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GDP growth in Finland and Denmark set to slow in H2 Although today’s release of GDP data for Finland and Denmark shows that both economies grew solidly in Q2, we suspect that quarterly growth will slow in both in the coming quarters. Meanwhile, the Swiss …
30th August 2019
Slight rise in ESI not enough to stop ECB rate cut next month August’s small increase in the euro-zone Economic Sentiment Indicator (ESI) doesn’t change the big picture of a bleak outlook for the euro-zone economy, and nor does it alter our view that the …
29th August 2019
Q2 GDP growth may be as good as it gets for Norway This morning’s release of Q2 GDP data from Norway confirms that the economy remains a bright spot in the Nordics. But given that oil prices are now in line with our end-year forecast of $60pb, we think …
Germany could have taken the UK’s departure from the EU in its stride a couple of years ago but it will be hit quite badly if a no-deal Brexit occurs in two months’ time. There is still enormous uncertainty about how and whether the UK will leave the EU, …
28th August 2019
Given the deep downturn in the tourism sector, this morning’s decision by the Central Bank of Iceland (CBI) to cut interest rates by a further 25bps came as no surprise to us. We think that policymakers will continue the easing cycle at the next meeting, …
Italy heading for caretaker government? The fall of another Italian government comes as no surprise, given that their average lifespan over the past few decades has been just over a year. But it is a bit surprising that Italian government bonds rallied …
23rd August 2019
NOK/EUR to fall to record low Markets are more “hawkish” than we are on rates in Norway – they expect rates to be raised by roughly 50bp by the end of this year while we expect the Bank to leave them unchanged. Meanwhile, investors appear to have priced …
The account of the Governing Council’s July meeting shows that there was broad support for further policy easing in September and perhaps for a change to the inflation target fairly soon. It leaves us comfortable with our forecast for a 10bp deposit rate …
22nd August 2019
Uptick in Composite PMI won’t stop ECB easing next month The trivial increase in the euro-zone Composite PMI in August still leaves it consistent with feeble GDP growth this quarter and won’t put the ECB off easing policy next month. The rise in the …
While the Swedish krona and the Norwegian krone are now near the record lows they reached against the euro in 2008-09, we think that monetary policy and rising risk aversion will push them down further. The Swedish and Norwegian currencies have …
21st August 2019
The acquisition of reserve assets by the Swiss National Bank (SNB) has seen it take on a role more suited to fund managers than central bankers. Faced with the prospect of negative bond yields further and further along the curve, we think that …
Hopes that Italy’s political crisis will pave the way for a more market-friendly government are likely to be disappointed. The most plausible outcome is a new general election, either later this year or in early 2020, which will usher in a …
20th August 2019
While the imminent change in leadership at the Central Bank of Iceland (CBI) is unlikely to affect its current easing bias, the new Governor will have a bigger role in shaping policy than his predecessors. Having been named as the new Governor of the …
19th August 2019
SNB FX interventions are gathering pace Spare a thought for the poor FX team at the SNB: while much of Europe is away on holiday, data released on Monday showed that they recently had their busiest week of interventions since April 2017. It’s worth noting …
16th August 2019
German yield curve not a good guide to recessions With all the talk of inverted yields curves predicting a recession in the US, it is worth taking a closer look at what yield curves are telling us in the euro-zone. The most obvious place to start is …
The pick-up in FX interventions by the Swiss National Bank (SNB) in recent weeks is likely to be the first step towards a rate cut. But predicting when the interventions will be dialled down and the policy rate will be cut is more art than science. It’s …
15th August 2019
While this morning’s decision by the Norges Bank to leave its key policy rate unchanged at 1.25% was in line with expectations, the dovish shift in its tone suggests that the last bastion of hawkishness among advanced economies has fallen. In contrast to …
Having seen investors move in line with our previously uber-dovish view on Swedish interest rates in recent months, we now expect the Riksbank to cut the repo rate to -0.50% by the end of the year. With news on the economic front going from bad to worse, …
14th August 2019
Prospects for German economy and euro-zone industry still grim The decline in German GDP in Q2 and sharp fall in euro-zone industrial production in June provide further evidence of the severity of the slowdown in Europe. What’s more, a deteriorating …
Weaker inflation to support dovish shift by the Riksbank The fall in Swedish inflation in July provides further confirmation, if it were needed, that the Riksbank will have to revise down its forecasts for the repo rate at its next meeting, on 5 th …
No end in sight to the downturn in Sweden The latest data releases for June from Sweden show that the flash estimate of a contraction in the economy in Q2 was no rogue reading. We learned on Tuesday morning that private sector production fell for the …
9th August 2019
Bigger budget deficits on the way Italy now looks set for an early election. Relations between the two coalition partners have broken down, and the leader of the junior partner has called for a vote of confidence in the government. That said, even if it …
Above-target core inflation to keep Norges Bank in tightening mode, for now The fact that core inflation in Norway remained above target for the ninth month in a row in July will keep the Norges Bank in tightening mode for now. But with prices pressures …
The risk to the euro-zone from the US-China trade war is rising. And it seems increasingly likely that the US will raise tariffs on auto imports from the EU, which could tip Germany into recession. There is also a chance that higher auto tariffs would be …
8th August 2019
Norges Bank to raise rates in September, but this will be the end of the tightening cycle. It is now a question of when, not if, the SNB cuts rates further into negative territory. Expected dovish shift by the Riksbank will ensure that the krona stays the …
