Insights.abnamro.nl/en

Daily Insight

2 March 2016

Draghi ‘announces’ March stimulus

ECB President signals March action in letter to member of European Parliament

In the run up to next week’s Governing Council meeting all eyes are on any hints from the

ECB Governing Council – in official communications or otherwise in leaks – to get a sense

of what might be on the cards. The latest ECB signaling came in an expected form. On

Tuesday, President Mario Draghi responded to a letter from a member of the European

Parliament asking about possible further monetary policy measures. Mr. Draghi responded

that ‘at its meeting in early March the Governing Council will review and possibly reconsider

its monetary policy stance’.

Increased downside risks to the outlook

This is exactly in line with the ECB’s communication in January. However, the ECB head

went on to add that the ‘review has to be seen against the background of increased

downside risks to the earlier outlook amid heightened uncertainty about emerging market

economies’ growth prospects, volatility in the financial and commodity markets, and

geopolitical risks. In this environment, euro area inflation dynamics continue to be weaker

than expected’. This confirms that there is no longer any question about whether the ECB

will act next week.

We think the ECB will be more aggressive than markets expect

Mr. Draghi capped off the letter by repeating that ‘there are no limits to how far we are

willing to deploy our instruments within our mandate to achieve our objective of inflation

rates below, but close to, 2% over the medium term.’ We think the ECB will act more

aggressively than currently priced in by markets. Our base case is that the ECB will cut its

deposit rate by 20bp in March and by another 20bp in June. We expect measures to

cushion the blow for banks. A tiered deposit rate system and even longer duration refi loans

look likely. Finally, we expect a EUR 10bn increase in monthly asset purchases and an

Nick Kounis

Head of Macro and Financial Markets

Research

Tel: +31 20 343 5616

nick.kounis @nl.abnamro.com

Group Economics Macro & Financial Markets Research

ECB President Draghi signals that the ECB will review stance in March

against background of increasing downside risks

We continue to expect the ECB to ease policy more aggressively than the

market consensus

Global manufacturing PMI falls to stagnation levels in February, though some

very early signs of bottoming out in US ISM index

2 Daily Insight – Draghi ‘announces’ March stimulus - 2 March 2016

extension of the programme to June 2017. This will be facilitated by removing the deposit

rate floor for asset purchases.

Global manufacturing drops further; ISM shows tentative signs of stabilization

The global manufacturing PMI fell in February to levels consistent with stagnating output.

The index dropped to 50 in February – the level separating expansion from contraction –

from 50.9 in January. The details of the PMI were rather downbeat with all the main

components (output, new orders, employment) deteriorating. Meanwhile, the export orders

index fell into moderate contraction territory, which suggests that world trade growth may be

weakening further. The Markit manufacturing PMI fell in every major economy (US, China,

the eurozone, Japan, UK, Brazil and Russia), except India where it was stable. The PMI

data suggest that global growth remains very weak and we expect that to continue in the

next few months before a modest recovery later in the year.

Meanwhile, there was some ‘positive’ news in the shape of a rise in the US ISM

manufacturing index. It has a longer track record than the US manufacturing PMI. It must be

said the index remains below the 50-mark, but the rise might be a tentative sign that the

worst is over.

3 Daily Insight – Draghi ‘announces’ March stimulus - 2 March 2016

Find out more about Group Economics at: https://insights.abnamro.nl/en/

DISCLAIMER ABN AMRO Bank Gustav Mahlerlaan 10 (visiting address) P.O. Box 283 1000 EA Amsterdam The Netherlands This document has been prepared by ABN AMRO. It is solely intended to provide financial and general information on economics. The information in this document is strictly proprietary and is being supplied to you solely for your information. It may not (in whole or in part) be reproduced, distributed or passed to a third party or used for any other purposes than stated above. This document is informative in nature and does not constitute an offer of securities to the public, nor a solicitation to make such an offer. No reliance may be placed for any purposes whatsoever on the information, opinions, forecasts and assumptions contained in the document or on its completeness, accuracy or fairness. No representation or warranty, express or implied, is given by or on behalf of ABN AMRO, or any of its directors, officers, agents, affiliates, group companies, or employees as to the accuracy or completeness of the information contained in this document and no liability is accepted for any loss, arising, directly or indirectly, from any use of such information. The views and opinions expressed herein may be subject to change at any given time and ABN AMRO is under no obligation to update the information contained in this document after the date thereof. Before investing in any product of ABN AMRO Bank N.V., you should obtain information on various financial and other risks and any possible restrictions that you and your investments activities may encounter under applicable laws and regulations. If, after reading this document, you consider investing in a product, you are advised to discuss such an investment with your relationship manager or personal advisor and check whether the relevant product –considering the risks involved- is appropriate within your investment activities. The value of your investments may fluctuate. Past performance is no guarantee for future returns. ABN AMRO reserves the right to make amendments to this material. © Copyright 2016 ABN AMRO Bank N.V. and affiliated companies ("ABN AMRO").

