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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 […]

ECB QE composition – some degree of constructive ambiguity

Arguably, the most important aspect of last week’s ECB quantitative easing (QE) announcement was that the programme will remain open-ended. As we have long suggested, the pledge to extend asset purchases beyond September 2018 can only be credible if there are enough German Bunds for the ECB to buy. Bund scarcity could be addressed through […]

The U.S. economy is doing fine

US GDP grew 3.0% q-o-q SAAR in Q3 2017, pushing up the y-o-y print to 2.3%. In a word, the US economy is doing fine, although it still lacks sparkle. The impact of August hurricanes was barely perceptible. IT investment was particularly solid, rising 8.6% y-o-y, but consumer spending growth was tepid (up 2.6% y-o-y), […]

A buoyant euro area labour market

Recent economic crises took a heavy toll on the employment level in the euro area, with almost five years of uninterrupted employment losses. Between its pre-crisis peak in the first quarter of 2008 and the second quarter of 2013, euro area employment levels fell by 3.6%, or more than 5.5 million. However, since hitting a […]

Bend it like Draghi

The European Central Bank’s (ECB) decisions today were in line with our and consensus expectations, including a slower pace of asset purchases (rescaled from EUR60bn to EUR30bn per month), a longer and open-ended extension (until September 2018, or beyond if necessary), and stronger forward guidance (committing to keeping policy rates at present levels until “well […]

China: Xi might stay beyond a second term

The Central Committee of the Chinese communist party convened for the first time on 25 October to elect the new Politburo and the Politburo Standing Committee (PSC). Unsurprisingly, Xi Jinping and Li Keqiang were both re-elected as members of the PSC, and Xi was reappointed general secretary of the Party. The other five seats went […]

Swiss economy scores in international sports events

According to SECO’s estimates, the Swiss economy contracted in the final quarter of 2016, while Q3 2016 and Q1 2017 figures were revised down. The downturn in SECO’s GDP figures was exacerbated by special effects related to the inclusion of sports events in the “Art, entertainment, recreation and other services” sector. “Art, entertainment, recreation and […]

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