The recent sell-off in global equity markets has hit the euro-zone harder than the US, but we doubt that this will continue. Equities in Germany have performed particularly poorly, which is unsurprising given that the economy is struggling – with GDP …
7th August 2019
Fall in output kills off hopes of Q3 recovery The 1.5% fall in German industrial production in June kills off any hopes that the strong orders data published yesterday marked the beginning of a recovery. On the contrary, with business surveys all pointing …
While much of the market’s focus has been on China, Switzerland appears set to become the first country to meet all three of the US Treasury’s criteria of being a ‘currency manipulator’ later this year. However, if the SNB cuts interest rates, as we and …
German opinion polls suggest that there is a growing chance that the next federal government, which will be formed after elections due by late 2021, will be a coalition including the Green party. However, hopes that this will prompt a much larger fiscal …
6th August 2019
Germany and Italy remain the euro-zone’s weak spots July’s final euro-zone PMI is consistent with continued weak GDP growth at the start of Q3. And the PMI surveys also confirmed that Italy and Germany remain the currency union’s weak spots. While Italy’s …
5th August 2019
July surveys point to continued weak growth The slowdown in euro-zone GDP growth from 0.4% q/q in Q1 to 0.2% in Q2 was in line with our forecast and the ECB’s. (See here .) We don’t yet have an expenditure breakdown for the euro-zone as a whole, but the …
2nd August 2019
Swedish economy to flirt with recession… The 0.1% q/q fall in Swedish GDP in Q2 is unlikely to be the final word on the matter given that the data are almost certain to be revised in September. (See here .) Nonetheless, the release adds to signs that the …
Retail sales growth likely to slow further The jump in retail sales in June follows a fairly sharp contraction in May and feeble growth in April, and means that retail sales growth slowed in Q2 overall. With the boost from falling inflation now behind us …
Fall in Swiss inflation adds to pressure on the SNB The unexpected fall in Swiss inflation in July, and signs of a deepening downturn in the industrial sector, will only strengthen the resolve of the SNB to resist the rising franc. There is a growing …
Losing pace into Q3 The sharp fall in Norway’s manufacturing PMI in July adds to signs that the economy is losing momentum and lends support to our view that the Norges Bank will hike rates by less than investors expect this year. Meanwhile, the weak PMI …
1st August 2019
Case for package of ECB stimulus measures in September strengthens The raft of weak economic data published this morning strengthens the case for the ECB to announce a package of stimulus measures at its next meeting in September. The slowdown in …
31st July 2019
Another weak survey supports the case for an ECB rate cut in September July’s decline in the euro-zone Economic Sentiment Indicator (ESI) is consistent with our view that, after probably slowing to 0.2% q/q in Q2, GDP growth in the currency union will …
30th July 2019
The decline in Swedish GDP in Q2 will make it harder for the Riksbank to sit on the fence. With the economy unlikely to find much support in H2, the rising prospect of a recession lends further support to our forecast that the krona will fall sharply by …
Dovish ECB to make life difficult for the SNB Having seen the Swiss franc post multiple fresh two-year highs against the euro early in the week, the SNB will have welcomed the drop in the currency after the ECB meeting on Thursday. The fall was mirrored …
26th July 2019
At Thursday’s press conference, the ECB laid the groundwork for policy easing in September. The change to its forward guidance suggests that a rate cut is pretty much a done deal. But the Bank also “tasked the relevant committees” with looking into other …
The Swiss franc has been the best performing G10 currency over the past three months, despite falling back a bit after the ECB meeting on Thursday. We think that monetary policy as well as safe-haven flows will continue to support it against the euro …
The apparent confirmation this afternoon that the ECB is inching towards loosening policy lends further support to our view that more rate cuts are on the cards in Denmark and Switzerland too. As we had expected, the ECB left its policy settings unchanged …
25th July 2019
The market reaction to today’s ECB press conference suggests that President Draghi was not as dovish as some investors had hoped for. But the big picture is that it seems clear that policy loosening is coming. We expect the Bank to cut its deposit rate in …
Fall in Ifo adds to evidence of prolonged economic weakness July’s decline in the Ifo Business Climate Index is consistent with the message from the PMI that the German economy made a very slow start to Q3. We still suspect that the ECB will wait until …
If it is introduced (which is far from certain) a tiered deposit rate would reduce the cost of negative interest rates for banks, but it would do so by only a trivial amount. Its main purpose would be to help to build support for, or buy off opposition …
24th July 2019
Decline in PMI bolsters case for looser monetary policy July’s euro-zone PMI survey points to continued weak GDP growth and declining price pressures, bolstering the case for the ECB to loosen policy at tomorrow’s meeting. The fall in the headline …
While recent market attention has been on the ECB and Fed, the rise in the Swiss franc has ratcheted up the pressure on the SNB. As a result, investors have come around to our view that the Bank will push the boundaries of monetary easing by cutting rates …
23rd July 2019
Survey won’t change the ECB’s mind about loosening policy The latest ECB Bank Lending Survey adds to the evidence that the euro-zone economy will remain sluggish. The euro-zone does not seem to be on the brink of recession, but continued slow growth …
It is becoming harder for the Riksbank to brush aside mounting signs of weakness in domestic demand. We expect it to turn more dovish, and the krona to weaken, over the second half of the year. The Riksbank’s reasonably upbeat assessment about the outlook …
22nd July 2019
Franc leaves exporters with a mountain to climb The widening in Switzerland’s trade surplus in June (data released on Thursday) was driven in large part by weakness in imports and masked a continued slowdown in export growth. The rise in the value of the …
19th July 2019