Day Date Time Country Key Economic Indicators and Events Period Latest outcome Consensus ABN AMRO

Monday 29/02/2016 00:50:00 JP Industrial production - % mom Jan P 3.7 2.8Monday 29/02/2016 11:00:00 EC CPI - % yoy Feb -0.2 0.2 -0.2Monday 29/02/2016 15:00:00 BE GDP - % qoq 4Q F 0.3Monday 29/02/2016 15:45:00 US Chicago Fed - business confidence - index Feb 47.6 52.3 52.0Monday 29/02/2016 16:00:00 US Pending home sales - % mom Jan -2.5 0.9 0.8

Tuesday 01/03/2016 00:30:00 JP Unemployment - % Jan 3.2 3.3Tuesday 01/03/2016 02:00:00 CN PMI manufacturing - index (official) Feb 49.0 49.4Tuesday 01/03/2016 02:00:00 CN PMI non-manufacturing - index (official) Feb 52.7Tuesday 01/03/2016 02:45:00 CN PMI manufacturing - index (Caixin) Feb 48.0 48.4Tuesday 01/03/2016 09:00:00 NE PMI Feb 51.7Tuesday 01/03/2016 09:55:00 DE Unemployment - % Feb 6.20 6.20Tuesday 01/03/2016 09:55:00 DE Unemployment change - thousands Feb -10.0 -8.3Tuesday 01/03/2016 10:00:00 EC PMI manufacturing - index Feb F 51.2 51.0Tuesday 01/03/2016 10:30:00 GB PMI manufacturing - index Feb 50.8 52.0 51Tuesday 01/03/2016 11:00:00 EC Unemployment - % Jan 10.3 10.4 10.4Tuesday 01/03/2016 15:45:00 US Markit - Flash PMI Feb F 51.3 Tuesday 01/03/2016 16:00:00 US ISM manufacturing - index Feb 50 49 49

Wednesday 02/03/2016 14:15:00 US ADP nat. employment report - thousands Feb 205.3 186.4 165Wednesday 02/03/2016 BR Policy rate - % Mar 2 14.3

Thursday 03/03/2016 02:45:00 CN PMI services - index (Caixin) Feb 52.4Thursday 03/03/2016 02:45:00 CN PMI composite - index (Caixin) Feb 50.1Thursday 03/03/2016 FR Unemployment (mainland France) - % 4Q 10.2Thursday 03/03/2016 10:00:00 EC PMI services - index Feb F 53.0 53.0Thursday 03/03/2016 10:00:00 EC Composite PMI output Feb F 52.7 52.7Thursday 03/03/2016 10:30:00 GB PMI services - index Feb 55.6 55.1 54.0Thursday 03/03/2016 11:00:00 EC Retail sales - % mom Jan 0.3 0.1 0.1Thursday 03/03/2016 13:00:00 BR GDP - % yoy 4Q -4.5Thursday 03/03/2016 14:30:00 US Output per hour nonfarm business sector - % qoq 4Q F -3.0 -3.3Thursday 03/03/2016 16:00:00 US ISM non-manufacturing, index Feb 53.5 53.4 52.0

Friday 04/03/2016 14:30:00 US Change in employment private employment - thousands Feb 158.0 188.0 165Friday 04/03/2016 14:30:00 US Change in employment total - thousands Feb 151.0 198.0 175Friday 04/03/2016 14:30:00 US Unemployment - % Feb 4.9 4.9 4.9Friday 04/03/2016 14:30:00 US Trade balance - USD bn Jan -43.4 -43.4

Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected key variables and events)