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2019-02-18
Just another day in European politics…

Last week saw Germany narrowly avoid slipping into a recession by the slimmest of margins. Official figures for the fourth quarter showed that eurozone’s economic powerhouse remained static after shrinking 0.2% over the previous three-month period. This equates to an output increase of €150m versus Q3. On this topic, the most interesting anecdote I read was from Deutsche bank’s economic team – “For physical comparison, that’s about one and a half of Airbus’s short-haul A320 planes or just over a third of an A380 jumbo jet (albeit the final assembly of the latter is done in France)”. As a gentle reminder, a technical recession is defined as two successive quarters of contraction. 

 

 

With Italy already in recession and Germany narrowly missing one, it has left the ECB questioning whether this slowdown is temporary or longer lasting.

 

 

 

 

Commentary from ECB officials seem to air on the cautious side with Olli Rehn suggesting that interest...



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2019-02-11
Is the cycle going to end differently this time?

Last week, we saw the Bank of England leave rates unchanged, citing Brexit uncertainty as well as weakening global growth. Whilst this comes as no real surprise, it does however embolden a common theme amongst the developed market central bankers; as my colleague, Josh highlighted last week, the Fed played up the importance of data-dependency, adopting the “wait and see” approach whilst fears of a slowdown in Europe limits the ECB’s abilities. Further afield, China is also grappling with its economy feeling the pressure, growing at its slowest since 1990.

 

Away from economic growth and monetary policy, wage disparity has become a  growing concern for governments and politicians around the world; whilst it doesn’t necessarily directly hurt the economy (immediately anyway), when inequality reaches high levels it could have a negative effect on economic growth, not to mention political stability. Globalisation and the liberalisation of economies have often been cited for...



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2019-02-04
A more cautious Fed – two sides to the US economic story?

As of late, it seems that there are two distinct sides to the US economic outlook story. On one side, we’ve seen a distinct change in tone from the Fed, shifting from a strong tightening bias, to somewhat more neutral/dovish, almost overnight. On the other, US data is (for the most part) roaring, continuing to point to a robust US economy, and one ripe to overshoot the Fed’s 2% inflation target. The Fed can’t have it both ways, which is leaving some in the market scratching their head. What’s going on here?

The FOMC’s latest rate decision on 30 Jan 2019 left the target range for the fed funds rate unchanged (at 2.25-2.5%, in-line with market expectations), however there were notable changes to the Committee’s outlook on the economy and their expected path for the policy rate. The Committee sees “muted inflation pressures”, suggesting they aren’t overly concerned with runaway inflation...



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