: : : : 8: 1: 1: 1: 1: 18: : : : : : : 8: 1: 1: 1: 1: 18: : : : : : : 8: 1: 1: 1: Markets have reacted in a calm way to the US decision to withdraw from the Iran nuclear deal Despite the increase in geopolitical uncertainty, there has been no flight to safety and US treasury yields have followed oil higher Should oil prices continue to increase, this would end up acting as a headwind to growth On 1 January, President Trump announced that he would extend sanctions relief to Iran for one more 1-day period, adding that in the absence of a renegotiated deal, it would be the last extension. Since the month of February, markets have increasingly anticipated that such a withdrawal might very well happen, pushing up the price of oil. In recent weeks, the correlation between oil and the 1-year US treasury yield has been high. Both have been rising in tandem, although oil was not the only factor causing the 1-year yield to cross the 3.% barrier at some point. The announcement on 8 May that the United States will withdraw from the Iran nuclear deal and will re-impose sanctions has caused, as expected, an additional increase in the price of oil, reflecting the concern that US sanctions will reduce Iranian supply to the global market. The withdrawal announcement causes an increase in geopolitical and economic uncertainty but this hasn t impressed equity markets yet, possibly because part of this increase had already been priced in: US equity indices closed unchanged and the following morning, Asian markets were slightly down and some were even up. Europe was higher as well. As a consequence, the flight to safety that might have been OIL PRICE AND 1-YEAR US TREASURY YIELD (INTRADAY) Source: Bloomberg, BNP Paribas expected on the back of the increase in uncertainty did not materialise, which meant that bond markets were driven by the inflation outlook, so on balance, yields moved up a bit. Short term relief that the market reaction was so limited does not change the key conclusion that the world has become a more complex place. If the price of oil were to rise further, at some point concern will mount about the possible detrimental consequences for growth: higher oil triggers bad inflation (originating in the supply side) which may end up causing a stagflationary shock via reduced real spending power of households and a drag on earnings of oil-intensive companies. All the more so in the eurozone where the oil price increase expressed in euro in recent months partly reflects the weakening of the euro against the dollar of about 5% since the end of January. On the other hand, eurozone resilience should be high given the levels of growth, confidence, job creation, income growth and the increase in the participation rate. Finally, central banks would be put to test in deciding whether to react to higher headline numbers or to focus on core. 3. 3.1 3..99.98.97.9.95.9.93 7 May US T.Note 1y, % (LHS) Oil Brent, USD/barrel 8 May 9 May 77 7.5 7 75.5 75 7.5 7 73.5 Markets Overview Pulse & calendar Economic scenario
Ecoweek 18-19 // 11 May 18 economic-research.bnpparibas.com Markets overview The essentials Week -5 18 > 1-5-18 CAC 5 51 } 5 5 +.5 % S&P 5 3 } 73 +. % Volatility (VIX) 1.8 } 13. -1.5 pb Euribor 3M (%) -.33 } -.33 +. bp Libor $ 3M (%).37 }.3-1.3 bp OAT 1y (%).79 }.79 +.3 bp Bund 1y (%).55 }.55 +.7 bp US Tr. 1y (%).95 }.98 +3. bp Euro vs dollar 1.19 } 1.19 -. % Gold (ounce, $) 1 311 } 1 317 +.5 % Oil (Brent, $) 7. } 77. +3.9 % Money & Bond Markets Interest Rates ECB.. at 1/1. at 1/1 Eonia -.3 -.35 at 1/1 -.37 at /1 Euribor 3M -.33 -.33 at 1/5 -.33 at 1/1 Euribor 1M -.19 -.19 at 1/1 -.19 at 19/ $ FED 1.75 1.75 at /3 1.5 at 1/1 Libor 3M.3.37 at /5 1.9 at 1/1 Libor 1M.77.78 at 7/.11 at 1/1 BoE.5.5 at 1/1.5 at 1/1 Libor 3M.8.79 at 19/.5 at /1 Libor 1M.9 1. at 17/.7 at 3/1 At 1-5-18 Commodities Exchange Rates 1 y bond yield, OAT vs Bund Euro-dollar CAC 1. 