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Credit impulse remains weak in euro area

Euro area bank credit flows to non-financial corporations rebounded strongly in October, by EUR11 bn in adjusted terms. Bank loans to households continued to expand at a healthy pace (+EUR10 bn). The slowdown in annual growth of the broad monetary aggregate M3, from 5.1% to 4.4% year on year in October, was largely due to […]

Signs of higher growth and inflation in the euro area

Flash purchasing managers’ indices (PMI) for November, compiled by Markit, delivered upside surprises across most countries and sectors in the euro area. Business confidence remained very strong in Germany, and improved markedly in France and peripheral countries. The euro area composite PMI rose to 54.1, pointing to real quarter-over-quarter (q-o-q) GDP growth of at least 0.4% […]

European populists unlikely to replicate Trump win

While the Italian referendum is the most obvious near-term risk, we see extremely low chances of a nationalist, anti-European party winning a major election next year or holding a legally-binding referendum on EU/EMU membership. Apart from any other consideration, electoral processes are too different from the US to allow for lazy extrapolations. Taking a closer […]

2017 growth forecast for U.S. remains unchanged for now

Figures released on November 15 show that core retail sales in the US rose by a strong 0.8% month over month in October, well above consensus expectations. Moreover, figures for the previous months were revised up. We believe consumer spending will grow by around 2.5% q-o-q annualised in Q4 (2.1% in Q3) and that it […]

Referendum at heart of Italian uncertainties

The 4 December referendum on senate reform is the next big event on the European political calendar, coming just ahead of the next ECB and Fed policy meetings on 8 December and 14 December, respectively. We believe a ‘Yes’ vote would boost government confidence and marginally help Italian securities, but is unlikely to represent a […]

Implications of Trump’s election win

A Trump presidency could see major changes in policy on many themes such as fiscal policy, trade policy, immigration, the environment, financial regulation, healthcare, social security, and supervision of the Fed. However, it remains highly uncertain whether Trump will in fact pursue the policies he aired during the campaign. On fiscal policy, Trump has made […]

Time is ripe for change in monetary policy style

In spite of large doses of policy easing, inflation and global growth remain tepid. With the effectiveness of existing monetary policy styles therefore being increasingly questioned, the November 2016 issue of Perspectives looks at three of the most plausible alternatives. One is asset-price targeting. Could central banks assume responsibility for ensuring the stability of asset […]

Healthy payroll number in the U.S., strong increase in wages

October’s non-farm payroll figure was healthy, with upward revisions for the previous two months. The unemployment rate inched down and year-on-year (y-o-y) wage increases reached a fresh cyclical high. The latest data tend to strengthen the case for a Fed hike in December. Non-farm payroll employment in the US rose by 161,000 m-o-m in October, […]

Bond yields shift higher

We have revised our year-end target for the 10-year US Treasury yield from 1.7% to 2% and for the 10-year German Bund yield from 0.08% to 0.3%. Since the end of September, markets’ inflation expectations have rebounded, with euro and USD 5Y5Y inflation swap rates and 10-year breakeven yields rising. This rise is due to […]

ISM indices point to healthy U.S. growth in October

The ISM Manufacturing index increased modestly in October, to 51.9 from 51.5 in September, slightly above consensus expectations (51.7). However, following a sharp increase to 57.1 in September, the Non-manufacturing index fell back to 54.8 in October, below consensus expectations (56.0). The rebound in the ISM manufacturing index over the past two months confirmed that […]

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