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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Europe chart of the week – Italy’s fiscal buffers

The M5S-League coalition has committed to a significant degree of fiscal easing and to the reversal of some structural reforms. Such policies will put Italy on course for confrontation with Brussels over deficit reduction targets, although at this stage we still expect negotiations to result in compromises. For all the political and economic risks facing […]

Eurosceptic Italian government faces a reality check

We expect negative noise surrounding the Italian budget to intensify initially, but believe that negotiations with Brussels will result in compromises eventually, including dilution of the incoming Italian government’s fiscal easing measures. The biggest risks lie with the proposed rolling-back of the pension reforms, in our view. Italian spreads are likely to remain under widening […]

Italian bonds and politics take centre stage

Dear readers, A public holiday in Geneva on Monday means we are sending the Weekly View today instead. This week has seen some unsettling events, including a rise in oil prices and Italian political developments. Brent crude rose above USD 80 / bbl, a four-year peak, largely on fears about a fall in Iranian oil […]

NAFTA update – Talks stalled

It is looking like House Speaker Paul Ryan’s deadline to have a final North American Free Trade Agreement (NAFTA) deal on his table, set for 17 May 2018 will not be met. This deadline was to meant to ensure that a new NAFTA deal could be approved during Congress’s ‘lame duck’ session -between the midterm […]

Contraction in Japanese economy will likely be temporary

The preliminary report of Japanese GDP for Q1 2018 came in below expectations, showing contraction of 0.2% from the previous quarter (0.6% annualised). The slowdown in growth was broad based across most subindices of the GDP report, but was especially noticeable in internal demand (both consumption and investment). External demand also showed some softness, with […]

US chart of the week—Capex conundrum

  Our 2018 US growth scenario of 3.0% GDP growth in the US is premised on solid non-residential investment growth of 7.0% – itself based on: (1) the positive business environement post tax cuts; (2) strong global growth; and (3) tighter domestic resource and capacity utilisation. In Q1, US investment was up 6.1% y-o-y, down […]

Inflation print saves a difficult week

Weaker-than-expected core US inflation in April helped equities last week. When one remembers that fears of rising inflation, especially wage inflation, were behind the spike in bond yields and then in equity market volatility earlier this year, one understands why the latest data were greeted positively by markets. Successful auctions for 10-year and 30-year Treasuries last […]

Spaniards back in the mood to borrow

Before the financial crisis, the real estate bubble and the parallel growth in borrowing meant that the indebtedness of Spanish households spiralled ever higher, reaching a peak of 84.7% of GDP in Q2 2010. Since then, Spanish households have tightened their belts, with indebtedness falling to 61.3% of GDP in Q4 2017. However, recent data […]

Growing wage growth momentum in Japan

Wage growth in Japan accelerated further in March. Nominal cash earnings rose by 2.1% y-o-y, the fastest growth since mid-2003. Base salaries increased by 1.3% y-o-y, the highest in nearly two decades, and the strong rise in bonuses (up 12.8% y-o-y) also contributed significantly to wage growth in March. Rising wage growth in Japan likely […]

Emerging-market currency scorecard

Our EM FX scorecard ranks 10 EM currencies according to key criteria such as growth and vulnerability to external shocks. There have been few changes over the past month. The scorecard shows the Brazilian real as the most attractive EM currency over the coming 12 months. EM currencies have generally been weak recently for a combination of […]

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