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What are investors expecting from the ECB? Next week, we think that the ECB will alter its forward guidance in two ways. First, it is likely to say that interest rates will remain “at present or lower ” levels at least through the middle of next year. And …
19th July 2019
The ECB is likely to change its forward guidance to signal that a rate cut is coming... … and it might also add an explicit reference to the possibility of re-launching QE. All this would confirm investors’ expectations that looser policy is on the way. …
18th July 2019
Markets Overview – We think that a combination of policy loosening by major central banks, an increase in investor risk aversion, and mounting trade tensions will lead to bond yields in Switzerland and the Nordics staying lower for longer and equities …
17th July 2019
The improvement in some of the recent economic data suggests that the risk of an imminent recession is low. But it does not suggest that the economy is about to rebound. We expect growth to remain subdued over the rest of the year, with quarterly GDP …
Overview – Economic growth is likely to remain anaemic this year and to slow further in 2020 even if downside risks, such as a US auto tariff or no-deal Brexit, do not materialise. The downturn in the German manufacturing sector is spreading to other …
16th July 2019
The Riksbank has fallen well behind the curve The minutes of the Riksbank’s July monetary policy meeting, released this morning, offered little in the way of surprises. As was the case in the February meeting, the decision to hold the repo rate unchanged …
12th July 2019
France defies the gloom While the German and Italian economies are in the doldrums, France seems to be doing much better – for now at least. We think GDP expanded by around 0.4% q/q in Q2, following a decent 0.3% increase Q1. Industrial production rose by …
Given the parallels with Brexit, the recent escalation in the spat between the EU and Switzerland has filled many column inches over the past month. (To re-cap, after the Swiss government refused to sign off on the proposed new treaty, the EC followed …
Strong rise in industrial output in May, but GDP growth still slowed in Q2 May’s strong increase in euro-zone industrial production should allay concerns about the wider economy falling into recession, but it is still consistent with GDP growth slowing in …
A lot has happened since the Governing Council’s policy meeting on 6 th June, so the account published today has arguably been superseded by events. But it does confirm that even five weeks ago the Bank was gearing up for action. The account also hints at …
11th July 2019
Irish economy slowing as no-deal Brexit risk increases After strong growth in Q1, economic growth in Ireland appears to have slowed a touch, which is likely to in part reflect concerns about Brexit. While Ireland looks set to continue growing more quickly …
Core inflation likely to fall back into 2020 While core inflation in Sweden edged up once again in June, we expect weak domestic demand to weigh on underlying price pressures over the second half of the year and into 2020. Having risen to a seven-month …
Above-target core inflation supports Norges Bank’s hawkish bias The larger-than-expected fall in the headline Norwegian inflation rate in June is unlikely to change the Norges Bank’s hawkish bias. With core price pressures still running above target, it …
10th July 2019
New Democracy’s clear victory in Greece’s parliamentary elections yesterday will be welcomed by investors. But it will not be a game changer for the economy, not least because the government will still be constrained by its membership of the single …
8th July 2019
Slump in German manufacturing continues The small increase in output in May does not signal the end of the Germany’s manufacturing downturn. On the contrary, it now looks almost certain that production declined in Q2 overall, contributing to a sharp …
Developments this week make us more confident in our view that the ECB will change its forward guidance at its meeting on 27 th July, before cutting its deposit rate in September and announcing in October that it will re-launch QE. The first of these …
5th July 2019
Swiss market shrugs off loss of ‘equivalence’ The Swiss stock market took the expiration of the ‘equivalence’ regime with the EU in its stride this week, mirroring the buoyant performance of other equity markets. The Swiss Market Index (SMI) jumped by …
The latest economic data, together with the nomination of Christine Lagarde for ECB president, make us more confident in our view that the ECB will cut interest rates and re-launch QE before the year is out. All of the activity data point to a slowdown in …
4th July 2019
Growth in retail sales likely to have slowed in Q2 May’s euro-zone retail sales data were weaker than expected and support our view that GDP growth in the bloc slowed to 0.2% q/q in Q2. Looking ahead, lower inflation is likely to raise households’ …
Stable, but set to fall to zero Swiss inflation held steady at a very low rate in June and we expect it to fall to zero during the second half of the year on the back of the stronger franc. With deflationary fears set to come back on the agenda, we think …
The decision by the Riksbank to leave its repo rate on hold at -0.25% this morning came as no surprise, but the fact that it left its (in our view) optimistic forecast for interest rates unchanged bucks the dovish trend by other central banks, notably the …
3rd July 2019
June surveys round off a disappointing Q2 While the Composite PMIs for June were flat for Spain and edged up for Italy, the overall picture remains one of weak economic growth in the second quarter. And with price pressures remaining weak, there is every …
Yesterday’s announcement that Christine Lagarde will succeed Mario Draghi leaves us even more confident that the ECB will loosen monetary policy in the coming months. We think the Bank is likely to cut its deposit rate in September and re-launch QE before …
The jump in euro-zone core inflation in June seems to have largely reflected temporary factors. More generally, a range of measures of underlying inflation suggest that price pressures remain subdued. This should encourage the ECB to loosen policy sooner …
2nd July 2019
Swiss pension funds and life insurers have been among the losers from negative interest rates, but the SNB is unlikely to follow the Bank of Japan’s example of targeting long-term bond yields to limit the damage on the sector. Given that we now expect …
