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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"

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About 250 years on from the first industrial revolution, we appear to be on the brink of a new age of automation, one dominated by complex robots and artificial intelligence. In this issue, we examine the impact of the next generation of automation on workers, industry, and society at large. Evidence from history, economics, and our industry analysts suggest that robots are more likely to complement us than replace us. [more]
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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]
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