Global Daily – Eurozone consumers turning cautious

by: Aline Schuiling , Bill Diviney

Euro Macro: Households’ saving rate rises – Eurostat published its quarterly Eurozone sector accounts today. They showed that the savings rate of households (gross savings divided by gross disposable income, and therefore the flipside of private consumption) jumped to its highest level in more than four years in 2019Q1, rising to 12.6%, up from 12.1% in 2018Q4. This rise in savings seems to mainly reflect higher precautionary savings. Indeed, the details of the European Commission’s consumer sentiment survey show that consumer confidence has fallen since the middle of 2018, particularly because consumers became less positive about the economic outlook and the prospects for the labour market. Moreover, the details of the consumer sentiment survey show that participants planned to increase their savings during the next twelve months. The rise in the savings rate, combined with our expectation that employment growth will slow down in the coming quarters, suggest that private consumption will grow modestly throughout this year. (Aline Schuiling)

Fed View: Board nominees raise the chance of rate cuts – President Trump overnight announced two new nominees to the Board of the Federal Reserve overnight – St Louis Fed research director Christopher Waller, and former economic advisor to the president Judy Shelton. Both can be considered doves with regards to the current policy stance, and will likely advocate immediately for rate cuts if confirmed by the Senate. However, this is where the similarities end, and we view the appointment of Mr Waller as significantly more likely than that of Ms Shelton. Mr Waller is a Fed insider who, although having strong views on monetary policy, does not advocate wholesale regime change, and in that regard is a relatively safe choice for the president. Ms Shelton on the other hand has highly unconventional views, arguing that the FOMC should not even be determining short-term interest rates but for this to be left to the market, and she is a known advocate of the gold standard. Previous nominees with similarly unconventional views, such as Marvin Goodfriend and Herman Cain, ultimately pulled out of the confirmation process when it became clear that the Senate would not appoint them. We suspect the chances are high that something similar might happen with Ms Shelton. With that said, even if one or both nominees fail, Mr Trump looks determined to appoint advocates of rate cuts to the Committee, and seemingly with renewed urgency compared with early on in his presidency. A more dovish tilt to the Committee supports our expectation that the Fed will cut three times over the coming quarters, starting at the July meeting with a 25bp cut, and with further cuts in Q4 and Q1. (Bill Diviney)