'Perspectives', April-May 2019

The year of the doves

'Perspectives Special Edition', January 2019

“The Three Amigos”

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US-China trade update

Trade tensions between the US and China have risen sharply but we believe the situation would need to escalate much further before China resorts to the extreme weapons of currency devaluation and/or selling down its US Treasuries. The fundamental reason for this argument is that such strategies do not serve China’s own interests. On the […]

China growth moderates in April

Latest hard data indicate that China’s growth momentum moderated in April, after a strong Q1. Industrial activity, fixed investment and consumption all weakened in April. In the context of escalating trade tensions with the US, we expect the Chinese government to step up stimulus measures to support growth in the coming months, especially in the […]

No doubt remaining: German domestic demand is resilient

German GDP rose by 0.4% quarter-on-quarter in Q1, accelerating from a flat figure in Q4. The strong Q1 GDP growth is good news and confirms our long-held view that domestic demand remains resilient despite many external headwinds. The signal given by other data (factory orders, surveys) suggests that some negative payback is likely in Q2. […]

Core sovereign bond yields – update

Taking hold of two important changes to our central macroeconomic scenarios, we are adjusting downward our year-end target for the 10-year US Treasury yield from 3.0% to 2.8% and the Bund yield from 0.5% to 0.3%. The drivers behind this include lower inflation expectations, rising US-China trade tensions against a constant monetary policy backdrop. Four consecutive […]

US-China trade: New tariffs – watch the second derivative

The direct macro cost on the US economy of the raised tariffs to 25% from 10%, and the fresh counter-tariffs from China, should be limited in our view, at around 0.1% of US GDP. The US economy tends to be much more sensitive to financial conditions than to the narrow question of the tariffs’ impact […]

Weekly View – Game of chicken

As a US-China trade negotiation impasse became evident last week, markets corrected a bit, particularly cyclical sectors. Given the strong US economy, Trump is feeling empowered to pursue his agenda, raising existing tariffs from 10-25% on USD 200bn worth of goods with immediate effect and threatening more. Now we will wait to see how China […]

French tax cuts designed to reboot Macron’s presidency

Following a series of townhall meetings with French citizens up and down France, President Emmanuel Macron responded to social unrest with two doses of fiscal easing. The December package (worth EUR10bn) was incorporated in the stability plan sent to Brussels before Easter and is included in the 3.1% public deficit planned for this year. The […]

Oil prices decline despite the end of Iran waivers

The increase in prices that followed President Trump’s 22 April decision to end waivers on Iranian oil imports did not last, with Brent prices falling from almost USD75 on 24 April to below USD70. Nonetheless, we continue to see heightened risk of oil price spikes above USD80 for Brent in the short-term. Trump’s recent threat […]

A spanner in the works

At the weekend, US President Trump threatened to increase the tariff rate on Chinese imports as he believes that US-China trade negotiations are going “too slowly”. Importantly, Trump’s threats do not mean bilateral talks are breaking down. Indeed, the Chinese government confirmed today that its trade delegation would still go to Washington DC this week […]

Weekly View – The final countdown

Last week markets were relatively muted, with commodities down, developed markets flat and emerging markets up slightly. That brief period of calm has already ended, with Trump’s Sunday tweets sending Chinese markets sharply down on Monday. With the Chinese scheduled to attend the next round of trade negotiations in the US on Wednesday, the US […]

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