Embed Size (px)
Citation preview
Monday
June 27, 2016
www.bloombergbriefs.com
Brexit Fallout; ECB Forum; Euro Leaders MeetBEN BARIS AND GEOFF KING, BLOOMBERG BRIEF EDITORS
WHAT TO WATCH: The aftershocks of the U.K.’s vote to leave the European Unioncontinued to reverberate across financial markets, with the pound extending its selloff near a 31-year low and European equities dropping to levels last seen in February. Asian shares rebounded with commodities. Sterling added to Friday’s record drop and the retreated. Futures on the fell 0.3 percent, indicating FTSE 100 Index S&P 500stocks may extend losses after plunging the most in 10 months on Friday. Demand for haven assets boosted gold and U.S. Treasuries. Spanish bonds climbed the most in three months following a general election.
ECONOMICS: The European Central Bank starts its three-day Forum on Central Banking in Sintra, Portugal. Speakers include ECB President Mario Draghi and Federal Reserve Chair Janet Yellen. Negative interest rates and the aftermath of Brexit will be among the issues discussed. Starts at 1:30 p.m. The Bretton Woods Committee Annual Meeting will include presentations by U.S. Treasury Secretary Jacob J. Lew and World Bank Group Chief Operating Officer Sri Mulyani Indrawati. Topics will include the state of the global economy and multilateral leadership, 8:30 a.m. in Washington.
GOVERNMENT: German Chancellor will host European Union Angela MerkelPresident in Berlin at 9 a.m. to talk about the U.K.’s plan to exit the bloc. Donald TuskShe will then meet with French President and Italian Prime Minister Francois Hollande
, and the three leaders will address reporters at 12:30 p.m.Matteo Renzi
(All times local for New York.)
QUOTE OF THE DAY
"Now the scenario catastrophicthat many feared has materialized, making the disintegration of the EU practically irreversible."
— U.S. billionaire George Soros, adding the
consequences of the Brexit vote for the real
economy will be comparable to the 2007-2008
financial crisis
COMMENTARY IN THIS ISSUE
While the Brexit vote will likely have a limited direct on the U.S. impacteconomy, financial contagion is a bigger threat: Yelena Shulyatyeva and Carl Riccadonna.
Britain’s vote to leave the EU will almost certainly have for the repercussionsFederal Reserve — and those could play out over days or months: Christopher
and Condon Jeanna Smialek.
Data on consumer spending this weekwill be an important determining factor on whether policy makers will deem the economy sufficiently fit to endure further normalization of rates: Bloomberg Intelligence Economists.
Wall Street analysts and see economiststhe Fed proceeding with even more caution on interest rates following the Brexit decision: Vivien Lou Chen.
EQUITIES DATA MONITOR
BREXIT YELENA SHULYATYEVA AND CARL RICCADONNA, BLOOMBERG INTELLIGENCE ECONOMISTS
Fed Funds Futures Curve Inverts as Traders Price Rate Cut
Futures contracts linked to the Federal Reserve’s benchmark interest rate imply the chances of a rate cut in the next few months are higher than the chances of an increase following U.K. voters’ decision to leave the European Union. The curve resumes its upward slope by December, however, suggesting any Fed easing might be short-lived. The situation is reminiscent of 1998, when the central bank began cutting rates in September in response to market turmoil, before resuming hikes in June.
— Matthew Boesler, Bloomberg News
June 27, 2016 Bloomberg Brief Economics 2
BREXIT YELENA SHULYATYEVA AND CARL RICCADONNA, BLOOMBERG INTELLIGENCE ECONOMISTS
As Brexit Headwinds Intensify, U.S. Economy to Hold FirmThe U.K. referendum vote to leave the
European Union clearly caught financial markets off guard. While the Brexit vote will likely have a limited direct impact on the U.S. economy, financial contagion is a bigger threat. U.S. financial conditions have tightened significantly since the vote outcome was announced. However, the size of the impact so far has been only half of what it was after the Chinese currency devaluation in August 2015.
So far the primary impact has been through the foreign exchange market, withequities, fixed income and credit markets affected to a lesser extent. Assuming the financial disruption is large and sustained,Brexit could shave off one to two tenths of GDP growth this year, and could be a good enough reason for the Fed to delay further rate hikes until policy makers evaluate the full scale of the impact.
