Perspectives, April/May 2018

A period of transition

What happens when rates rise?

After years of low interest rates, investors need to prepare for a rise in the cost of credit

Volatility presents opportunities

The technical correction in markets corrects the anomaly of a long drawn-out calm. The upsurge in volatility contains opportunities as well as threats.
Perspectives, Special Edition 2018

After an exceptional year…

Europe’s renaissance

Senior Economist Frederik Ducrozet discusses the 2018 outlook for the euro area, including the potential risks for long-term investors.

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US growth update: Let’s ignore Q1 GDP

The Bureau of Economic Analysis will release the preliminary estimate of Q1 GDP growth on 27 April. Currently Q1 growth is tracking around 2% q-o-q (annualised), a deceleration from 2.9% in Q4-2017. We think this slowdown is transitory and does not reflect the underlying growth trend; we expect some solid catch-up in Q2. We are […]

Euro area core inflation to rise again after Easter

The ECB’s Governing Council may have to wait a little longer to get a clearer view of where euro area core inflation is heading in the near term. The early timing of Easter this year has made travel-related services prices more volatile. Another reason is that an unexpected drop in core goods inflation has fuelled […]

ECB policy: Stop Worrying and Love the Soft Patch

We see little incentive for the ECB to change its broad assessment of the economic situation at the 26 April meeting. The normalisation of the monetary stance will continue to be dictated by the ECB’s guiding principles of confidence, patience, persistence, prudence and gradualism. Talk is cheap, and Mario Draghi could still put more emphasis […]

Japanese equities bolstered by the Bank of Japan

Japanese equities received net inflows in March. Nevertheless, foreigners were net sellers – with the highest monthly net foreign redemptions in the past 18 months. Thanks to the Bank of Japan’s (BoJ) purchases of Exchange Traded Funds (ETFs), there have still been net inflows into Japanese equities despite the strong foreign outflows. The BoJ is […]

China growth sustained in Q1 but moderation expected through 2018

Chinese GDP in Q1 2018 came in at Rmb19.9 trillion (about USD3.2 trillion), rising 6.8% year-over-year (y-o-y) in real terms. The growth rate is the same as in H2 2017 and beats the market consensus (6.7%) and our own forecast (6.6%). Details of the GDP report show strong signs of economic rebalancing. Traditional drivers of […]

Russian rouble: significantly undervalued but quite risky

On 6 April, the Trump Administration announced additional and more severe sanctions against Russia “in response to the totality of the Russian government’s ongoing and increasingly brazen pattern of malign activity around the world”. These sanctions confirm a tougher stance of the US Congress against Russia. Following the announcement, the Russian rouble depreciated significantly against […]

US chart of the week – Two-tier job market

The latest release of the Atlanta Federal Reserve series on median wage growth provides interesting clues about the current US wage puzzle – i.e. the question why US wage growth remains tame despite the very tight labour market (the unemployment rate was only 4.1% in March). Of particular interest is the widening gap between wage […]

NAFTA update – All’s well that ends well?

Having progressed slowly for several weeks, the NAFTA (North America Free Trade Agreement) renegotiation talks seem to have found some fresh impetus lately, with several officials suggesting that a deal could be reached as soon as early May. A trilateral meeting will take place in Washington DC this Thursday on the margins of the G20 finance […]

Switzerland, still on the monitoring list

The US Department of Treasury has just published its semi-annual report on International Economic and Exchange Rate Policies. The main news was the inclusion of India on the department’s monitoring list, together with five other countries (China, Japan, Korea, Germany and Switzerland). The Treasury has established three criteria for a country to be deemed a […]

Japanese wage growth accelerates

Anaemic in the past couple of years, wage growth in Japan finally seems to be picking up. In January and February 2018, the average nominal cash earnings of Japanese workers grew by 1.2% and 1.3% year-over-year (y-o-y) respectively, compared with average growth of 0.4% y-o-y in the previous 12 months. In our view, the rise […]

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