Slow wage growth to keep Fed on prudent normalisation track

The November employment report revealed another ‘Goldilocks’ set of conditions for investors: employment growth remained firm, especially in cyclical sectors like manufacturing and construction. At the same time, wage growth stayed soft – which means the Federal Reserve is unlikely to shift its current prudent communication on interest-rate hikes (although it is still very likely […]

Fed rate unlikely to move much above 2% next year

After the quarter-point rate rise expected on 13 December, the Federal Reserve will have pushed through the three rate hikes it signalled earlier in the year. For once, it has not under-delivered. Meanwhile, the gradual, ‘passive’ decline in the Fed’s balance sheet has been mostly ignored by markets. Broader financial conditions have eased this year […]

A crucial step towards US tax cuts

With the approval of the Senate tax bill in the early hours of Saturday 2 December, a key step has been taken toward tax cuts. The next chapter in the process is to reconcile this tax bill with the House of Representatives’ version, most likely in a ‘conference committee’. We are leaving our 2018 US […]

Euro area forecast to grow 2.3% in 2018

Taking account of stronger growth momentum, the carryover effect and upward revisions to past data, we have upgraded our euro area annual GDP growth forecasts to 2.3% both in 2017 and 2018. Our forecasts remain consistent with a very gradual slowdown in the quarterly pace of GDP growth, to 2% by end-2018. We view the […]

Further improvement in financial situation of euro area SMEs

Small and medium-sized entreprises (SMEs) are crucial for the euro area economy. They constitute about 99% of all euro area firms, employ around 70% of the workforce, and generate around 60% of value added. Their economic importance is above the euro area average in Italy, Spain, Portugal and Greece. Unlike large firms, which have access […]

USD likely to peak against yen in first half of 2018

From 6 November to 28 November, the Japanese yen gained 2% against the US dollar, outperforming all G10 currencies but the euro. In our view, the key driver of the USD/JPY rate is the 10-year real rate differential, especially since the introduction of the yield-curve-control (YCC) framework by the Bank of Japan (BoJ) on 21 […]

Switzerland: stronger and broader growth

According to the State Secretariat for Economic Affairs (SECO), Swiss real GDP expanded by 0.6% quarter-on-quarter (q-o-q) in Q3 2017, in line with consensus expectations and our own forecasts. This comes after several quarters of poor performance. As we mentioned in our previous Flash Note, the downturn in previous GDP figures was exacerbated by special […]

Debt energised

As 2017 draws to a close, it is worth taking stock of this year’s highlights. On US financial markets, this year will probably be remembered as ‘Goldilocks’ time. Financial conditions have been very accommodative. Initial fears about the impact of the Federal Reserve’s monetary tightening have faded, since the Fed has hiked rates very gradually […]

Developed-market equities continue to price hard data

The momentum behind hard macro data is improving investors’ visibility on corporate profit growth in developed markets (DM), which we expect to be the main market risk factor driving equity markets over 2018. According to our analysis, 96% of year-to-date returns of the Stoxx Europe 600 have been due to earnings growth and 59% of […]

Good things come to those who wait

Recent months have not been kind to Scandinavian currencies: the Swedish krona and the Norwegian krone lost, respectively, 4.3% and 4.7% against the euro from the start of September to 24 November. The weakness of the Swedish krona could be explained by some disappointment at the re-election of the very dovish Stefan Ingves as Riksbank […]

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