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Euro area inflation: the Phillips curve and the ‘broad unemployment’ hypothesis

We agree with the ECB that the euro area Phillips curve is alive, albeit “flatter and non-linear”. In particular, structural changes in the labour market have resulted in larger slack than implied by standard unemployment figures, including a large number of workers marginally attached to the labour force. Our analysis confirms that such increase in […]

Equity markets in a new regime

  The global equity market sell-off of late January and early February was rather unusual in a number of respects. Equity and bond prices declined simultaneously in the recent market sell-off, a pattern that has only occurred in a quarter of the last 25 equity market sell-offs. The recent sell-off is far above the levels […]

Europe chart of the week – Italian productivity

  With less than 30 days to go, the Italian general election remains highly unpredictable. The new electoral system and the fact that 37% of seats are to be allocated on a ‘first-past-the-post’ system make projecting seats from voting intentions particularly hard. Importantly, Italy is going into this election with an economy that is performing […]

Robust outlook supports low Spanish sovereign bond spreads

Strong, relatively broad-based economic recovery and the limited economic impact of the Catalan crisis pushed Fitch to upgrade Spanish sovereign debt by one notch to A-/Stable in January. The upgrade triggered a significant rally, with the spread on Spanish 10-year bonds versus Bunds dropping below 70 basis points (bp) on February 1 for the first […]

US chart of the week – Low macro volatility

Volatility has picked up significantly on US equity markets lately. But does it reflect higher volatility in US macroeconomic data? So far, not really. Take US payroll data. If one looks at the one-year rolling standard deviation of the monthly data, one can see volatility is still subdued: it now stands at 68,000 (new payrolls/month), […]

House View, February 2018

Asset Allocation Current conditions vindicate our continued bullish stance on equities in developed markets and emerging markets (Asia more than Latam). Valuations are high, but they are justified by upwards adjustments to expected earnings growth. But with long-term rates rising, we are expecting a rise in volatility from their low current levels. This should benefit […]

Wages on the rise as US maintains cyclical momentum

The January employment report showed that the US economy started 2018 on a strong footing, with particularly robust momentum in cyclical sectors such as construction and manufacturing. This supports our scenario that US growth will step up to 3% in 2018, from 2.3% in 2017, driven by an uptick in investment. With January’s increase of […]

A spectacular return to pure supply-side economics

Since the sub-prime crisis 10 years ago, the US economy has been stuck in a growth regime that is modest by past standards, with deflationary pressures persisting in spite of an historically low unemployment rate. It is against this backdrop that the tax reform finally ratified in the last days of 2017 was greeted as […]

Europe chart of the week – underemployment

This week, Eurostat published a set of very important indicators of euro area labour market conditions, the so-called U6 ‘broad unemployment’ rates for Q3 2017. The database includes several metrics of underemployment which the ECB considers as a good proxy for labour market slack. The main underemployment series includes total unemployment as well as underemployed […]

China: PMIs suggest moderation in momentum in Q1

China’s official manufacturing purchasing manager index (PMI) came in at 51.3 in January, down slightly from December (51.6). The Markit PMI (also known as the Caixin PMI) stayed at 51.5, the same as in the previous month. Meanwhile, the official non-manufacturing PMI rose slightly in January. The official composite index, which is a weighted average […]

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