Brexit has jolted the currency markets. The British pound has tumbled to the lowest level since 1985, depreciating by almost 10 percent after the result was announced. While a weaker pound would generally imply a stronger dollar, the impact so far has been less dramatic, with the dollar only appreciating by about 2 percent after the vote. This would still be below the peak level of the trade-weighteddollar reached back in January. The affectof a stronger dollar would be first reflected in the survey of manufacturers, as it directly affects their competitiveness.
A strong parallel for such an abrupt move in the British currency was the market reaction on Black Wednesday (Sept. 16, 1992). The current plunge in the pound is significantly larger. To find a comparison for the impact of the British vote on the U.S. financial market conditions, you do not need to look back that far. The sudden devaluation of the yuan on Aug. 11, 2015, and the lack of communication on the currency regime, led to an abrupt tightening in the U.S. financial market conditions.
This is a useful way to measure the impact of currency movements on other financial metrics. So far, the outcome of the British referendum resulted in tightening of half the size. Such a move appears to be sensible as China is a major trading partner of the U.S., while the U.K. is not.
Read the full analysis with additional live charts on the Bloomberg terminal .here
The direct impact on the U.S. economy should be limited to one tenth of GDP growth. The U.K. is only the fifth-largest trading partner in terms of exports and the seventh-largest partner in terms of imports. While the trade flows with the U.K. have been trending down as of late, the share of the exports to the country in overall U.S. exports has been lower than 4 percent, and the imports share is less than 3 percent.
As such, even a major slowdown in trade flows will likely result in only a one-to-two tenths impact on the annual GDP. The economy only needs to grow by 2.2 percent on average in the second half of the year to achieve the Fed’s annual target of 2 percent. The incoming data suggest the Fed forecast could be too pessimistic and achievable even if growth decelerates modestly as a result of a direct impact on trade flows.
The last year’s tightening in financial market conditions was severe enough to delay the Fed’s rate-hiking plans. While it is too soon to tell how much financial tightening will constrain economic activity, it certainly could prevent the Fed from any further policy moves until the scale of the impact is fully assessed. The U.S. economy has been shifting to a reliance on domestic demand, even as global growth concerns remain elevated.
Such a reorientation increasingly insulates the U.S. from international
challenges. Consumer spending and, to a lesser extent housing and government, are set to dominate the medium-term outlook. Net exports play a less important role than earlier in the cycle. Recent dynamics suggest that the contagion could be contained.
Corporate profits will remain a significant area of concern if the impact is significant and sustained. Profits from the rest of the world make up about 20 percent of overall corporate profits. Total corporate profits stabilized in the first quarter after dropping for two consecutive quarters. The resumption of declines could lead to a significant slowdown in capital spending growth and hiring.
Consumer spending could suffer through the wealth effect if the decline in equities remains large and sustained. The initial impact on stock market futures was significantly larger, but partially faded by Friday afternoon.
Equity-market retracement can damp spirits, as can terrorist attacks, natural disasters and political crises. As news become more favorable, confidence tends to improve. While bad news weighs on overall confidence, as in the 1998 Asian financial crisis or during the 2011 political showdown over the U.S. debt ceiling, and potentially the Brexit vote, a loss of consumer confidence does not necessarily point to a looming recession.
U.S. Imports From U.K. and Exports to U.K.
June 27, 2016 Bloomberg Brief Economics 3
FEDERAL RESERVE CHRISTOPHER CONDON AND JEANNA SMIALEK, BLOOMBERG NEWS
June 27, 2016 Bloomberg Brief Economics 4
FEDERAL RESERVE CHRISTOPHER CONDON AND JEANNA SMIALEK, BLOOMBERG NEWS
Yellen’s Fed to Play Long Game Dealing With Brexit FalloutBritain’s vote to leave the European
Union will almost certainly have repercussions for the Federal Reserve — and those could play out over days or months.
The severity of the fallout will become clear over three time horizons. On Friday, the Fed said it’s ready to act with its global central bank partners to shore up liquidity in markets, if needed. In the medium term, the post-Brexit market turmoil could delay a rate increase, while in the longer term, secondhand effects could bleed into U.S. economic data. Here’s what we know about each stage so far.
