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US PCE inflation – Still moderate

February core PCE inflation rose 0.23% m-o-m, in line with expectations. The y-o-y reading was up to 1.6% from 1.5% in January. The improvement in US core inflation remains quite unspectacular when taking into account full employment and solid underlying growth (likely to reach 3% this year). Core inflation should rise to 2% y-o-y in […]

Larger-than-expected reduction in French public deficit

France’s public deficit fell to 2.6% of GDP in 2017 according to INSEE’s preliminary assessment, down from 3.4% in 2016 and below the 3% threshold for the first time since 2007. The outcome was better than the government’s estimate of a 2.9% deficit. If confirmed, France will exit the Excessive Deficit Procedure that the European […]

The US’s Chinese phone addiction

For decades US trade policy’s biggest focus was on the country’s astronomical imports of oil. But the oil bill has moderated significantly in recent years, due to the domestic shale oil production boom and the (associated) drop in global oil prices. Lately, and more particularly since Donald Trump arrived in the White House, the focus […]

Impact of recent tariffs on US and China’s GDP should be limited for now

The Trump Administration last week announced tariffs of 25% on USD 60bn worth of imports from China (out of USD 506bn of total Chinese merchandise imports). The list of products targeted still has to be thrashed out. The official aim is to sanction China for alleged theft of US firms’ intellectual property; the US Trade […]

British pound – Smoother transition, stronger sterling

The transitional deal reached between the UK and the European Union (EU) on 20 March and the strong job market report on 21 March plead for a more positive short-term outlook for sterling than previously thought. We are therefore revising our projections upward for sterling over the next three, six and 12 months versus the […]

Europe chart of the week – monetary policy

Much of recent ECB dovish rhetoric has been building around the (not-so-new) idea that potential growth might be higher than previously thought, implying a larger output gap and lower inflationary pressure, all else equal. The argument is both market-friendly and politically welcome – what we are seeing is the early effects of those painful structural […]

Euro area Flash PMIs: “Growing pains” but no reason to panic

Euro area flash PMI indices fell sharply in March, below consensus expectations for the second month in a row. However, details were still largely consistent with a robust, broad-based economic expansion this year, if only at a slightly slower pace than last year. We forecast euro area GDP to expand by 2.3% in 2018. The […]

March Fed review – Mr. Middle Ground

On 21 March, the Federal Reserve hiked rates by one quarter point, as widely expected, nudging the interest rate on excess reserves (IOER) to 1.75%. Chair Jerome Powell’s press conference and the accompanying material – in particular the forecasts for future rate hikes (the ‘dots’) – revealed a slightly hawkish tone, mostly due to policymakers’ […]

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