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The House View : Don’t dismiss inflation

April 25, 2017
Analyst:
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. Beyond politics, focus has been on fading conviction in so-called Trump trades – higher inflation expectations and interest rates and buoyant risk assets – following speed bumps on the US domestic agenda and increased geopolitical tension. But with global macro momentum solid – though off recent highs – and global growth expected to pick-up next year and approach 4% in 2018, do not dismiss inflation risks, especially in the US. Indeed the macro backdrop comforts the view that we are past peak central bank easing. The Fed will likely raise rates twice more this year and announce the start of the unwind of its balance sheet. The ECB is on track to announce a taper of its quantitative easing programme later this year, but the tone at the April meeting should still be quite cautious. We have revisited our currency views. The snap UK election caused us to increase our sterling forecast but did not alter our medium-term bearish stance. We still expect the euro to break parity but the sequencing of the ECB's tightening policies is key: a shift toward rate rises rather than a withdrawal of quantitative easing would be bullish for the euro. In rates, we expect bond yields to climb beyond near-term election risk. In credit we expect the low default environment to persist. We see valid counters to the consensus view that European equities should outperform US equities. David Folkerts-Landau, Group Chief Economist Key pages this month: P6 French election updateP7 UK snap electionP10 Fading Trump tradesP11 Don’t dismiss inflationP19 Updated views on sterling and euro [more]

More documents about "International"

178 (73-84)
June 4, 2018
73
Asian economies have, collectively, grown at a remarkably stable rate over the past five years. Twenty-six consecutive quarters of GDP growth between 6% and 7% despite an occasionally challenging external environment – including the euro crisis, a volatile Japanese economy and large variations in energy prices – was a much better outcome than we, and we dare say most other observers, had expected. [more]
May 31, 2018
74
Once more, Europe is becoming messy. We did not expect politics to turn so negative this year. The Italians face a difficult task of restoring investor confidence, and Italy is too important to ignore. But European volatility does not translate into US positivity; we believe the underlying dollar outlook remains negative, and the US midterms will add to political noise. Beyond the dollar, volatility breeds opportunity, and we identify numerous trades in currency crosses that should not be sensitive to messy American or European politics. [more]
May 30, 2018
75
In our 7th annual DB survey of global prices and living standards, we rank 50 cities that are relevant to global financial markets. We consider Quality of Life, Salaries, Rents and Disposable After-Rent Income, and our Weekend Getaway, Cheap Date and Bad Habits indices. We then look at the individual series of the prices of goods and services. Our survey highlights relative prices around the globe and how they have changed over time. [more]
May 14, 2018
77
Developments in artificial intelligence and robotics have far-reaching economic and sociopolitical consequences, with some of them already materialising today. Still, the implications of further progress in these fields are not well understood. Economies around the world are likely to be impacted differently by the diffusion of AI technologies and robotics as wealthy industrial countries might increasingly “re-shore” production. To forge ahead and maximise the benefits for economies and societies, a balance needs to be found globally between successfully promoting key technologies and industries and avoiding the risk of rising protectionism and "knowledge wars". As the pace of technological change and the related launch of new business models are unlikely to slow, the ability of the state and regulators to keep pace is challenged. [more]
May 10, 2018
Analyst:
78
The Panmunjom Declaration by the two Koreas reiterates their earlier calls not only for a permanent peace and the denuclearization of the Korean Peninsula, but also for economic cooperation as set forth in the 2007 Declaration. The latter identifies various infrastructure projects that would see South Korea integrated into the Eurasian continent through North Korea. These could result in significant cuts to South Korea's transportation and fuel costs. Moreover, broader economic cooperation between the two Koreas would give South Korea access not only to North Korea's cheap, literate, and highly organized labor but also its vast natural resources. Although the Panmunjom Declaration also calls for disarmament of the two Koreas, any significant progress in this area, as well as in broader economic cooperation, depends on a potential US-NK nuclear deal. Given past experience, the negotiation and implementation of a US-NK agreement is likely to take many months at least. In this report, we discuss potential benefits that South Korea could enjoy from economic cooperation with North Korea. [more]
May 10, 2018
79
Emerging Markets and the Global Economy in the Month Ahead: The source of the recent correction is benign: a repricing of US growth with the EU still poised to grow above potential. With few exceptions (such as Turkey and Argentina) EM inflation remains mostly near or below targets so that forex (FX) weakness is unlikely to trigger meaningful CB responses that could disrupt EM growth – which has yet to catch up with DM. However, USD strength poses a more binding and direct risk of tighter credit conditions for EM than US yields. Still, we would need to see EUR/USD closer to 1.05 for credit conditions to bind. [more]
May 2, 2018
80
With trillions in currencies exchanging hands every day, foreign exchange is indisputably the world’s largest and most liquid financial market. Yet in spite of its size, this report argues that it is also likely to be the least "efficient" compared to other asset classes. [more]
April 23, 2018
81
Markets have been on their toes since the correction that started at end-January. Listless trading certainly reflects this malaise: major equity indexes have not suffered another sharp selloff but nevertheless remain near their year-to-date lows. While fundamentals remain robust, geopolitics and trade war fears, concerns over slowing global growth, and idiosyncratic issues in the tech sector have all weighed. [more]
April 19, 2018
82
When will the next major default cycle occur? We assess lead indicators of previous default cycles in an attempt to predict the timing of the next one. Most indicators with a relatively short lead time suggest no imminent concerns of rising defaults through 2018. But some longer-term lead time indicators are starting to issue warning signs. Much can change over the next 12-24 months to shift the outlook, but H1 2020 looks a realistic start of the next major default cycle based on our analysis at this stage. [more]
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