The Fed joined other major central banks Friday in saying it was ready to take action to help calm global financial markets.
“The Federal Reserve is prepared to provide dollar liquidity through its existing swap lines with central banks, as necessary, to address pressures in global funding markets, which could have adverse implications for the U.S. economy.” — Fed statement
Earlier on Friday, the Bank of England and the European Central Bank made similar statements.
“To support the functioning of markets, the Bank of England stands ready to provide more than £250bn of additional funds through its normal facilities. The Bank of England is also able to provide substantial liquidity in foreign currency, if required.” — Mark Carney, Governor, Bank of England
“The ECB stands ready to provide additional liquidity, if needed, in euro and foreign currencies.” — ECB statement
G-7 finance ministers and central bank chiefs also issued a joint statement promising coordinated action in an attempt to prevent “excessive volatility and disorderly movements in exchange rates.”
With liquidity provisions and “soothing talk” from central banks “it’s not hard to imagine a return to normality in the not-too-distant future,” said Roberto Perli, a
partner at Cornerstone Macro LLC in Washington.
The fallout from Brexit could delay the Fed’s plan to increase interest rates in coming months, particularly if the dollar strengthens and uncertainty intensifies.
The British vote to leave comes at a time when Fed policy makers were already sounding less confident that a rate hike was imminent — Chair Janet Yellen had been saying that an increase could be appropriate “in coming months,” but that language has been conspicuously absent from her speeches following a weak May jobs report. Now, if markets are roiled and a flight to safe assets drives up the dollar and tightens financial conditions on a sustained basis, it could be even harder for the Fed to move.
Futures pricing discounted the odds of a rate increase and showed the probability of a cut running as high as 14 percent in November as of 1:20 p.m. in New York on Friday. Investors on Thursday saw zero chance of a rate cut this year.
Wall Street economists also began changing their predictions for rate hikes. Bank of America Merrill Lynch economists led by Ethan Harris pushed out their forecasts for rate hikes by a quarter, saying the Fed won’t move until
December, and then only twice next year.Michael Feroli, chief U.S. economist at
JPMorgan Chase & Co., changed his rate call for the second time in 10 days. Feroli said Friday he now expects no move until December. On June 15, he reduced his forecast for the number of 2016 hikes to one from two, saying that would most likely come in September.
Millan Mulraine, deputy head of U.S. research and strategy at TD Securities in New York, who previously expected a move in September and two next year, now believes the Fed will wait until mid-2017 for its next hike.
“We see growth falling, and we see inflation falling over the next few quarters” as the strong dollar bites, he said. “This is a process that will take some time, and it is possible that we will have some other dominoes falling.”
The longer-term impact of Brexit on the U.S. economy will depend largely on how long the effects on financial markets persist. Deutsche Bank AG economist Torsten Slok, using the Fed’s primary economic modeling tool, outlined how different distortions might be expected to affect economic growth, assuming the central bank left its benchmark rate unchanged. Read more .here
WEEK AHEAD CARL RICCADONNA, YELENA SHULYATYEVA AND RICHARD YAMARONE, BLOOMBERG ECONOMISTS
Fed Funds Futures Pricing Suggests Investors See Hike Delay
June 27, 2016 Bloomberg Brief Economics 5
WEEK AHEAD CARL RICCADONNA, YELENA SHULYATYEVA AND RICHARD YAMARONE, BLOOMBERG ECONOMISTS
Policy Makers Assess Aftermath of Brexit StormMonetary policy makers appear to have
backed away from their midyear rate hike agenda. The U.K. referendum could be a good enough reason for the Fed to delay further rate hikes until policy makers evaluate the scale of its impact. With household spending dominating the growth landscape for the near future, data on consumer spending (this week) and job creation (next week) will be important determining factors on whether policy makers will deem the economy sufficiently fit to endure further normalization of rates.
