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Deceleration in US GDP growth should prove transitory

US Q1 GDP grew 2.3% q-o-q SAAR, slowing from 2.9% in Q4. Part of the deceleration was due to ‘residual seasonality’, we think, and was therefore technical. We expect US private consumption to rebound sharply in Q2, and, with investment growth likely to stay firm, we think Q2 GDP growth could head towards 3.5-4.0%. The […]

Euro weakness should prove temporary

Over the past 10 days, the euro has declined significantly against the US dollar. On 26 April, the EUR/USD rate moved below the low of its 1.2150-1.2550 trading range, which had been in place since 18 January. Reasons for this decline can be found in the growth differential and monetary policy divergence. Indeed, moderation in […]

Europe chart of the week – public debt

This week’s Eurostat releases revealed that public finances continue to improve in most euro area member states. As a result of falling deficits, low interest rates and stronger nominal growth, the ratio of euro area government debt to GDP fell to a six-year low of 86.7% in Q4 2017. Although sovereign debt sustainability remains shaky […]

The ECB’s steady hand

Another ECB meeting, another balanced message of confidence and prudence. Unsurprisingly, the statement today mentioned the deterioration in the data flow since March, but our impression is that the ECB is largely brushing off concerns about a soft patch in the economy for the moment. ECB president Mario Draghi said that the Governing Council did […]

Still no sign of a US ‘manufacturing renaissance’

The Bureau of Economic Analysis recently released data for US GDP by industry for Q4 2017, providing a good opportunity to examine how US manufacturing is doing. The answer is: still not so well. Manufacturing accounted for 11.6% of US GDP in Q4 2017, the same as a year earlier but well below levels in […]

Where next for oil prices?

Oil prices have surged to their highest levels since 2014 (USD69.56 for West Texas Intermediate (WTI) on 19 April and USD75.27 for Brent on 24 April ). They are now USD6 to USD9 above our calculation of their long-term fundamental price equilibrium. Three factors explain the current price premium: Geopolitics: Between Saudi Arabia’s Prince Mohammed […]

Spreads for investment grade credits torn in different directions

Although US investment grade (IG) and euro IG have posted a negative total return so far this year, credit continues to offer interesting yield pick-up for investors (especially in euro). Overall, we are neutral on prospects for US and euro IG over the coming 12 months. We see US and euro credit yields rising due […]

US growth update: Let’s ignore Q1 GDP

The Bureau of Economic Analysis will release the preliminary estimate of Q1 GDP growth on 27 April. Currently Q1 growth is tracking around 2% q-o-q (annualised), a deceleration from 2.9% in Q4-2017. We think this slowdown is transitory and does not reflect the underlying growth trend; we expect some solid catch-up in Q2. We are […]

Euro area core inflation to rise again after Easter

The ECB’s Governing Council may have to wait a little longer to get a clearer view of where euro area core inflation is heading in the near term. The early timing of Easter this year has made travel-related services prices more volatile. Another reason is that an unexpected drop in core goods inflation has fuelled […]

ECB policy: Stop Worrying and Love the Soft Patch

We see little incentive for the ECB to change its broad assessment of the economic situation at the 26 April meeting. The normalisation of the monetary stance will continue to be dictated by the ECB’s guiding principles of confidence, patience, persistence, prudence and gradualism. Talk is cheap, and Mario Draghi could still put more emphasis […]

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