Group Economics
Daily Insight
Macro & Financial Markets Research Nick Kounis, Hyung-Ja de Zeeuw & Maritza
IMF: Greece needs debt relief
Cabezas +31 20 343 5616
3 July 2015
IMF report confirms Greece’s debt is unsustainable and that debt relief is necessary ECB expands asset purchases to selected corporate bonds – with a potential pool of EUR 220bn US job market remains firm and should keep Fed on track for a rate hike in September
IMF report signals Greece needs at least EUR 50bn programme and debt relief
Potential pool of eligible corporate bonds
The IMF’s updated debt sustainability analysis for Greece makes grim reading. It shows that the deterioration in the economic, financial, and fiscal situation in the country have
In bn
25
made debt dynamics even more challenging. Indeed, the IMF
20
now sees the government debt ratio falling to 150% GDP in
15
2020, from 177% this year. The GDP growth assumptions underlying the analysis are too optimistic in our view, so the debt ratio may even end up higher. The last time the IMF made a debt sustainability analysis, the debt ratio was seen declining to 128% GDP over that time horizon. The new analysis makes
10 5 0 ES
DE
IT
an even stronger case that the debt is unsustainable and that
period on EU loans to 20 years and the amortization period to
SK
FR
IE
PL
EUR outstanding
the country will need debt relief. The IMF suggests that one option to repair sustainability would be to extend the grace
PT
Source: ABN AMRO Group Economics, ECB, Bloomberg
40 years. The IMF also estimates that a new 3-year programme (October 2015 – end-2018) would need to amount
US job growth a bit softer than expected
to at least EUR 50bn, requiring European money of EUR 36bn.
US job growth cooled down a bit in June after reaching a five month high in May. Nonfarm employment increased 223K,
ECB expands list to include non-financial corporates
down from a revised 250K in May. Even with this slowdown,
On Thursday, the ECB surprisingly added 13 new names to its
June’s increase is still above the average of the first five
list of eligible assets under its Expended Asset Purchase
months of the year. The unemployment rate edged down to
Programme. Three of those were corporates SNAM, Terna
5.3% from 5.5% the previous month, partly as a result of 432K
and Enel. All are investment grade utilities and all are (partly)
people dropping out of the labour force. Meanwhile, measures
owned by the Italian government. In all cases, securities are
of underutilisation of labour were mixed. Persons employed
issued by the finance entity of these corporates, which the
part-time for economic reasons fell to 10.5% from 10.8% the
ECB apparently sees as financial corporation other than credit.
previous month, while the participation rate fell to 62.6% from
However, for investors this does mark a big policy change
62.9%.
because to them the three earlier mentioned corporates are classified as corporate credits.
Wage growth subdued Wage growth was unchanged in June after a 0.2% rise the
Potential pool of corporates of utilities EUR 50bn
previous month. On a year-on-year basis, wage growth was
The potential pool of utilities that are included in the ECB asset classification
"Financial
corporations
other
than
credit
institutions" is a little over EUR 50bn. The vast majority of the bonds, EUR 21bn, are from Spanish corporates followed by EUR 11bn from German corporates (see chart). However, if all
2.0%, edging down from 2.3% the previous month. Although wage growth is the weaker part of this report, we expect wages to catch up as the economy strengthens. Stronger wage growth would complete the picture of a healthy job market.
the corporate bonds under the classification "Financial corporations other than credit institutions" would be taken into
Overall, we think the labour market report should keep the Fed
consideration, the pool would grow to EUR 220bn.
on track for a September lift-off.
2
IMF: Greece needs debt relief – 3 July 2015
Financial markets Currency markets
Close
Change 1 day
Change 5 days
Change YTD
EUR/USD USD/JPY
1.1089
0.0451
-0.6985
123.00
-0.0569
-0.6863
2.6883
AUD/USD
0.7640
0.0917
-0.1960
-6.5443
USD/CHF
0.9434
-0.0106
1.0822
-5.1192
NZD/USD
0.6721
-0.0149
-1.9691
-13.8002
GBP/USD
1.5609
0.0000
-0.8701
0.2054
USD/SGD
1.3481
0.0148
-0.1259
1.7050
USD/CAD
Bond markets
1.2548
Close
0.0638
Change 1 day
1.8424
Change 5 days
-8.3402
7.9769
Change YTD
2-year German Govt Bond yield
-0.2480
-0.0080
-0.0480
-0.1500
10-year German Govt Bond yield
0.8450
0.0320
-0.0170
0.3040
Yield curve Germany
1.0930
0.0400
