Macro Weekly – Risks emanating from Iraq?

door: Nick Kounis , Aline Schuiling , Peter de Bruin , Georgette Boele , Roy Teo

Macro Weekly - 23 June 2014 - Risks emanating from Iraq.pdf (288 KB)
  • Big Picture: The building up of tensions in Iraq, following the problems in Ukraine, has emphasised the geo-political risks to global growth. Neither of these economies is big enough to influence global demand directly, but the potential negative fall-out could come from the effect on oil prices. The situation in Iraq in particular has pushed up oil prices, but the rise so far is not substantial enough to have a major impact on the economic outlook. The favourable global supply situation also suggests that oil prices will ease, once the situation calms.
  • Rates: FOMC members slightly raised their view of the appropriate federal funds rate for 2015 and 2016. Still, Chair Yellen downplayed the recent rise in inflation, re-emphasizing that there still is a large amount of labour market slack. Meanwhile, the suspension of the ECB’s absorption tender resulted in a rise in excess liquidity in the eurozone, pushing money-market rates somewhat lower. We see some modest further downside for interbank rates.
  • FX: The Fed’s dovish communication is acting as a headwind for the US dollar, not only because the market’s anticipation that interest rates will remain low for longer, but also because inflation expectations have started to rise. This combination is a clear negative. However, we expect the Fed to shift to a more hawkish stance later in the year, which should support the dollar. Meanwhile, Scandinavian currencies came under heavy pressure, as the market adjusted downwards its view on interest rates.