The economy logged a dismal performance in the first quarter. While growth was revised up to 0.8 percent quarter-over-quarter in the second estimate, from 0.5 percent as initially reported, it remains lackluster. The third estimate of , reported first-quarter GDPTuesday, will likely indicate a further minor upgrade. Revisions to the data on trade, core shipments and manufacturers' inventories and construction spending imply a 0.2-0.3 percentage point upward revision. With second-quarter tracking to indicate a strong rebound, attention will switch to sustainability of growth in the second half.
The first-quarter GDP second reading showed corporate profits remain a point of concern. However, encouragingly, they stabilized after falling for two consecutive quarters, which could suggest the trend is turning. The revisions in the upcoming report will be watched for a confirmation of the recent rebound.
Given the unusual results of the May employment report, in which job creation virtually stalled (38,000) while the unemployment rate fell to a post-recession low (4.7 percent), the health of the labor market is under elevated scrutiny. For this reason, the labor components of the consumer
report — namely jobs confidenceplentiful/hard-to-get — are likely to be of as much significance to market participants as the headline result. Consensus anticipates the June headline to rise modestly (93.3 versus 92.6).
In May, labor conditions deteriorated slightly due to an increase in jobs hard-to-get, but the move was not on a scale consistent with the disappointing jobs report which followed. In general, the
View a more comprehensive week ahead preview on the Bloomberg terminal .here
broad trends show that labor conditions continue to improve.
The May and personal income data, reported Wednesday, spending
will have significant consequences for near- and medium-term growth outlooks. Personal spending will provide a more definitive perspective on the degree to which consumers are driving growth in the current quarter. From what is already known in the retail sales data, the outlook is promising for GDP to be in the high 2 percent range. Meanwhile, personal income (projected to rise 0.3 percent versus 0.4 percent prior) will signal whether the spending trend can accelerate in the medium term.
The broader consumer-spending trend appears to be accelerating. It is running 4.1 percent over year-ago levels in the current quarter compared with 3.2 percent in the last quarter of 2015. BI Economics is optimistic that reduced labor slack will foster greater wage pressures and provide a tailwind to consumers.
Fed Chair , ECB Janet YellenPresident and BOE Mario Draghi Governor will participate in Mark Carneya panel moderated by former ECB President . The Jean-Claude TrichetBrexit vote clearly caught financial markets off guard, leading to a significant tightening of financial conditions since the outcome was announced. Central bankers will
gather to reassure the markets that they are monitoring the situation very closely and are standing ready to provide additional liquidity, if needed.
Just as the manufacturing ISM bucked the weakening trend among many of its regional counterparts in May, the same could be true again as they recover in June. The ISM headline proved surprisingly resilient in May, but this was largely due to a gain in supplier deliveries, which essentially pointed to a difficult-to-explain slowdown in delivery times. New orders were little changed and shipments downshifted, which could mean that if supplier deliveries normalize the headline could be at risk in June.
Consensus expects little change in the June ISM (51.4 versus 51.3 prior), reported Friday, but BI Economics sees downside risks. Beyond providing a barometer of factory health, the ISM surveys are useful proxies of overall GDP growth, so the June result will provide some early hints regarding the midyear pace of expansion.
There is little reason to expect auto to deviate too far from the 17 sales
million-unit pace averaged over the last year. Borrowing costs are very low and income growth continues to climb. The consensus estimate expects a dip to 17.30 million units in June from 17.37 million in May.
RESEARCH ROUNDUP VIVIEN LOU CHEN, BLOOMBERG FIRST WORD
Retail Sales Bodes Well for 2Q Consumption Trend
June 27, 2016 Bloomberg Brief Economics 6
RESEARCH ROUNDUP VIVIEN LOU CHEN, BLOOMBERG FIRST WORD
Fed Hike Outlook ‘in Tatters’ Post-BrexitAny “faint prospect” of a Federal Reserve July interest-rate increase has entirely vanished, ING economist Rob Carnell wrote in note
Friday. The long-standing ING call for a September hike looks to be “hanging in tatters,” he writes. More commentary from the Street about the U.S. monetary policy outlook following the U.K. decision to the leave the European Union follows below.