1..8.... Bunds highest' 18 lowest' 18 Yield (%) Spot price in dollars lowest' 18 18( ) Oil, Brent 77.. at 13/ +17.% Gold (ounce) 1 317 1 33 at 1/1 +.% Metals, LMEX 3 33 3 18 at /3-1.% Copper (ton) 88 55 at /3-3.% CRB Foods 35 335 at / +7.1% w heat (ton) 18 155 at 1/1 +17.5% Corn (ton) 17 1 at 8/1 +1.7% At 1-5-18 Variations 1 = 18 USD 1.19 1.5 at 5/1 1.19 at 8/5-1.1% GBP.88.89 at /3.8 at 17/ -.% CHF 1.19 1. at 19/ 1.15 at 7/ +1.9% JPY 13.18 137.9 at / 19.5 at 8/5-3.8% AUD 1.58 1.1 at /3 1.53 at 9/1 +3.% CNY 7.5 7.9 at 5/1 7.55 at 8/5-3.3% BRL.3.7 at 5/ 3.87 at 8/1 +.1% RUB 73.3 79.1 at 11/ 8. at 9/1 +.5% INR 79.9 81.39 at 5/ 75.9 at 8/1 +.3% At 1-5-18 Variations OAT.55 1 May Equity indices 1. 1.17 1.1 1.7 highest' 18 lowest' 18 AVG 5-7y.7. at 15/.1 at 18/ Bund y -.59 -.55 at 7/3 -. at 1/1 Bund 1y.55.7 at 15/. at 1/1 OAT 1y.79.91 at 8/. at 3/3 Corp. BBB 1. 1.8 at 5/ 1.17 at 8/1 $ Treas. y.53.53 at 1/5 1.89 at 1/1 Treas. 1y.98 3.3 at 5/.1 at 1/1 Corp. BBB.3.3 at 9/5 3.59 at 1/1 Treas. y.8.85 at 1/3. at 1/1 Treas. 1y 1. 1.7 at 15/ 1.3 at 1/1 At 1-5-18 1 1.19 5 5 5 5 5 5 8 1. 1 May 3 8 1 May 1y bond yield & spreads.3% Greece 377 pb 1.9% Italy 138 pb 1.73% Portugal 117 pb 1.31% Spain 7 pb.83% Belgium 8 pb.79% France pb.77% Austria 1 pb.9% Netherland 13 pb.8% Ireland 1 pb.7% Finland 11 pb.55% Germany Oil (Brent, $) Gold (Ounce, $) CRB Foods 8 77 1 38 77 7 1 3 37 1 317 3 1 3 38 5 1 8 3 9 1 35 1 35 1 1 3 1 1 33 8 1 8 38 1 May 1 1 May highest' 18 lowest' 18 Index highest' 18 lowest' 18 18 18( ) CAC 5 5 5 5 at 1/5 5 at /3 +.% +.% S&P5 73 873 at /1 581 at 8/ +1.8% +3.% DAX 13 3 13 5 at 3/1 11 787 at /3 +.8% +.8% Nikkei 97 1 at 3/1 18 at 3/3-1.% +.7% China* 9 11 at /1 88 at 9/ +.% +5.% India* 575 at 9/1 53 at 3/3 -.8% -.9% Brazil* 11 393 at /1 19 at 8/5 +11.9% +5.% Russia* 77 at / 571 at 1/ +1.1% +.% At 1-5-18 Variations 3 1 May * MSCI index 35
Ecoweek 18-19 // 11 May 18 economic-research.bnpparibas.com 3 Eurozone: Credit pulse In Q1 18 the year-over-year growth rate of bank lending continued to accelerate slightly (top right chart) in line with faster GDP growth. Loan demand by corporates and households remained positive. In addition, lending conditions have eased for all clients. 8 % ** Credit impulse* - - -8 Households NFC -1 Private sector Real GDP, %, y/y -1-1 5 7 8 9 1 11 1 13 1 15 Real GDP Growth vs Bank Lending 1 Annual growth rates**, % 1 Households NFC 1 Private sector Real GDP, %, y/y 1 8 - - 5 7 8 9 1 11 1 13 1 15 8 - Net change ECB Bank Lending Survey, Expected (firms) Credit standards to firms Credit demand of firms Real GDP, %, y/y [RHS] - 5 7 8 9 1 11 1 13 1 15 *Credit impulse is measured as the annual change of the annual growth rate of MFI loans ** Adjusted for securitizations Source: ECB, ECB BLS, BNP Paribas calculations - - 5 5 Net change ECB Bank Lending Survey, Expected ( households) -5 Consumer credit demand Consumer credit standards - Housing credit demand -5 Housing credit standards - Rea lgdp, %, y/y [RHS] -75 5 7 8 9 1 11 1 13 1 15 Indicators preview Several important data in France (CPI, wages, unemployment). For the eurozone consumer price inflation will be particularly watched and we will also have an update of the estimate for Q1 GDP growth. In the US we have several data about the housing market and the construction sector, as well as retail sales. Date Country Event Period Prior 5/15/18 Germany GDP SA QoQ 1Q.% 5/15/18 France Wages QoQ 1Q -- 5/15/18 France CPI EU Harmonized MoM April -- 5/15/18 United Kingdom ILO Unemployment Rate 3Mths March -- 5/15/18 Eurozone GDP SA QoQ 1Q -- 5/15/18 United States Retail Sales Advance MoM April -- 5/15/18 United States NAHB Housing Market Index May -- 5/1/18 Japan GDP SA QoQ 1Q.% 5/1/18 Germany CPI EU Harmonized MoM April -- 5/1/18 Eurozone CPI MoM April -- 5/1/18 United States Housing Starts April -- 5/1/18 United States Building Permits April -- 5/17/18 France ILO Unemployment Rate 1Q 8.9% Sources: Bloomberg, BNP Paribas
