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The House View : Mixed signals

June 28, 2017
Global investors have recently been forced to sift through mixed signals from macro data and markets. Chief among these discordant messages is the apparent dichotomy between softer inflation, lower yields and flatter curves, and falling oil prices on the one hand, and still solid global growth and firm risk sentiment on the other hand. We remain generally optimistic in our global macro outlook despite these mixed signals. Supply-side factors, rather than a weaker demand outlook, underpin the fall in oil prices, and this is positive for growth for oil importers. The softening core inflation trend is due primarily to temporary factors, particularly in the US, and the uptrend should resume given the solid growth momentum.Indeed, our global growth outlook is little changed since the start of the year. We marked down US growth on lower odds of Trump’s policy agenda, but still expect deregulation and modest fiscal stimulus to support above-trend growth. This downgrade is compensated by upgrades to eurozone and China growth. Our market views largely reflect this overall constructive tone: we are not concerned about the discordance between firming risk assets and falling rates; the normalisation of US and Europe rates should resume in coming months. In FX we have turned more positive on the euro but stay bearish sterling. Our base case that political risk would not escalate is playing out. Moreover, the intervention to resolve ailing banks in Veneto is positive and lowers risk in Italy. The exception, as expected, is the UK, where the outcome of Brexit has become more binary: the risk of a soft Brexit has risen, but so has that of a crash Brexit. David Folkerts-Landau, Group Chief Economist Key pages this month: P6 Mixed signals P8 Oil less a concern for risk assets P11 Flat US yield curve but low risk of recession P17 Europe political risk not materialising P23 Limited scope for further oil weaknessYou can access a two-page update of Deutsche Bank Research's views on g [more]

More documents contained in "The House View"

3 Documents
September 18, 2017
1
Unlike the last few years, this summer was relatively quiet. As markets look ahead to the rest of the year, the key theme will continue to be the major central banks’ tentative progress toward removing monetary accommodation. Investors have so far not priced in this outlook. Since the prospects for growth across all the major countries is better than it has been for some time it remains a puzzle why there hasn't been a greater sell-off in bond markets. [more]
July 25, 2017
2
As markets enter into the summer lull, it is useful to take a step back. The global economy is in better shape than it has been in several years. This has allowed other central banks to follow the Fed and gradually start their exit journey, a process that is a historic challenge given the unprecedented level of monetary accommodation. But with inflation still below target, a key part of the normalisation puzzle is still missing. [more]
April 25, 2017
Analyst:
3
Politics remain a key focus for markets, but the latest developments in Europe are positive. In France, the first round of the presidential election ruled out the least market-friendly ‎outcome, and although eurosceptic Marine Le Pen is in the run-off as expected, polls suggest reformist Macron should win. The snap election called in Britain for June is a material positive game-changer for Brexit negotiations. [more]