Bank of America Merrill Lynch (Economists led by head of global economic research ): The Ethan Harrisoutcome of the Brexit vote “is another in a long string of confidence shocks,” the group writes in a note, and hits an “already vulnerable” U.S. and global economy. The drag to U.S. GDP will showup as early as next quarter. This leaves 2016 annual growth at 1.8 percent and slices 0.2 percentage point from growth next year, bringing it also to 1.8 percent, they note. The Fed will delay the next hike until December, followed by two more hikes next year in June and December, which for BofAML is “simply pushing out our forecast trajectory by a quarter.”
Renaissance Macro Research (head of U.S. economics ): The Fed Neil Duttamight hike in December if the labor market recovers over the summer, tracking estimates of GDP remain around 2 percent and financial conditions ease, Dutta writes in note. The odds of a December hike are about even. Brexit will impact the U.S. economy across“multiple dimensions,” Dutta writes, though he is not expecting a recession. U.S. GDP will take hit of anywhere from 0.2-0.6 percentage point over the next year, with impact coming on trade, the U.S. dollar and confidence. Growth could slow to 1.5 percent, he notes, while much depends on how long the shock to financial markets persists.
Stifel Nicolaus (chief economist ): Uncertainty and Lindsey Piegza
volatility from Brexit will “no doubt serve to exacerbate the ‘cautious’ stance” of the Fed and takes any near-term hike “off the table,” Piegza writes in note. The Fed
“has no other option but to remain sidelined for the foreseeable future.”
While not an official part of the Fed’s dualmandate, global market stability has beena significant factor in determining the appropriate path of monetary policy. The “still-fragile nature” of the U.S. economy had already precluded the Fed from raising rates anytime soon, she writes. It will take “months, if not longer” for the Brexit impact to be fully understood, volatility to subside and the U.S. economy to signal it’s back on a sustainable, moderate path, Piegza notes. “Get comfortable,” as rates are going to be “sluggishly low for some time,” she writes.
Warburg Investment Research (asset management head and chief economist
): The Fed may lower ratesCarsten Kludebefore the autumn “if equity markets see sustained turbulence,” Klude says in an interview Friday. “The topic of a U.S. rate hike will be postponed forever and a day.”Klude note that, “We must expect a longer phase of significant market turbulence and volatility, at least over the summer,
as the political impact remains unclear.” Bunds, U.S. Treasuries and other safe
havens will be in high demand for while.
“Britain has shown that the population at large isn’t led by economic rationality; it was an emotional decision and this may
happen in other countries as well,” he notes. Extreme political forces are on rise
in Netherlands, France and Italy.
(chief U.S. economist JPMorgan): “There is exceptionally Michael Feroli
low visibility on the monetary policy outlook right now,” and risk that the next hike doesn’t occur until 2017, Feroli writes in note. JPMorgan is pushing out its call for the next rate hike to December from September, and lowering its outlook for second-half growth to 2 percent from 2.25 percent. The likelihood of a rate cut is “still quite low,” he notes. Weaker growth outside the U.S. as well as somewhat tighter financial conditions should have a “direct, measurable and modest” impact on activity. Harder to measure is the impact on business sentiment and attitudes toward risk-takingm he notes. The Fed statement Friday that it’s prepared to offer U.S. dollar liquidity through existing swap lines is “confidence-building” language that the U.S. central bank is ready to support global financial conditions. While it's quite feasible that the FOMC could be looking at three solid job reports by September, the committee seems particularly attentiveto downside risks, so the bar for domesticdata has been raised, he writes.
DATA & EVENTS
June 27, 2016 Bloomberg Brief Economics 7
DATA & EVENTS
TIME COUNTRY EVENT SURVEY PRIOR
7:00 Brazil FGV Consumer Confidence — 67.9
7:00 Brazil FGV Construction Costs MoM — 0.19%
7:25 Brazil Central Bank Weekly Economists Survey (Table) — —
8:30 U.S. Advance Goods Trade Balance -$59.4b -$57.5b
8:30 Brazil Federal Debt Total — 2800b
9:00 Israel Base Rate 0.10% 0.10%
9:00 Mexico Trade Balance — -2079.6m
9:45 U.S. Markit US Services PMI 51.9 51.3
9:45 U.S. Markit US Composite PMI — 50.9
10:00 Canada Bloomberg Nanos Confidence — 58.4
10:30 U.S. Dallas Fed Manf. Activity -15 -20.8
14:00 Brazil Trade Balance Weekly — $974m
17:00 South Korea Consumer Confidence — 99
19:30 Australia ANZ Roy Morgan Weekly Consumer Confidence Index — 118.8
23:00 Philippines Budget Balance PHP — -74.4bSource: Bloomberg. Surveys updated at 5:30 a.m. New York.
