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Daily Insight

1 April 2016

US labour market preview

US labour market to remain strong in March…

The ADP report for March, which is an appetizer for Friday’s labour market report, showed

that private employers added 200K workers to the payrolls. The ADP report, which was

released on Wednesday, showed that the composition of job growth remains in line with

recent trends. Gains in hiring have been concentrated in the service-producing sector, while

hiring in the goods-producing sector remains subdued. Other reports, including the

Conference Board’s Consumer Confidence Index for March showed that consumer’s

expectations of the labour market improved. On Friday, we expect total nonfarm payrolls to

increase by 200K and unemployment to remain at 4.9%.

… despite modest economic growth

This suggests that the labour market remains strong despite modest economic growth.

Indeed, economic activity slowed down in the fourth quarter to 1.4% qoq and we expect

similar growth in this first quarter. We expect consumption growth to remain moderate. We still

assume that the bulk of this slowdown is due to the strong US dollar, which will only slowly

fade, as well as a weaker energy sector. We think that this will result in a slowdown in labour

demand compared to 2015.

Fed positive on labour market, but risks in global economy to keep rates on hold

The Chair of the Fed recently mentioned that the improvement in the labour market in the

past two years was considerably faster than expected. She suggested that this pace of

improvement could be slower if foreign developments were to affect the US economy more

adversely. We think that a strong labour market report on Friday will not be a game changer

for the path of rate hikes. Our central view remains that the Fed will be on hold in the coming

months, since an early rate hikes could unsettle markets and this could restrain growth both in

wages and prices.

Group Economics Macro & Financial Markets Research

Nick Kounis

Head Macro & Financial Markets

Research

Tel: +31 20 343 5616

nick.kounis@nl.abnamro.com

Maritza Cabezas

Senior Economist

Tel: +31 20 343 5618

maritza.cabezas@nl.abnamro.com

US labour market to remain strong in March…

… despite modest economic growth

Our central view remains that the Fed will be on hold in the coming months; US

wage growth still a concern for the Fed

Eurozone inflation improves, but likely to deteriorate again going forward...

…ECB will probably need to ease policy further

2 Daily Insight – An Easter gift for the ECB - 31 March 2016

US labour market remains strong

000s %

Source: Thomson Reuters Datastream

Eurozone inflation less negative, but more weakness ahead

Eurozone inflation became less negative in March. The HICP fell by 0.1% yoy following a

0.2% yoy decline in February, which was in line with consensus expectations. Although

energy price inflation became more deeply negative in March (-8.7% following -8.1%), this

was more than offset by an acceleration in the core rate of inflation (to 1% from 0.8%).

Unfortunately this improvement unlikely represents the start of an upward trend in core

inflation. Core inflation was likely pushed up by the early timing of Easter this year, and this

effect will more than reverse in April, before normality returns in May. Although we only have

broad aggregates, service sector inflation (which jumped to 1.3% from 0.9%) was probably

most impacted by the timing of Easter. Details from the German states for instance, point to a

surge in the prices of package holidays.

…ECB will probably need to ease policy further

Meanwhile, underlying inflationary pressures remain weak. The strengthening of the euro is

leading to a fall in import prices, and this will dampen core goods price inflation. Indeed, we

saw signs of this in March (Non-energy industrial goods prices rose 0.5% yoy from 0.7% yoy

in February) and there is further downward pressure in the pipeline. Furthermore, wage

growth – a key driver of service sector inflation – is extremely subdued, and there is still slack

in the economy. This situation will improve only slowly given the sluggish economic recovery.

Inflation is likely to become more negative over the next few months. It will likely turn positive

though later in the year as the negative impact of energy prices fades. Nevertheless, given

weak core inflation, the outlook remains for inflation undershooting the ECB’s price stability

goal for the foreseeable future. Given this, we think the ECB will likely need to ease policy

further, most likely by stepping up QE.

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Non farm payrolls (lhs) Unemployment (rhs)

3 Daily Insight – Further ECB easing - 22 March 2016

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Day Date Time Country Key Economic Indicators and Events Period Latest outcome Consensus ABN AMRO

Monday 28/03/2016 US PCE deflator core - % mom Feb 0.1 0.2Monday 28/03/2016 14:30:00 US PCE deflator core - % yoy Feb 1.7 1.8Monday 28/03/2016 16:00:00 US Pending home sales - % mom Feb 3.5 1.5

Tuesday 29/03/2016 01:30:00 JP Unemployment - % Feb 3.3 3.2Tuesday 29/03/2016 10:00:00 EC M3 growth - % yoy Feb 5.0 5.0Tuesday 29/03/2016 11:30:00 US Fed Williams speaks in SingaporeTuesday 29/03/2016 15:00:00 US S&P/Case Shiller house price index Jan 0.5 0.7 0.7Tuesday 29/03/2016 16:00:00 US Conference Board cons. confidence - index Mar 96.2 93.5 92

Wednesday 30/03/2016 01:50:00 JP Industrial production - % mom Feb P -6.2 -5.5Wednesday 30/03/2016 06:30:00 NL Producer confidence manufacturing - index Mar 3.9 2.9Wednesday 30/03/2016 11:00:00 EC Economic sentiment monitor - index Mar 103.8 103.6 103.5Wednesday 30/03/2016 14:00:00 DE CPI - % yoy Mar P 0.0 0.2 0.0Wednesday 30/03/2016 14:15:00 US ADP nat. employment report - thousands Mar 213.8 195.2 190

Thursday 31/03/2016 09:55:00 DE Unemployment change - thousands Mar 0.0 -5.4Thursday 31/03/2016 10:30:00 GB GDP - % qoq 4Q F 0.6 0.5Thursday 31/03/2016 11:00:00 EC Core inflation - % yoy Mar A 1.0 0.9 0.7Thursday 31/03/2016 11:00:00 EC CPI - % yoy Mar -0.2 0.0 -0.4Thursday 31/03/2016 13:00:00 CZ Repo rate - % Mar 31 0.1 0.1Thursday 31/03/2016 US Fed's Dudley speeks on Financial Crises

Friday 01/04/2016 01:50:00 JP Tankan business conditions large enterprises 1Q 6 10Friday 01/04/2016 03:00:00 CN PMI manufacturing - index (official) Mar 49.0 49.4Friday 01/04/2016 03:45:00 CN PMI manufacturing - index (HSBC) - flash Mar 48.0 48.4Friday 01/04/2016 09:00:00 NE PMI Mar 51.7 51.8Friday 01/04/2016 EC PMI manufacturing - index Mar F 51.4 51.4Friday 01/04/2016 10:30:00 GB PMI manufacturing - index Mar 50.8 51.2Friday 01/04/2016 11:00:00 EC Unemployment - % Feb 10.3 10.3 10.3Friday 01/04/2016 14:30:00 US Change in employment private employment - thousands Mar 230 196 190Friday 01/04/2016 14:30:00 US Change in employment total - thousands Mar 242 203 200Friday 01/04/2016 14:30:00 US Unemployment - % Mar 4.9 4.9 4.9Friday 01/04/2016 15:45:00 US Markit - Flash PMI Mar F 51.4 Friday 01/04/2016 16:00:00 US Univ. of Michigan cons. confidence - index Mar F 90.0 90.7 90Friday 01/04/2016 16:00:00 US ISM manufacturing - index Mar 49.5 50.6 51.0Friday 01/04/2016 US Fed Mester speaks in NYFriday 01/04/2016 RU GDP - % yoy 4Q -4.1

Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected key variables and events)