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Congressional Budget Office does not believe US tax cuts will ‘pay for themselves’

  The Congressional Budget Office (CBO), a bipartisan budget body reporting to US lawmakers, released a fresh 10-year economic and budget outlook earlier this week, incorporating the effects of both the December tax cuts and the March Congressional spending deal. The news is not great. The CBO seems half convinced about the medium-term benefits of […]

Hard data proves soft in the euro area

Euro area industrial production (excluding construction) was weak in February (-0.8% m-o-m) and follows the recent release of other disappointing pieces of hard data such as retail sales, German factory orders and trade. Based on available ‘hard’ data, real GDP growth rate in the euro area is projected to be 0.1-0.2% q-o-q in Q1 2018, […]

US chart of the week – Car deflation

March CPI inflation was relatively muted. Core inflation rose a relatively moderate 0.18% m-o-m, the same as in February, and below January’s 0.35% m-o-m rise. What this shows is that while core inflation is gradually improving – echoing the improvement in the US economy – fears of inflation getting out of hand are still proving […]

US inflation worries prove unfounded

After a solid reading of 0.35% m-o-m in January – which scared some market participants – core consumer price inflation (CPI) proved tamer in February and again in March, posting a more moderate 0.18% m-o-m gain in both months. (That is not too far from the average since 2010 of 0.15% m-o-m). Due to base […]

House View, April 2018

Asset Allocation While macroeconomic and corporate fundamentals still favour risk assets, challenges have been steadily increasing and a lot of good news is already priced into valuations. We sold part of our equity overweight during the early March rally. Even though we have become more prudent about equities’ short-term prospects, we expect to be able […]

US-China trade tensions could last a while

Following on from President Trump’s announcement of a 25% tariff on USD50bn of unspecified imports from China, the US Trade Representative (USTR) last week detailed the list of China-made goods that will be targeted. China reacted swiftly by detailing its own list of counter-tariffs on USD50bn worth of imports from the US. Trump then escalated […]

Federal Reserve’s tightening still on track

Among the many questions posed by the recent more aggressive trade rhetoric from the Trump Administration is whether it will ‘scare’ Federal Reserve officials, and therefore interrupt the current US tightening cycle. But recent comments from Fed policymakers, including from Chair Jerome Powell, suggest that officials remain cool-headed about recent Trump rhetoric. Powell has insisted […]

Europe has a lot to lose from trade wars

Any estimate of the economic costs of protectionist measures, let alone trade wars, is subject to uncertainty given the complexity of global supply chains. A common assumption is that new tariffs on exports will produce small direct effects on GDP growth but more significant indirect effects in the event of escalating trade conflicts, including on […]

The Brazilian real and Russian rouble are still the most attractive EM currencies

Our Emerging Market (EM) FX scorecard, designed to assess the attractiveness of a given currency over the coming 12 months, 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. EM currencies have been resilient thus far in 2018, despite […]

US chart of the week – Benefits vs wages

The next US monthly employment report (published this Friday) will once again be scrutinised for signs that wage growth is on the rise. While wage growth has been improving in recent years, the pace has remained glacial. Average hourly earnings were up 2.6% y-o-y in February, a relatively subdued pace when taking into account near […]

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