Click to view a live version of this chart on the Bloomberg terminal.here
CALENDAR
Click on the to see the full range of economists' forecasts on the terminal. highlighted releases
OVERNIGHT
U.K. Chancellor of the Exchequer said contingency plans George Osborne
were in place to shore up the economy amid ongoing market volatility as he sought to reassure financial markets after Britain’s shock vote to exit the European Union.
International Monetary Fund Managing Director Christine Lagarde said that the fallout from Britain’s vote to leave the European Union hinges on what policy makers do in coming days. Much of the outcome “is going to depend on certainty or uncertainty, predictability
— or lack of predictability people going in a risk-off mode or considering that the situation is going to settle back," Lagarde
“At this point in time, policy said Sunday. makers, both in the U.K. and in Europe, are holding that level of uncertainty in their hands. And how they come out in the next few days is going to really drive the direction in which risk will go.”
Some British companies are planning to freeze recruitment and are considering moving operations outside the U.K. following Britain’s decision to leave the European Union, according to a survey by a business group. An Institute of
poll of 1,092 U.K. business Directorsleaders found 24 percent of respondents plan to pause hiring plans, while 5 percent of companies surveyed said they will cut jobs. Sixty-four percent of respondents said the result is negative for business, compared with 23 percent who said it is positive.
China’s Premier said Li Keqiangglobal uncertainties have increased after the U.K.’s vote to leave the European Union and said his nation has ample tools to meet challenges facing the economy. The impact on global financial markets is already evident and measures are needed to ensure stability in the international economy, Li said on Monday at the World Economic Forumin Tianjin. On China, he reiterated that the nation will be able to maintain medium- to high-speed growth rates and has room to apply proactive fiscal measures.
Europe
Asia
GLOBAL EVENTS BY PHYLLIS HALLIDAY, JAMES AMOTT AND STANLEY JAMES. BLOOMBERG NEWS
Advance Goods Trade Balance Leads Off Week's Data
The advance goods trade balance report for May will provide an early insight into the complete international trade report, which is scheduled for release in the following week. Consensus estimates a modest widening in the goods trade deficit in May to minus $59.5 billion versus minus $57.5 billion in April), which if realized would result in a slight drag on GDP growth during the second quarter. In March, the advance trade data showed the goods gap to be notably narrower than the minus $63.2 billion shortfall during February.
— Richard Yamarone, Bloomberg Intelligence Economist
June 27, 2016 Bloomberg Brief Economics 8
GLOBAL EVENTS BY PHYLLIS HALLIDAY, JAMES AMOTT AND STANLEY JAMES. BLOOMBERG NEWS
U.S. households probably tempered their
spending in May following the biggest advance in
almost seven years, figures in the coming week
may show. The Federal Reserve is set to
announce the results of the second part of its
annual bank stress test. Australia holds a general
election, and the U.S., Canada and Mexico meet
in Ottawa for the “Three Amigos” Summit.
CENTRAL BANKS: Israel rate decision.
ECONOMY: U.S. advanced goods trade balance (May), U.S. Markit services PMI (June), Dallas Fed manufacturing (June), China industrial profits (May), Hong Kong imports/exports (May).
Consumer confidence in June probably held close to a six-month low on lingering concern about slower U.S. job growth, economists project. 10:00 EDT.
The conducts the third of three BOE additional indexed long-term repo operations surrounding the U.K.’s EU membership referendum. 06:00 EDT.
European leaders gather in Brussels for the start of a two-day European
to discuss the result of Council summitthe U.K. referendum on leaving the bloc.
G-20 energy ministers meet in Beijing for one of several preparatory sessions leading up to the leaders’ summit to be held in September in Hangzhou city, China. The meeting starts at 20:00 EDT and runs through June 30.
CENTRAL BANKS: Brazil central bank publishes its Quarterly Inflation Report.
