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Weekly View – Going “loco”

US equities declined roughly 7% over six days up to last Thursday. While the decline is in line with the median drawdown level since 2007, it was notable for its length, given the average drawdowns over the same time period lasted 40 days, rather than six. Most likely, investors were reacting to the higher risk […]

Devil is in the details: Italian and French deficits are not quite comparable

Each EU member state is currently preparing 2019 budget plans for formal submission to the European Commission (EC) before mid-October. Among them, France and Italy’s budget plans have been raising eyebrows. Why is the EC concerned about Italy’s proposed 2.4% GDP deficit target for 2019 and not France’s target of 2.8%? Is Italy being treated […]

US inflation remains modest, but tariffs will soon make themselves felt

Core consumer-price index (CPI) inflation rose a modest 0.12% month on month (m-o-m) in September, again undershooting market expectations, and the year-on-year (y-o-y) print stayed unchanged at 2.2% – a relatively benign outcome given the flourishing US economy and the tight labour market. Core inflation (excluding energy and food prices) was abnormally buffeted by a […]

Innovation shock reshapes economic dynamics

When analysing the current economic regime and assessing the potential for a shift in that regime, it is vital to take innovation into account. Demographic trends and productivity gains are commonly identified as the two main drivers of real economic growth. And innovation is a critical contributor to productivity growth. Robert J Gordon, in his […]

Fed rate decoupling

Fed likely to keep tightening while buoyed by a solid domestic backdrop Looking at the Federal Reserve (Fed) from the other side of the Atlantic, the question is really to what extent the Fed can continue to ‘decouple’ its monetary policy from other main global central banks, including those in Europe. The three-month Treasury bill […]

Squaring off over the Italian budget

The Italian government has confirmed its deficit target at 2.4% of GDP for 2019. This represents significant slippage from a previous budget deficit target of 0.8% in 2019. The deficit target has been set at 2.1% for 2020 and 1.8% for 2021. But it is not the headline deficit numbers that are a problem, but […]

No massive monetary stimulus on the way from the PBoC

Over the weekend, the People’s Bank of China (PBoC) announced a cut of 100 basis points (bps) in banks’ required reserve ratio (RRR). This is the third RRR cut since April. The PBoC estimates that it will free up about Rmb 750 billion of net new liquidity in the banking system. According to the central […]

Renminbi nears a psychological threshold

Having dropped more than 5% year to date, our scenario of weaker growth in China in 2019 (we expect GDP growth to decline to 6.1% from 6.6% in 2018) is likely to further weigh on the renminbi through the interest rate differential. The Chinese current account is unlikely to provide much relief, as it has […]

Weekly View – Dancing Queen

Far-right presidential candidate Jair Bolsonaro claimed victory in the first round of Brazil’s elections on Sunday, albeit he did not obtain the over 50% of the vote required to secure a majority and avoid a run-off. Markets have grown more positive toward Bolsonaro since the start of his campaign and we think Paulo Guedes is […]

Hurricane aside, US job market is still very solid

Setting aside the impact of the hurricane that hit the Carolinas (and also the headline payroll reading as a result), the US jobs market remains in very good shape. Today’s data showed the unemployment rate dropped to its lowest level in 48 years in September (3.7%). Importantly, the nonfarm payrolls reportshowed strong employment gains in […]

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