Slow-motion exit from QE

The ECB will likely prepare for a cautious, flexible, slow-motion exit at its Governing Council meeting on 7 September, tasking its committees to study all policy options for 2018. We continue to expect an announcement in October that quantitative easing (QE) will be extended for six months, but at a reduced pace of EUR40bn per […]

Chinese PMI point to continued expansion

China’s official manufacturing PMI in August came in at 51.7, rising slightly from July (51.4), and remaining firmly in expansionary territory. The Markit PMI extended its ascendance for the third consecutive month to reach 51.6 in August. Domestic demand seems to be holding up well. The production, new orders and imports sub-indices of the official […]

Upward momentum in euro area inflation is building

Euro area flash HICP inflation rose to 1.5% y-o-y in August from 1.3% in July, while core inflation remained stable at 1.2% year on year. In our opinion, modest upward price momentum has started to build over the past few months, with core inflation likely to edge slightly higher from here. Euro area core inflation […]

Profits are strong, but investment is still sluggish

A major feature of the US growth recovery since mid-2009 has been the significant improvement in corporate profits. But improvement has been mostly achieved at the expense of investment (capex) and wage growth, which have been kept on a tight leash. This has puzzled policymakers, including the Federal Reserve, which has been somewhat disorientated by […]

Income growth supports recovery of Japanese consumption

Following a strong rebound in Q2, the momentum behind consumer spending in Japan seems to have moderated somewhat in July. Retail sales in Japan grew by 1.9% y-o-y, down slightly from 2.2% in June and 2.5% in Q2. Despite the softer momentum, the recovery in Japan’s consumer sector, which started roughly in the second half […]

Positive margin dynamics, but stretched equity valuations

The Q2 2017 reporting season demonstrated that corporate results dynamics remain robust across developed economies. Sales and profit figures came in well above estimates in the US, Europe and Japan. The trend for profit growth has sustained equity markets’ total returns in the year to date. But due to the weakness of the US currency, […]

Japan’s economy delivers a positive surprise

The first estimate of Japan’s Q2 GDP showed growth of 1.0% quarter over quarter (q-o-q) in real terms, or 4.0% annualised, beating the consensus estimates (1.6% annualised) by a wide margin. We have therefore decided to revise up our 2017 GDP forecast for Japan to 1.9% from 1.3%. Unlike previous quarters, when the recovery was […]

Business survey points to continued euro area strength

Markit’s composite flash purchasing managers index (PMI) for the euro area remained broadly stable at 55.8 in August, slightly above consensus expectations (55.5). By sector, the manufacturing PMI increased to 57.4, from 56.6 in July, offsetting a decline in the services PMI (-0.5 points to 54.9). The euro area composite PMI is now consistent with […]

US economy: Too-loose financial conditions versus too-low inflation

Several Federal Reserve (Fed) officials, and a few foreign central bankers, will meet for their traditional August gathering in Jackson Hole, Wyoming, on 24–26 August. Fed Chair Janet Yellen will give the opening speech on Friday (08:00 local time, 16:00 Geneva), but with neither a Q&A session, nor a scheduled media briefing. Unlike her predecessor, […]

North Korea: Spikes in tensions look set to continue

The tensions between North Korea and the US that rose a notch in early August are rooted in the deep sense of insecurity of the regime of Kim Jong Un. A significant new stage in North Korea’s nuclear programme has now been reached, and the regime appears to believe that developing a credible nuclear deterrent […]

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