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Weekly View – The ECB’s last bazooka

Mario Draghi has now done (nearly) all that it takes to support the euro area economy. With only weeks left in his term as ECB president, Draghi deployed almost all that remains in the central bank’s toolkit. Following last Thursday’s meeting, he confirmed not only the expected interest rate cut, but also the relaunch of […]

US-China – Towards a trade truce?

President Trump is considering offering a ‘limited’ or ‘interim’ trade agreement to China as his advisors prepare the ground for face-to-face talks scheduled for October. He has notably announced that the additional 5% tariffs on Chinese goods scheduled for early October were being pushed back to the middle of the month. This initiative marks a […]

Oil prices and the global economy

Events since Trump first threatened increased tariffs in 2017 provide a textbook example of how tariffs are transmitted through the global economy. First, the uncertainty they create hurts sentiment. Then, as uncertainty lasts, investments are postponed. Indeed, we are currently seeing a progressive decline in new orders, industrial production, an increase in inventories and, ultimately, […]

Swiss National Bank – Between a rock and a hard place

Uncertainties and global slowdown are weighing on business investment in Switzerland, while household consumption growth has been slowing. Swiss GDP rose by 0.3% q-o-q in Q2 (down from 0.4% in Q1), mainly due to spending in healthcare, housing and energy. Previous quarters were revised down and now show that Switzerland was in a technical recession […]

Weekly View – Brothers in arms

Having purged 21 moderate Tory members of parliament (MPs) who opposed him on Brexit, Boris Johnson has had to face the resignation of two high-profile members of his government, Amber Rudd and his own brother, Jo Johnson. British politics will provide more excitement this week, as a law is passed in parliament to prevent a […]

House View, September 2019

Asset allocation We remain underweight global equities, but continued stimulus and an economic backdrop that is not catastrophic mean this is nuanced by neutral positions in some regions. We favour stocks of companies that have pricing power as well as those showing healthy dividend growth and low leverage. We are neutral US Treasuries as a […]

How much ECB QE is needed? Go big, or go home!

We estimate that a new QE2 programme worth at least EUR600bn would be needed for the ECB to close a 0.50% inflation gap. If anything, the decreasing marginal returns of QE and the risk of a de-anchoring of inflation expectations call for a more aggressive programme. How much does the ECB need to ease? QE […]

T-bond yields trending down, but beware inflationary surprises

The impressive 52 basis points fall in the US 10-year Treasury yield to 1.5% made August a remarkable month. Unsurprisingly, the fall owed much to the fear that additional US tariffs on Chinese imports could prolong the global manufacturing recession, thereby increasing the risk of contagion to the services sector and hence sparking a general […]

Double pressure from Trump and the yield curve

We continue to expect the Federal Reserve (Fed) to cut rates by 25 basis points on 18 September. Instead of staying put at its 30 October meeting, we now think the Fed will use it to announce a further 25 bps cut, mostly due to the recent escalation of US-China trade tensions. Those two additional […]

Weekly View – Boris plays hardball

Last week’s ousting of Matteo Salvini’s Lega from the Italian government and its replacement by the centre-left Democratic party holds out the prospect of much less-heated budgetary discussions between Rome and Brussels this autumn and lessens the risk that Italy’s sovereign rating will be cut by Moody’s this week. Helped also by the prospect of […]

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