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QE put to bed, the focus shifts to rate hikes

As widely expected, the Federal Reserve announced at its 20 September meeting the start of the ‘normalisation’ of its balance sheet; some of its bond holdings will not be reinvested from October on. The Fed’s balance sheet should therefore start to shrink gradually. Fed chair Janet Yellen justified this decision by saying that “stimulus is […]

High equity valuations leave no room for disappointment

Our core scenario for global equities for the next 18 months is built on three active risk factors (drivers): earnings growth, valuations and currency fluctuations. Of the three, earnings growth will be the most significant for return generation. After two strong quarterly reporting seasons, the positive base effect that boosted earnings growth in Europe in […]

Trump more focused on trade deficit than budget deficit

Second-quarter current account data from the US Bureau of Economic Analysis showed once again a sizeable trade deficit, particularly in merchandise trade excluding energy. The energy boom driven by shale gas and light oil has reduced the US’s dependency on energy imports, in turn improving the headline current-account reading. But the US is still a […]

Moderate deceleration underway in China

The latest data on China’s economic activity point to a slowdown in China’s growth momentum in the third quarter, after the positive surprise of the first half of the year. We expect growth to continue to moderate for the rest of 2017 and into 2018, but the pace of deceleration may be fairly modest. We […]

Fed may open door for December rate increase

The Fed is widely expected to announce a partial shrinkage of its balance sheet at its 20 September meeting, in line with the guidance it provided in June. We also expect Yellen to point to the possibility of another rate hike soon (while remaining vague about the exact timing), dependent on further improvements in inflation. […]

Scenarios for QExit

The European Central Bank (ECB) is expected to announce the bulk of its decisions on quantitative easing (QE) at its 26 October meeting. We would expect a broad commitment to extend QE beyond 2017 at a reduced pace, but several options are possible and additional technical details could be postponed to the 14 December meeting. […]

Euro area wage growth suggests the Phillips curve is not dead

Wage growth is an important input in the ECB’s reaction function, and so far it has failed to respond to the narrowing of the output gap. It could be the normal behaviour of a lagging indicator, especially as labour market slack is likely to be larger than what the drop in headline unemployment would suggest. […]

US core CPI inflation stable at 1.7% in August

CPI inflation was 0.4% m-o-m, boosted by gasoline prices, pushing the y-o-y print to a still-tepid 1.9%. Core CPI inflation was up 0.25% m-o-m; the y-o-y reading was stable at 1.7%. While improving from recent lows, there is no sign of a ‘regime shift’ in US inflation, despite the tight labour market. Globalisation and technology […]

Hopes of US fiscal easing are evaporating

Chaotic developments in the White House and ongoing gridlock in Congress have significantly reduced our expectations that the Trump Administration will bring a major fiscal boost to the US economy, particularly in 2018. In other words, we no longer expect a growth- and sentiment-boosting fiscal reform, nor a large-scale infrastructure spending plan. This is the […]

ECB, a forced taper

With the economic recovery in the euro area looking increasingly robust and broadbased, the ECB appears set to embark on a policy normalisation path, gradually phasing out of negative interest rate policy (NIRP) and quantitative easing. The ECB’s new narrative implies that the era of crisis-fighting unconventional monetary measures is over, as deflation risks have […]

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