Week in review
This week markets were focused on the possibility that the US Federal Open Market Committee would proceed to its first hike since nearly a decade ago, but the Committee reaffirmed the 0 to 1/4 percent target range for the federal funds rate. Janet Yellen justified this decision with the uncertainty in China and in emerging markets and a slightly softer expected path for inflation. The Committe will wait for more evidence and for some improvement in the labor market before decreasing monetary stimulus to the economy.
On the sequence of this decision, the dollar fell to a three week low against the euro. Equity markets were both down in the US and in Europe. The stronger euro led to general losses in the main european markets, with investors moving to sovereign bonds, whose yields declined both in europe and in the US.
The first Fed hike may occur in December or may be delayed to the next year if the economic outlook remains uncertain or deteriorates. The decision of this Thursday may also suggest the ECB to extend quantitative easing before the Federal Reserve tightens monetary policy.
In the euro area employment continues to rise slightly every quarter: in Q2, employment was up 0.3%qoq (0.8%yoy), after 0.2%qoq (0.8%yoy) in Q1. Portugal (+1.3%) and Greece (+1.2%) recorded the highest increases in the second quarter of 2015 compared with the previous quarter.
Inflation in the euro area was 0.1%yoy in August after 0.2%yoy in July. The euro area had been dealing with deflation for about 2 quarters until April 2015 and now remains well below the target of close to, but below 2%. In Portugal, inflation was 0.7%yoy in August, 0.1 pp below July’s. Fears of deflation can be set aside in Portugal, with prices recovering considerably in the first half of 2015, after the deflation in 2014.
- Excessive Deficit Procedure (2015, 2nd report delivered by Member States) – National Statistics
- National Accounts by institutional sector (Q2 2015): details of Government Accounts and Savings – National Statistics
- Eurozone composite and US manufacturing PMI – Markit
- GDP annualised (Q2, third estimate): Bureau of Economic Analysis