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  • Silvia Dall’Angelo
    Your guide to this week's big economic events.
  • Silvia Dall’Angelo
    Is the trade war disruptive, or is it merely accelerating trends already underway?
  • Silvia Dall’Angelo
    The current US economic expansion that began in 2009 will mark its ten-year anniversary in June.
  • Silvia Dall’Angelo
    The stakes are high for elections to the European Parliament in May.
  • Silvia Dall’Angelo
    Emerging-market economies experienced a year of tumult in 2018 amid less accommodative global financial conditions, slowing economic growth in China and fraught US-China trade relations.
  • Silvia Dall’Angelo
    The tug-of-war between positive economic fundamentals and the protectionist policies that threaten to undermine them has dominated the macroeconomic story so far this year. Regrettably, this narrative is likely to continue unabated for the remainder of the year. Following the synchronised upswing of 2017, the global economy stuttered at the beginning of the year. Global growth lost momentum in the first quarter, in part reflecting special factors such as the impact from adverse weather conditions. In recent months, economic growth has rebounded to levels that prevailed last year, when global growth came in at 3.7% (see Chart 1). What’s more, global growth has become less synchronised: the US economy has continued to accelerate, while economic growth has slowed in the rest of the world. This creates a fragile backdrop, in which trade tensions – that are likely to continue to brew in the run-up to the November US mid-term elections – could become a catalyst for a sharp and broad-based slowdown.
  • Silvia Dall’Angelo
    •The new political landscape in Italy is hardly surprising: it has emerged from the convergence of both global tendencies and idiosyncratic factors. •Going forward, Italy’s short-term economic outlook includes some positive elements. However, material downside risks loom amid high policy uncertainty, both domestically and externally. •Italy’s long-term issues include the sustainability of its large public debt and more importantly, its poor growth prospects. Labour productivity growth has been on a downward trajectory since the early ‘90s.
  • Silvia Dall’Angelo
    “Participants generally agreed with the assessment that continuing to raise the target range for the federal funds rate gradually would likely be appropriate if the economy evolves about as expected. These participants commented that this gradual approach was most likely to be conducive to maintaining strong labour market conditions and achieving the symmetric 2% inflation objective on a sustained basis without resulting in conditions that would eventually require an abrupt policy tightening." The message from the minutes of last month’s FOMC meeting is clear: the Fed will continue to gradually raise official interest rates in the short term, a strategy that has proved successful thus far. Today, the Fed’s normalisation process is well underway. It involves the two primary levers of the current monetary policy framework: the policy rate and balance sheet.
  • 13/02/2018
    Outcomes
    Silvia Dall’Angelo
    The shape of the US Treasury yield curve generally contains useful information about future developments in the real economy. In particular, when the Treasury yield curve inverts – that is, when short-term rates exceed long-term yields – a recession usually follows in the next 12 months. Historically, the yield curve has been a very accurate forecasting tool: a curve inversion has preceded each of the last seven recessions in the US. The Treasury yield curve flattened significantly in 2017, and last month, the spread between 10-year yields and two-year yields narrowed to about 50bps. It is therefore possible that the spread could turn negative at some point this year. As such, it is unsurprising that market observers have become nervous about the possibility of an economic slowdown. But given the current environment of loose monetary policy, to what extent should we trust the US yield curve as a harbinger of a recession?
  • Silvia Dall’Angelo
    •The ECB in 2018 will officially embark on QE tapering. Monthly purchases will be halved to €30bn over the first nine months of 2018. That is likely the final stage of the so-called APP. •The improved economic background provides a strong justification for ECB tapering. However, the approach will be cautious, given inflation is still undershooting the ECB’s target. •Tapering means that the ECB will continue to provide stimulus, only at a slower pace. Hence, unless markets interpret it as paving the way to a more aggressive normalisation (unlikely), the ECB stance will continue to exert downward pressures on bond yields, though with a lower intensity. •A model for European rates based on a set of economic and financial variables suggests that peripheral rates are more sensitive to bond purchasing than core rates. As purchases are reduced, the focus will shift back onto fundamentals. •The impact on European rates (and European financial assets in general) from ECB tapering is likely to be limited next year, which supports our ‘new normal’ view of low-for-longer global rates.