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Laggards are catching up with the euro area recovery

The current leg of the euro area recovery is about both quantitative and qualitative improvement in the economic outlook. Trend GDP growth in France and Italy has risen to 2.2% and 1.8%, respectively, on an annualised basis. Those countries are catching up with the strongest member states, more than compensating for the moderate growth slowdown […]

Federal Reserve – New sheriff in town

On 2 November, President Donald Trump nominated Jerome (‘Jay’) Powell to succeed Janet Yellen at the helm of the Federal Reserve System, confirming recent press speculation. The next step before the new Fed chairman can enter office next February is Senate confirmation. This looks unlikely to be problematic for Powell. From a monetary policy perspective, […]

BoE to proceed very cautiously following its first rate hike in a decade

The Bank of England (BoE) has raised rates for the first time in over a decade, while it hinted at a “limited and gradual” tightening cycle. Meanwhile, the assessment of the supply-side was downgraded once again amid “considerable risks” to the economic outlook. A 25bp rate hike alone is unlikely to have a material impact […]

Limited scope for further drop in euro against the dollar

The US dollar has appreciated against the euro since 8 September and is getting close to our short-term forecast of USD1.15 per EUR. This recovery has been mainly driven by supportive US data, monetary policy divergence and hopes of tax reform. In the short term, robust US economic activity, a Fed that is still in […]

Signs that US rental boom could slow

The US has witnessed a striking boom in the construction of rental residential units in recent years. This can in part be explained by the rising allure of downtown living among millennials and ageing baby boomers alike. The boom can also be explained by the lingering effects of the subprime crisis, and the restrained access […]

Euro area: solid growth, but inflation still under par

  According to preliminary Eurostat estimates, euro area real GDP increased by 0.6% q-o-q in Q3, slowing marginally from an upwardly-revised 0.7% in Q2. A breakdown by expenditure components will not be released until 14 November, but domestic demand was likely the key driver in the euro area’s solid momentum. At a country level, France […]

NAFTA update — Calling Trump’s bluff

NAFTA renegotiation talks, which have hit a wall as a result of the US’s blatantly mercantilist and protectionist approach, will resume in mid-November in Mexico against the backdrop of some heavy-handed anti-dumping initiatives by the US authorities, with the slapping of punitive trade tariffs on some Canada-manufactured airplanes in October still resonating vividly. Nonetheless, we […]

Italian and Spanish bonds relatively immune to politics

Italy and Spain have been at the centre of market attention again in recent weeks. Italian politics have livened up as we move towards the general election next spring 2018, while the threat of Catalan independence has placed the spotlight on Spain. But we expect only a slight widening of Italian spreads over Bunds by […]

Downward pressure on Swiss franc could fade in 2018

The Swiss franc remains weak, notably against the euro, despite geopolitical tensions, elevated political uncertainty in Spain and some euro weakness relative to the US dollar. This means that the unattractiveness of the franc (based on its high valuation and low yield) outweighs its defensive features. In the short term, given interest rates differentials, we […]

Limited market reaction to Catalan developments

On 27 October, the Catalan parliament voted for a unilateral declaration of independence. The same day, the Spanish senate approved the terms of application of Article 155 of the constitution, allowing Madrid to impose direct rule on Catalonia. Prime Minister Mariano Rajoy called a snap election in Catalonia for 21 December, earlier than any dates […]

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