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Daily Insight

30 March 2016

A cautious Yellen focuses on risks

Chair Yellen delivers a dovish speech on the global economy and outlook…

On Tuesday, Fed Yellen in a speech at the Economic Club of New York, showed her

concerns about global developments and the ongoing risks, as well as the implications they

could have for US economic activity. She mentioned that there was a lot of uncertainty

regarding how smooth China’s transition will be. She also pointed to the risks of oil prices

falling again and the impact for the global economy.

…and described the US economy as ‘somewhat mixed’…

As for the US economy, she expressed uncertainty regarding the inflation outlook, particularly

given the recent financial market turbulence and the chance of a further slowing of the global

economy. Such developments, in her view, could delay the return of inflation to the 2% target.

Moreover, she signaled that a strong job market contrasted with manufacturing and net

exports which continued to be hard hit.

…recommending a cautious approach to rate hikes

Given the risks to the outlook, Chair Yellen considered it appropriate for the Committee to

proceed cautiously in adjusting policy. She mentioned that this caution was warranted

because the federal funds rate was so low. We expect rates to remain on hold in the coming

months. This reflects our view of modest economic growth in the US. In addition, early rate

hikes could unsettle markets.

Fed San Francisco President Williams more positive about the US economy…

On Tuesday, the President of the Federal Reserve Bank of San Francisco, Williams, held a

speech today in Singapore on the US economy, global growth and international risks in

Group Economics Macro & Financial Markets Research

Maritza Cabezas

Senior Economist

Tel: +31 20 343 5618

maritza.cabezas@nl.abnamro.com

Aline Schuiling

Senior Economist

Tel: +31 20 343 5606

aline.schuiling@nl.abnamro.com

Fed Chair Yellen delivers a considerably dovish speech on the global economy

and outlook…

…while recommending a cautious approach to further rate hikes

We expect rates to remain on hold in the coming months, reflecting our view of

modest US economic growth. Moreover early rate hikes could unsettle markets

Bank lending in the eurozone continues to rise

2 Daily Insight – A cautious Yellen focuses on risks- 30 March 2016

perspective. He is a non-voting member and is normally considered a dove. However, in the

past few weeks, his remarks have been a bit hawkish. He is one of the Fed officials, that said

some days ago, that rate hikes could be considered as soon as April. In his latest speech, he

maintained a positive view on the US economy, expecting growth to be a bit above 2% this

year and the unemployment rate to fall to roughly 4.5% by the end of the year. On top of this

he mentioned that inflation is on track to move back to 2% over the next two years.

…and stresses importance of communication to reduce the uncertainty of rate hikes

Although he stressed the interconnectedness of economies means that normalisation in the

US will cause market turbulence internationally, he mentioned the Fed’s communication will

help reduce the uncertainty. In this speech he didn’t mention anything about when the Fed will

raise rates.

Growth in eurozone bank lending

% annual growth (adjusted for sales and securitization)

Source: Thomson Reuters Datastream, ABN AMRO Group Economics

Eurozone bank lending continues to rise

The ECB report about Monetary developments in the euro area showed that growth in broad

money supply M3 stabilised at 5.0% in February. The counterparts of money supply revealed

that bank lending in the eurozone continues to increase. The monthly flow in loans to non-

financial corporates (adjusted for sales and securitisation) was EUR 18bn in February, lifting

the outstanding amount to EUR 4360bn, while loans to households increased by EUR 9bn to

EUR 5652bn. Changes in bank lending tend to follow economic growth with a delay and the

pick-up in annual growth in loans seems to reflect the pick-up in GDP growth in the final

quarter of 2014 and the first half of 2015. Considering that GDP growth lost some momentum

in the second half of last year, with qoq growth stabilising at 0.3% qoq in Q3 and Q4, we

expect credit growth to stabilise at around the current level in the coming quarters.

-4

-3

-2

-1

0

1

2

3

10 11 12 13 14 15 16

Non-financial corporations Households

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 3.1 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 -10.0 -5.4Thursday 31/03/2016 10:30:00 GB GDP - % qoq 4Q F 0.5 0.5Thursday 31/03/2016 11:00:00 EC Core inflation - % yoy Mar A 0.8 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 12 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)