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Gradual, moderate rise in the 10-year US Treasury yield next year

After an impressive rise in US Treasury yields in 2018, we expect the upward movement in 2019 to be gradual, moderate and driven mainly by further rate hikes by the US Federal Reserve (Fed). We have a year-end target of 3.4% for the 10-year Treasury yield. In light of the limited risk of a sharp […]

Growing Fed doubts as neutral rate comes into sight

The Federal Reserve estimated the theoretical, inflation-adjusted (‘real’) neutral rate at 0.8% in Q3 18, slightly down from 0.9% in Q2, but in line with the average since 2016. Adding core PCE inflation of 1.8% year-on-year in October (down from 1.9% in September), this means a ‘spot’ nominal neutral rate of 2.6%. The Fed’s strategy […]

Indian Q3 growth numbers disappoint

Indian GDP in Q3 2018 rose 7.1% year-over-year (y-o-y) in real terms, down from 8.2% in Q2 and significantly below the consensus and our own forecasts of 7.5%. As a result, we have revised down our fiscal year (FY) 2018-2019 GDP forecast for India to 7.2% from 7.6% previously. Our forecast for FY 2019-2020 remains […]

House View, December 2018

Asset Allocation We remain neutral on global equities overall, seeing relatively limited potential for developed market stocks in particular as earnings growth declines. We favour companies with pricing power as well as measurable growth drivers and low leverage. We have moved from underweight to neutral in US Treasuries, as the rise in yields slows. But […]

US and China reach tariff truce

A temporary trade truce was agreed between US President Donald Trump and China’s President Xi Jinping at a dinner during the G20 meeting this weekend. As part of this truce, the tariff rate on USD200 billion of Chinese imports will stay unchanged at 10% up to 1 March, instead of increasing to 25%, as planned, […]

Weekly View – Two to tango

As expected, the US and Chinese presidents Donald Trump and Xi Jinping met to discuss trade alongside the G20 summit in Buenos Aires. For now, a tentative truce has been agreed, with Trump calling off further tariff rises in January. On its side, China will purchase an unspecified amount of goods from the US in […]

US Federal Reserve hints it might turn off the auto pilot

The Federal Reserve (Fed) has been sending dovish signals in recent days: The previous exuberantly optimistic tone about the US growth has been pared down, as some pockets of data have softened, notably housing. Meanwhile, there is renewed debate about the landing zone of the current monetary tightening. Some Fed members want to change the […]

Growth contraction puts pressure on Italian government

The Italian statistical office’s (ISTAT) final reading showed that the economy shrank 0.1% q-o-q (-0.5% q-o-q annualised) in Q3, whereas a preliminary reading on October 30 showed that growth was flat. The details were quite negative and confirmed the idiosyncrasy of the Italian economy. Unlikely other euro area economies, net trade contributed positively to growth […]

Surprise contraction in Swiss Q3 GDP

The strong growth enjoyed by the Swiss economy since Q1 2017 came suddenly to an end in Q3 18, when real GDP shrank unexpectedly by 0.2% q-o-q (-0.9% q-o-q annualised). This is much lower than consensus expectations of +0.4% and is down from an average of +0.8% in H1 2018. Details show that the contraction […]

Untaxing times for US corporates

US corporates are delivering strong profits and this robust profit picture is further enhanced by a sharp drop in the corporate tax burden. According to NIPA (national accounts) data, the effective tax rate for the year ending in Q3 2018 reached a new low of 11.9%. President Trump’s December 2017 tax cuts led to a […]

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