2016 - page 11

 

Fed's Lockhart: Thoughts on Rates Should Wait Until 'Waters Clear'


The US central bank should remain "cautious and patient" when it comes to increasing interest rates, until the Brexit fallout clears up, Atlanta Federal Reserve (Fed) President Dennis Lockhart said on Thursday.

". . . the consequences of Brexit may play out over a number of years, and the associated uncertainty could become an economic headwind," Lockhart, who has no voting rights at the FOMC this year, told an audience in prepared remarks at the Eighth Annual Rocky Mountain Economic Summit in Idaho.

In a survey conducted by Lockhart's staff after the referendum, a third of businesses said it "made their sales outlook more uncertain. They indicated they would be more cautious in hiring and capital spending decisions as a result of Brexit."

source

 

Fed's Bullard: 'Really no rush' to raise US interest rates

Federal Reserve's Bullard speaking with reporters

  • Says there's 'really no rush' to raise US interest rates
  • Says wants to raise rates on good economic news, wants to raise rates once this year
  • A coherent, economically oriented immigration policy would benefit US greatly
  • Don't see particularly elevated uncertainty around political election this year
Headlines via Reuters

St. Louis Fed President James Bullard.
 You'll have to excuse me, I'm not sure if it's a 'flip' or a 'flop' day for Mr. B. I've lost track.
-
More:
(via Bloomberg):
  • The Fed is 'basically right at our goals' on jobs and inflation
  • 'People want to wait and see' in the wake of the Brexit vote
  • Says Brexit will probably have zero impact on the US        
 

The Atlanta Fed GDPNow estimate rises to 2.4%

NY Fed estimate also rises slightly

The Atlanta Fed GDPNow estimate came in at 2.4% vs 2.3% at the July 12 estimate.  

"The forecast for second-quarter real consumer spending growth increased from 4.3 percent to 4.5 percent after this morning's retail sales release from the U.S. Census Bureau and this morning's Consumer Price Index release from the U.S. Bureau of Labor Statistics."

Earlier, the NY Fed releases their NOWCast forecast for GDP. Their estimate also increased to 2.2% from 2.1% previously reported on July 8th. In the report they commented:

  • The FRBNY Staff Nowcast stands at 2.2% and 2.6% for 2016:Q2 and 2016:Q3, respectively.
  • This week's news had positive effect on the nowcast pushing up the Q2 measure by 0.1 percentage point and the Q3 measure by 0.3 percentage point.
  • The largest contributions came from manufacturing data, in particular capacity utilization and industrial production
 

Overnight press: Fed officials more confident of hike before year end

This is not new, its from early morning US time

In the WSJ, a piece on the Federal Reserve. In a nutshell:
  • Fed officials are looking more confidently toward an interest-rate increase before year-end
  • Possibly as early as September
  • Financial markets have stabilized after the Brexit vote
  • The US economy shows signs of picking up
  • Almost certain to leave rates unchanged when they meet July 26-27

 

Brexit Darkness Imprisons Outlook for UK Businesses


Activity in Britain's manufacturing and services sectors markedly cooled in July, a private survey from IHS Markit showed on Friday, as the uncertainty stemming from the country's decision to leave the European Union weighed on the economy.

Markit's Purchasing Managers' Index in manufacturing fell to 49.1 points during the seventh month of the year, down from the 52.1 in June, when it had rebounded from its second-lowest level in the past 15 months and booked a fresh five-month top.

That's a 41-month trough.

Market consensus had been for a 50-point print in July.

"July saw a dramatic deterioration in the economy, with business activity slumping at the fastest rate since the height of the global financial crisis in early-2009," Chris Williamson, chief economist at Markit, commented in the release.

"The downturn, whether manifesting itself in order book cancellations, a lack of new orders or the postponement or halting of projects, was most commonly attributed in one way or another to Brexit," Williamson added further.


read more

 

ECB not worried about shortage of QE bonds for now

ECB officials were earlier reported to see no urgency to change QE rules in order to meet the quota of 80 billion euros per month. Market watchers have long noted that with so many bonds yielding below the -0.4% ECB deposit rate, that there wasn't enough supply.

But for now, that isn't a problem. The ECB's Nowotny spoke to APA today and said "it will be decided in the fourth quarter of 2016 which signals will be given to the markets as to the further developments of the purchase program."

The program is currently slated to end in March 2017 but many economists see a 6-9 month extension.

What's not clear is if Nowotny is referring to expanding/extending the program or some of the technical tweaks needed to ease the shortage. In any case, both reports seem to argue there is no rush.

 

PIMCO says the Federal Reserve is 'silent' on September

Commentary from Richard Clarida, PIMCO's global strategic advisor

Fed statement said:
  • Labor market strengthened
  • Economic activity has been expanding at a moderate rate.
  • Acknowledged "Near-term risks to the economic outlook have diminished"
  • Offered no guidance
  • So for now, the Yellen Fed has given up on "calendar guidance" but is unwilling - or unable - to replace it with outcome-based guidance, or really any guidance whatsoever. This is a Fed that prizes "optionality" above all else.
 

Moody's say severe recession would deplete capital of UK banks but from a higher starting point


US ratings agency out with a note on UK banks post-Brexit 28 July

  • in downside scenario asset quality of UK banks deteriorates significantly,
  • ratio of NPLs rises ti 4.9% in 2018 from 2% in 2015
  • UK banks would need £68bln to restore capital ratios to levels seen at end of 2015
  • UK banking sector would see significant capital losses in event of worse than expected macroeconomic downturn .

In his recent testimony to the UK parliamentary committee Carney urged banks to lend  the money they've been gorging on in cheap conditions. If Moody's are right then there's going to be no rush to lend even if rates were cut next week.

To quote our friend and eminent economist  John Hearn from a tweet this morning

 "Lower interest rates necessary to boost the economy": any evidence that low rates can do this? No but they do blow bubbles"

Full Moody's report here
 

US GDP kicks a September Fed hike further into the distance


The advance GDP numbers have pulled the rug from under September expectations

Yesterday the FFR implied probabilities had Sep at a 28% chance of a hike. That's down to 12% according to Fed funds futures now.

Inventories dropped for the first time since 2011 and that's already being viewed as a booster to come for the rest of the year.


read more

 

The negative Brexit effect on EU GDP

It's not only the UK that  looks set to suffer from Brexit 30 July 2016

Just browsing through some articles to find some week-end reading for you all and I came across this one from Bloomberg which highlights the Brexit fallout on its EU trading partners.

Says the article:

"Growth will be hit for virtually all of Britain's most important trading partners over the next few years, according to Bloomberg's economic surveys. The worst affected will be across-the-pond in Ireland, which has seen a combined 0.9% shaved off its 2016 and 2017 Bloomberg consensus GDP forecasts in the five weeks since the Brexit vote.

The euro area, which shares $472 billion in trade with the U.K., has seen its growth forecast for the next two years fall by 0.5% since June 23

The U.K.'s largest single-country trading partner, Germany, is expected to grow 1.5% this year and 1.3% next year, down a combined 0.5% since the Brexit vote. Other EU country forecasts have been similarly revised down as concern mounts that more referendums about EU membership could spur another euro area crisis.

More from Bloomberg here