Ecoweek 18-19 // 11 May 18 economic-research.bnpparibas.com UNITED STATES GDP growth is accelerating along with the recovery in the emerging countries and reinforcing world trade. However the fiscal outlook remains uncertain. Tax cuts would add +.5 pp to the GDP growth this year, that would trend near 3%. The labour market is as buoyant as ever, showing its first signs of tension (participation rates and real wages are up). Fed Funds rates: 1.75% in Q1 18, % by mid-18. CHINA Economic growth will decelerate in 18. Despite the slowdown, the central bank will have to continue to act to encourage the deleveraging of financial institutions and corporates and reduce financial instability risks. Fiscal policy should remain expansionist. The outlook for exports and household spending is rather favourable in the short term, but the tightening of domestic credit conditions, restructuring measures in the industry and less buoyant property market will weigh on economic activity. EUROZONE The recovery is getting stronger and broader: the dispersion of economic performances among member states is receding. Despite the cyclical recovery, core inflation still shows no sign of a convincing upward trend. For the recovery to enter its inflationary phase the economy has to improve further, until the point at which wages will tend to increase. The ECB is expected to remain cautious. Possible extension of APP after Sept. no rates hike before mid-19. FRANCE A clear growth acceleration is underway. Households consumption is supported by the jobs recovery but restrained by the upturn in inflation. Investment and exports dynamics are favourable. A slight rise in inflation is appearing but remains to be confirmed. INTEREST RATES AND FX RATES In the US, ongoing strong growth and a very low unemployment rate pave the way for several rate hikes (we expect this year and 1 next). This will put upward pressure on bond yields in 18. The ECB is expected to stop its QE programme at the end of 18 and to hike its rates by the middle of 19. As a consequence, bond yields should follow a rising trend, including in 19. No change expected in Japan The narrowing bond yield differential between the US and the eurozone should cause a strengthening of the euro, all the more so considering it is still below its long-term fair value (around 1.3). SUMMARY % 17 18 e 19 e 17 18 e 19 e Advanced.. 1.9 1.8 1.9 1.8 United-States.3 3.1.1.1.3.1 Japan 1.7 1.3..5.9.9 United-Kingdom 1.8 1.5 1.8.7..1 Euro Area.5..1 1.5 1.7 1.7 Germany.5.. 1.7 1.8 1.9 France..3 1.9 1. 1. 1.7 Italy 1.5 1.5 1. 1.3 1. 1.5 Spain 3.1.8.. 1. 1. Netherlands 3.3.3 1.7 1.3 1.7 1.8 Emerging GDP Growth Inflation China.9.. 1..3.5 India. 7. 7. 3..5. Brazil 1. 3. 3.5 3. 3.3 3.8 Russia 1.5 1.8 1.7 3.7 3.. Source : BNP Paribas Group Economic Research (e: Estimates & forecasts) INTEREST RATES & FX RATES Interest rates, % 18 ####### ####### ####### End of period Q1e Qe Q3e Qe 17 18e 19e US Fed Funds 1.75..5.5 1.5.5.75 Libor 3m $.1.15.35.55 1.9.55.55 T-Notes 1y 3. 3.1 3. 3.5.1 3.5 3. Ezone ECB Refi.......5 Euribor 3m -.33 -.33 -.33 -.33 -.33 -.33.7 Bund 1y.7.85 1. 1.5. 1.5 1.8 OAT 1y 1. 1.1 1. 1.7. 1.7.5 UK Base rate.5.75.75 1..5 1. 1.5 Gilts 1y 1.55 1.5 1.75 1.9 1.3 1.9.5 Japan BoJ Rate -.1 -.1 -.1 -.1 -. -.1 -.1 JGB 1y..8.8.8.5.8. Exchange Rates 18 End of period Q1e Qe Q3e Qe 17 18e 19e USD EUR / USD 1. 1.7 1.8 1.8 1. 1.8 1.3 USD / JPY 1 15 1 1 113 1 98 GBP / USD 1.38 1.1 1. 1.5 1.35 1.5 1.5 USD / CHF.93.93.93.9.97.9.93 EUR EUR / GBP.91.9.89.88.89.88.88 EUR / CHF 1.17 1.18 1.19 1. 1.17 1. 1.5 EUR / JPY 13 133 133 131 135 131 131 Source: : GlobalMarkets (e: BNP Estimates Paribas & forecasts) (e: estimates & forecasts)
BNP Paribas (15). All rights reserved. Prepared by Economic Research BNP PARIBAS Registered Office: 1 boulevard des Italiens 759 PARIS Tel: +33 () 1..98.1.3 Internet : www.group.bnpparibas.com Publisher: Jean Lemierre. Editor: William De Vijlder