0.0310
0.4540
2-year US Treasury Bond yield
0.6270
0.0000
-0.0847
-0.0375
10-year US Treasury Bond yield
2.3823
0.0000
-0.0903
0.2111
Yield curve US
1.7553
0.0000
-0.0056
0.2486
US 2-year sw ap rates
0.9058
0.0189
-0.0361
0.0115
US 10-year sw ap rates
2.4880
0.0105
-0.0755
0.2019
US sw ap curve
1.5822
-0.0084
-0.0394
0.1904
EU 2-year sw ap rates
0.1150
-0.0070
-0.0220
-0.0600
EU 10-year sw ap rates
1.2560
0.0580
0.0440
0.4440
EU sw ap curve Euribor 3 Month ACT/360 ICE LIBOR USD 3 Month
1.1410
0.0650
0.0660
0.5040
-0.0150
-0.0010
0.0000
-0.0930
0.2836
0.0004
0.0029
0.0280
JPMorgan EMBI Plus Sovereign S
384.4100
-0.6400
3.2100
-3.0300
Equity markets
Close
Change 1 day % Change 5 days %Change YTD%
Nikkei 225
20,523
0.95
-0.89
17.60
Hang Seng Index
26,282
0.12
-4.10
11.34
Hang Seng China Enterprises Index
12,785
-1.51
-6.58
6.67
Australian Stock Exchange S&P/ASX 200 Index
5,560
-0.71
0.25
2.75
Singapore Straits Times Index
3,328
-0.10
-0.66
-1.11
Euro Stoxx 50 Index
3,463
-0.94
-4.09
10.07
S&P 500 Index
2,077
-0.03
-1.21
0.87
MSCI World Daily Total Return Gross USD
795
0.01
-1.82
3.60
AEX Index
477
-1.22
-3.13
12.37
17
4.35
19.84
-12.55
Chicago Board Options Exchange Volatility Index
Commodity markets Reuters/Jefferies CRB Total Return
Close
Change 1 day % Change 5 days %Change YTD%
225
0.22
0.09
-2.34
1,167
0.05
-0.74
-1.52
Generic first NYMEX Crude Light future
57
-0.72
-5.22
6.10
Generic first Brent Crude Oil future
62
-0.45
-2.32
7.78
5,795
0.35
0.43
-8.02
586
-0.30
10.10
-0.68
Gold spot USD/Oz
LME Copper 3 Months Rolling Forw ard Generic first Wheat future Chicago Board of Trade Source Bloomberg
3
IMF: Greece needs debt relief – 3 July 2015
Day
Date
Time
Country
Monday Monday Monday Monday Monday Monday
29/06/2015 29/06/2015 29/06/2015 29/06/2015 29/06/2015 29/06/2015
01:50:00 11:00:00 14:00:00 15:45:00 16:00:00
JP EC DE EC US BE
Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday
30/06/2015 30/06/2015 30/06/2015 30/06/2015 30/06/2015 30/06/2015 30/06/2015 30/06/2015 30/06/2015
09:55:00 09:55:00 10:30:00 11:00:00 11:00:00 11:00:00 15:00:00 15:45:00 16:00:00
Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday
01/07/2015 01/07/2015 01/07/2015 01/07/2015 01/07/2015 01/07/2015 01/07/2015 01/07/2015 01/07/2015 01/07/2015 01/07/2015
Thursday Thursday Thursday Thursday Thursday Thursday Thursday Friday Friday Friday Friday Friday
Key Economic Indicators and Events
Period
Latest outcome
Consensus
ABN AMRO
Industrial production - % mom Economic sentiment monitor - index CPI - % yoy ECB announces weekly QE details Pending home sales - % mom CPI - % yoy
May P Jun Jun P
-2.2 103.5 0.3
-0.8 103.8 0.5
103.5 0.6
May Jun
0.9 0.6
1.0
1.5
DE DE GB EC EC EC US US US
Unemployment - % Unemployment change - thousands GDP - % qoq Core inflation - % yoy CPI - % yoy Unemployment - % S&P/Case Shiller house price index Chicago Fed - business confidence - index Conference Board cons. confidence - index
Jun Jun 1Q F Jun A Jun May Apr Jun Jun
6.4 -1 0.4 0.8 0.2 11.1 0.3 49.4 101.4
6.4 -5 0.4 0.8 0.2 11.1 1.0 50.5 97.2
6.4
01:50:00 03:00:00 03:45:00 03:45:00 09:30:00 10:00:00 10:30:00 14:15:00 15:45:00 16:00:00
JP CN CN CN NL EC GB US US US RU
Tankan business conditions large enterprises PMI manufacturing - index (official) PMI non-manufacturing - index (official) PMI manufacturing - index (HSBC) PMI manufacturing - index PMI manufacturing - index PMI manufacturing - index ADP nat. employment report - thousands Markit - Flash PMI ISM manufacturing - index GDP - % yoy
2Q Jun Jun Jun F Jun Jun F Jun Jun Jun F Jun 1Q F
15.0 50.2 53.8 49.4 56.2 52.5 51.4 237.0 53.6 53.5 -2.2
12.0 50.4
02/07/2015 02/07/2015 02/07/2015 02/07/2015 02/07/2015 02/07/2015 02/07/2015
09:30:00 14:30:00 14:30:00 14:30:00 14:30:00 14:30:00 14:30:00
SE US US US US US US
Policy rate - % Initial jobless claims - thousands Hourly earnings - % mom Hourly earnings - % yoy Change in employment private employment - thousands Change in employment total - thousands Unemployment - %
Jul 2 Jun 27 Jun Jun Jun Jun Jun
-0.35 271.0 0.0 2.0 223 223 5.3
0.2 2.3 222 226 5.4
03/07/2015 03/07/2015 03/07/2015 03/07/2015 03/07/2015
03:45:00 10:00:00 10:00:00 10:30:00 11:00:00
CN EC EC GB EC
PMI services - index (HSBC) PMI services - index Composite PMI output PMI services - index Retail sales - % mom
Jun Jun F Jun F Jun May
53.5 54.4 54.1 56.5 0.7
54.4 54.1 57.5 0.1
0.8 0.3 11.0 1.0 98.0
49.6 55.5 52.5 52.5 210.3
220
53.2 -2.1
53 -2.1
-0.3 0.2 2.3 220 230 5.4
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
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