U.S. gross domestic ECONOMY: product (first quarter), U.S. S&P/Case-Shiller 20-city home-price index (April), Richmond Fed manufacturing (June), Brazil total outstanding loans (May), South Korea consumer confidence (June), South Africa non-farm payrolls (first quarter).
U.S. consumers probably tempered their spending in May, bringing purchases more in line with income growth, economists forecast. 08:30 EDT.
Monday, June 27
Tuesday, June 28
Wednesday, June 29
U.S. President Barack Obama, Canadian Prime Minister Justin Trudeau and Mexican President Enrique Pena Nieto meet in Ottawa for a “Three
. Discussions will Amigos” Summitcenter on trade. Obama also will address the Canadian Parliament during his visit.
The Federal Reserve is set to announcethe results of the second part of its annual bank stress test, which will determine whether firms can increase dividends and share repurchases. 16:30 EDT.
ECONOMY: U.S. MBA mortgage applications (weekly), U.S. pending home sales (May), Argentina GDP (first quarter), Brazil IGP-M inflation (June), Brazil primary budget balance (May), South Korea BSI survey of business confidence (July), Japan retail sales data (May), euro-area economic confidence (June), Germany CPI (June), U.K. Nationwide house prices (June), U.K. mortgage approvals (May), Turkey economic confidence (June).
St. Louis Fed President James Bullardis the guest speaker at the Society of Business Economists’ annual dinner. 13:30 EDT in London.
German Vice Chancellor and Economy Minister begins a two-Sigmar Gabriel day trip to Greece for talks with government leaders on the economy and energy cooperation.
CENTRAL BANKS: Mexico rate decision, Romania rate decision.
ECONOMY: U.S. jobless claims (weekly), U.S. Bloomberg consumer comfort (weekly), U.S. Chicago PMI (June), Canada GDP (April), Chile unemployment rate (May), Hong Kong retail sales (May), South Korea industrial output (May), Japan industrial output (May), South Africa PPI (May), South Africa trade balance (May), South Africa monthly budget balance (May), Kenya GDP (first quarter), Kenya CPI (June), Poland CPI (June), euro-area CPI (June), German unemployment (June), U.K. GDP (first quarter), Turkey trade balance (May).
probably barely U.S. manufacturing expanded in June as factories remain
Thursday, June 30
Friday, July 1
bogged down by struggling overseas economies and limited business investment, economists forecast. 10:00 EDT.
French ministers, executives and economists gather in Aix-en-Provence for a three-day conference. Attendees include the IMF’s Christine Lagarde and French Economy Minister Emmanuel Macron. Through July 3.
The annual Pacific Alliance meeting includes Presidential Summit
foreign and trade ministers as well as presidents from the Pacific Alliance trading bloc — Chile, Peru, Colombia and Mexico. Argentine President Mauricio Macri will attend as an observer. In Puerto Varas, Chile.
Puerto Rico faces default on about $2 billion in bond payments. Even limiting government operations won’t free up enough cash to pay creditors, the commonwealth’s Governor Alejandro Garcia Padilla said.
Canada’s stock and bond markets are closed for Canada Day, as well as most government offices.
ECONOMY: U.S. Markit manufacturing PMI (June), U.S. construction spending (May), U.S. auto sales (June), Brazil industrial production (May), China manufacturing PMI (June), Caixin China manufacturing PMI (June), Nikkei Taiwan manufacturing PMI (June), South Korea CPI (June), South Korea current account (May), Japan CPI (May), Japan jobless and household spending data (May), Japan Tankan survey of businesses (second quarter), South Korea trade (June), Bank of Japan CPI data (May), Japan consumer confidence (June), South Africa manufacturing PMI (June), Russia GDP (first quarter) as soon as 07/01, Czech Republic GDP (first quarter), euro-area manufacturing PMI (June), euro-area unemployment (May), U.K. manufacturing PMI (June), Italy unemployment (May).
Australians head to the polls, with Prime Minister Malcolm Turnbull seeking a second term in office for the Liberal-National coalition government. The eight-week campaign has focused on which party is best-placed to steer the economy through a fading mining investment boom and tackle a deterioration in public finances. Polls open at 18:00 EDT.
