Global Economic Weekly：US Core Inflation Beat Forecast, Dollar Index Back above 95

24 May 2015 Please read the "Special Disclaimer" Section on the last page - i - Securities Research Report Global Economy US Core Inflation Beat Forecast, Dollar Index Back above 95 GlobalEconomicWeekly Developments this week US Dollar index back above 95 and bulk commodities under press This week saw mixed macro data in the US.The initial Markit manufacturing PMI for May de-clines and the April existing home sales rolled back from the obvious March growth while April core CPI and housing start beat forecast, bringing confidence in Q2 re-bound. We maintain our forecast of the US economy growth in Q2 and H2. Eurozone economic data is largely in line with forecast yet with some Q2 data weak, causing concern of the sustainability of the economy recovery. Three events need to be fo-cused this week: ①US core CPI (record growth M/M in the past two years) and housing start (record high in the past seven years) beat forecast, driving the US dollar index back above 95 while bulk commodities under pressure. ② The April meeting minutes of a dove Fed reduced expectation of interest rate hike in June, yet Janet L. Yellen's talks suggest a probability this year. ③ECB committee said it may foreload QE in May and June, with Euro and bond yield in this area down. European stocks gained more than US stocks this week with S&P 500 and Nasdaq up amid waves and Dow down while Stoxx Europe 50 up 3.1%. Lifted by core CPI and housing start beat, the US dollar index climbed 3.1%, above 95 since the low in the past four months. 10-year US Treasury bond yields at 2.21%, slightly up 7.5bps, and 10-year German Bund declines 6.2 bps to 0.61%. The spread expansion is favorable to the US dollar. This week, gold price declines 1.7%. Oil ends a three-week climb with the WTI down 1.4% below $60/b, July Brent oil futures down 2.2%, in line with our forecast. US April core CPI climbed more than forecast with inflation gradually a posi-tive for Fed's interest rate lift. US April CPI rose 0.4% M/M though down 0.2%Y/Y, in line with forecast (growth decline due to energy-related price cut). However, core CPI growth was 0.3%M/M from the previous 0.2%(the biggest growth since 2013), and 1.8% Y/Y, higher than consensus 0.2% and 1.7% , suggesting inflation is marching toward Fed's target and is gradually a positive to interest rate lift. We have pointed out in the previous report that for developed countries, higher inflation fore-cast brought by price increasing of oil and other bulk commodities is not a concern rather than the press brought by salary lift. April CPI lightly rose in the US while core CPI beat forecastwith the main contribution from non-energy items, supporting our judgment. With continued US dollar strength and lack of flexibility in this round of global recovery, the inflation rise brought by oil and bulk commodities is unsustaina-ble. Yet with potential growth slowdown in US economy, risk from rapid inflation due to continued loosing is to be noted. The current unemployment has been back into the 5.0%-5.8% range which is the long-term target set by Fed, implying a nearly sufficient employment at the current market. Dove Fed April meeting minutes reduces interest rate hike forecast, yet Yellen suggested probability within this year. Fed released April meeting minutes on Wednesday (May 50) which shows the Fed members believe Q1 slowdown was impacted by temporary factors (economy will recoveragain at a modesty growth step) Analyst: Rong Cui 021-22167199 cuirong@ebscn.com Practice license number: S0930513080004 Analyst: Gao Xu 010-56513082 gaoxu@ebscn.com Practice license number: S0930512080004 Economic Surprise Indices Next week's key data and events Date Economic data 5/26/2015 US Durable Goods Order 5/29/2015 Japanese CPI 5/29/2015 Eurozone M3 5/29/2015 Michigan Consumer Sentiment Index Watch Everbright Macro Grasp the Economic Pulse US Japan Eurozone Emerging markets Index 股票报告网整理http://www.nxny.com 24 May 2015Global Economic Weekly Please read the "Special Disclaimer" Section on the last page - ii - Securities Research Report and most of them forecast a rate increase could not arrive in June (though it cannot be fully excluded). At present, Fed fund interest rate futures suggests zero odd for interest rate lift in June. Most Fed members expect a tightening mon-etary in 2H, though still depending on employment and inflation outlook. We don't agree with the forecast that Fed will push off rate hike till next year. Yellen expressed in Saturday (May 23) in Providence, Rhode Island that rate increase may be warranted later in year and interest rates to “more normal” levels would be gradual and that rates would remain low “for some time”, which is in line with our view. We maintain our forecast that the rate hike will fall in September. If the first hike comes a