Labour market recovery continues despite manufacturing slowdown May’s euro-zone unemployment data showed that the steady recovery in the region’s labour market continued, despite the likely slowdown in GDP growth in Q2. But with business surveys remaining …
1st July 2019
Another weak set of PMIs point to loss of momentum into H2 The Swiss manufacturing PMI for June shows that conditions in the industrial sector have worsened going into H2, while the indicator from Sweden suggests that the economy contracted in the second …
We had previously assumed that the EU would put Italy into an Excessive Deficit Procedure in July, but recent reports suggest that this might be postponed until later in the year. Either way, Italy’s public finances remain on an unsustainable path, and …
28th June 2019
Economy lost momentum in Q2 Business surveys released this week provided more evidence that the economy slowed again in Q2. The German Ifo Business Climate Index, released on Monday, fell to a 55-month low, and was followed on Thursday by the euro-zone …
Swiss-EU stock market equivalence is no more The spat between the Swiss government and the EU came to a head this week after it became clear that the EC will follow through on its threat to let the current ‘equivalence’ regime for share trading lapse from …
Higher core inflation won’t deflect ECB from loosening While headline HICP inflation came in unchanged in June, at 1.2%, the extent of the increase in services and core inflation was a bit of a surprise. But the increase in core inflation seems to have …
Franc to rise further despite subdued Swiss activity The modest decline in the Swiss KOF Economic Barometer in June lends further support to our view that the Swiss economy will lose momentum over the course of this year. And with the franc likely to rise …
Portugal recovered well from the euro-zone crisis and its economy is set to record above-trend growth for the rest of this year and next. But its high public and private debt levels suggest that it is vulnerable to an increase in interest rates and/or a …
27th June 2019
Weaker sentiment bolsters case for further ECB action June’s sharp decline in the euro-zone Economic Sentiment Indicator (ESI) is consistent with our view that GDP growth in the currency union slowed to 0.2% q/q in Q2. It is also likely to strengthen ECB …
Following this morning’s decision by the Central Bank of Iceland (CBI) to cut its key interest rate by 25bps, we now think that further cuts are in the pipeline. However, to the extent that a rumoured fiscal stimulus and a weaker króna help to steady the …
26th June 2019
Recent comments by Mario Draghi suggest that the ECB will loosen policy sooner than we had anticipated. We now expect the Bank to strengthen its forward guidance in July and cut its deposit rate in September. Mr Draghi is then likely to go out with a bang …
While the escalating spat between Switzerland and the EU has drawn obvious parallels with Brexit, the implications for Switzerland are likely to be quite modest. And while Brexit has taken a toll on sterling, the latest dispute is unlikely to detract from …
Having seen the Swiss franc climb close to a two-year high this week following the flare-up in tensions between the US and Iran, the SNB will surely consider intervening soon – particularly if these geopolitical tensions persist. Nonetheless, with the ECB …
21st June 2019
The ECB is lining up further stimulus, and we doubt that even a Jens Weidmann presidency could stop it. Meanwhile, the decline in bond yields in Italy this week increases the risk that the government presses ahead with tax cuts, weakening the public …
The slight improvement in the flash PMIs for June will not be enough to deflect the ECB from its new plan to ease policy within the coming months. We expect it to cut its deposit rate by 10bp in September. … Euro-zone Flash PMIs …
Cyprus has now recovered from the economic crisis of 2012-13, which was caused primarily by its oversized banking sector. While a number of risks remain, notably the high level of non-performing loans, we expect the economy to continue expanding more …
20th June 2019
This morning’s decision by the Norges Bank to raise its policy rate from 1.00% to 1.25% came as no surprise. But while policymakers left the door open for further rates hikes in 2019, we think there is only room for one more 25bp hike in the current …
Investors have slashed their expectations for interest rate hikes in Sweden over the coming years and are now broadly in line with our previously well below consensus view. But while we now forecast the ECB to lower rates a little further into negative …
19th June 2019
The next Greek government, to be formed after a general election which is less than three weeks away, will inherit an economy that looks set to grow at a moderate pace in the near term. But it will also face a host of unresolved structural problems and …
18th June 2019
Mr Draghi’s speech at the ECB’s conference this morning is the clearest indication yet that the Bank will cut interest rates and relaunch its asset purchase programme in the coming months if, as we expect, measures of inflation and inflation expectations …
Following March’s sharp fall, the euro-zone’s nominal goods trade surplus narrowed further in April. Given the softening of the export orders indices since the start of the year, we think that net exports will continue to weigh on economic growth. … …
The small interest rate cut that we now forecast by the ECB in December is unlikely to be matched immediately by Denmark’s Nationalbank (DNB). But given that upward pressure on the krone is now likely to build sooner than we previously thought, we expect …
The small pick-up in total labour cost growth to 2.4% y/y in Q1 was concentrated in the economies which have been hit hardest by the recent downturn and where the labour market has already begun to soften. With this in mind, we suspect that wage growth …
17th June 2019
Following Mario Draghi’s more dovish comments earlier in the month, we now think the Governing Council is more willing to loosen policy further and have revised our already more-dovish-than-consensus interest rate and QE forecasts. Next week, the European …
14th June 2019
The Swiss National Bank’s decision to leave its monetary policy settings unchanged on Thursday was something of a formality. But whereas some commentators have suggested that the Bank is out of ammunition, we think it is on course to cut interest rates …