MARKET INDICATORS
June 27, 2016 Bloomberg Brief Economics 9
MARKET INDICATORS
U. MICHIGAN CONSUMER SENTIMENT
Source: Bloomberg. Updated 5:25 a.m. New York time.
June 27, 2016 Bloomberg Brief Economics 10
Bloomberg Brief: Economics
U. MICHIGAN CONSUMER SENTIMENT
Richard Curtin, Director of the University of
Michigan Surveys of Consumers, spoke with
Bloomberg Intelligence U.S. economist Richard
Yamarone following the release of the final print
of the June consumer sentiment report.
Q: Can you recall any other significant stock market event that dampened spirits for a sustained period of time other than during the Great Recession, and the '87 crash?A: You know, the '87 issue was quickly dismissed by consumers as having an impact on the real economy. So this time, I think it may be different for several facts.One is that most people when they look at where they can get a good return for their retirement savings and so forth have turned to the stock market. So there may be more people in and more people feel they have a stake in the stock market. And so the wealth effect of declining stockprices may have a bigger impact across the board. But perhaps more importantly, what has been supporting this expansion is high-income folks who have a substantial stake in the stock market and they have been willing to spend out of their earnings. I think that could have an impact and could have a significant impact on the upper end of the market.
So the luxury goods segment in almost all markets — you could think of the top-end homes, the top-end vehicles and so forth and so on — will show a greater impact from this. I don't know how long or
how deep it would be, but substantially deeper than the 500 that was talked about in the pre-market, and it would have to stay down by that 500 points for more than a few to have a significant impact on spending, both across the broad population, and more importantly across the upper income because the top third of the income distribution makes half of all the dollar volume of consumer expenditures. And so both of those things are important.
Q: Aside from the duration and the magnitude of the stock market hit, do events like Brexit filter into the details of the data?A: Yeah. We've been following Brexit for months now in our data. We asked people in an open-ended question what economic news they heard that's important to them. In the past several months, virtually no one has mentioned Brexit. In this month's survey, there was less than one half of one percent of all households spontaneously mentioning Brexit. Now they're going to mention Brexit more often after this.
So this hasn't been on the minds of consumers up until now. And so I think that it will have an impact, but the impact initially will be both to the stock market, how it affects personal financial expectations and to the business expectations on how the economy adjuststo this. And so I think it could well be represented in the overall number, but it will have a representation in both the
personal finances and in business conditions going forward.
Q: When you have a stock-market-altering event and then you have the election, which one do consumers historically focus more on?A: I think it's hands down on the election. The election will have a bigger impact than Brexit, but I understand that both candidates have already mentioned Brexit and if it becomes any way involved in the U.S. campaign as a political issue, it could be hard to separate them. But there is a sense of uncertainty about future economic policies of the next president, and given that the data suggests that Clinton is expected to win by a substantial portion of the population, I don't think the uncertainty has really captured the population.
But if the election becomes closer and more contested, I would expect that the election and how it affects future economic policy will have an impact on the data. And it will have two kinds of impacts. One, among the young, they're more interested in the income inequality and education issues that Bernie Sandersfavored — that's the Millennial generation, which is huge. And among the older folks, the boomers, they're more interested in funding and expanding Medicare and Social Security. So I think both of these issues have already been touched on in the campaigns, and they could have an impact on confidence going forward.
This interview has been edited and condensed.
Bloomberg Brief Managing Editor
Jennifer Rossa
Economics Editors
Ben Baris
James Crombie
Global Director Economic
Research & Chief Economist
Michael McDonough
Chief U.S. Economist
Carl Riccadonna
U.S. Economists
Richard Yamarone
Yelena Shulyatyeva
Reprints & Permissions
Lori Husted
+1-717-505-9701 x2204
Marketing & Partnership Director
Johnna Ayres
+1-212-617-1833
Advertising
Christopher Konowitz
+1-212-617-4694
Economics Terminal Sales
Matthew Traum
+1-212-617-4671
Interested in learning more about
the Bloomberg terminal? Request a
free demo .here
© 2016 Bloomberg LP.
All rights reserved. This newsletter
and its contents may not be
forwarded or redistributed without
the prior consent of Bloomberg.
Please contact our reprints group
listed left for more information.
