Disinflation continues to gain ground around the planet and things don’t seem poised to improve anytime soon. The effects of the drop in global oil and agricultural commodities in the coming months will compound the consequences of sluggish growth amid persistent competitive tension. Global inflation could fall to around 2.5 % to Q1 2015 while a growing number of economies slip into negative inflation territory. Such an environment could very well lead to a new slump in global interest rates…
Archives par catégories : GLOBAL MACRO
Day to day Global Macro Context Analysis
Fed douses hopes of policy normalization
By dispelling the illusion of a potential normalization of U.S. key rates, the publication of the FOMC minutes served as the rain on the global capital markets’ parade. The market’s bluff, which consisted of fearing the Fed would take a hawkish turn while hoping it would do just that (thus lending weight to the theory of a U.S. economy strong enough to forego the Fed’s easy money policy), has been unmasked. The Fed will not change the direction of its monetary policy in the foreseeable future and, as we expected, this scenario raises a number of questions:
- On the fundamental economic situation,
- On the credibility of the consensus that long-term interest rates would rise and the dollar would see a healthy appreciation.
- On the foundation of hopes developed on the markets and therefore their valuations.
That the market reaction has been negative to this point is entirely understandable.
The wheels have come off in Germany
Business sentiment, orders, manufacturing…the telltale signs of a trend reversal in the German economy are all there: the euro area’s biggest economy is in a downturn.
This might come as news to some observers and we will discuss the primary reasons behind the situation and try to provide answers to the biggest questions raised by the impending downwards revision to German growth forecasts:
– Recession or no recession in the euro area next year?
– Another crisis looming?
– What is the solution?
Cheaper oil, a stabilizing force for growth
Our forecast for a sharp drop in commodity prices seems to have materialized since the summer. Despite a tense geopolitical situation, the fall in the price of oil has already reached 15% and, helped by sagging consumption, the global oil price tag has contracted by 1 GDP point since the start of the year. Each country has different exposure to this adjustment but, generally speaking, it has been more favorable for developed economies than emerging markets. Regardless, lower oil prices have maintained a stabilizing effect that could provide vital support given the present situation.
When globalization is thrown in reverse
One of the most striking illustrations of the changes that have occurred since the 2008 crisis is the 180° turn that international trade has made. Once discounted as a one-off phenomenon, reverse globalization has taken an increasingly permanent turn in the past two years. The paradigm shift in the Chinese economy is the main factor behind the trend. The consequences of this sea change are sizeable for global growth, corporate valuations and geopolitical risk.
Could US Housing Prices Plummet Again?
In the past two years, the contradictions on the U.S. housing market have continued to get worse. Higher property prices, often seen as an indicator of a healthier market, now seem disproportionate compared with the reality of a market that is still limping from the battering it took during the crisis. As Fed members seem increasingly impatient to trigger a rate hike cycle, the imbalances resulting from this distortion pose a serious threat that prices could fall again.
Are Ms Yellen and Mr. Draghi overstepping their boundaries?
Considering Janet Yellen’s comments on poverty and inequality or Mario Draghi’s talk of needing to stimulate demand, the messages from central bankers these days have shifted considerably. Against vastly different backdrops, the new posture by the monetary chiefs on both sides of the Atlantic raises a number of questions.
Yellen resists market calls, but does she really have a choice?
Download the article (French version)
The main risk from the FOMC’s meeting in the past two days was a possible change of direction on Fed monetary policy. It looks like the bank is staying the course. Today’s statement was unequivocal: there will be no rate hike in the foreseeable future. We can only tip our cap to the Fed’s determination in resisting mounting pressure from the market. Janet Yellen would be taking an imprudent risk if she were to rise to the bait and hint at a possible rate hike. Indeed, the U.S. economy may be doing better than it was a few months ago but its ability to weather an increase in long-term interest rates, which would be the obvious corollary to anticipations of a rate hike, is, in our opinion, close to nil….even after apparently positive GDP numbers from the second quarter.