210 (11-20)
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25.07.2017
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As markets enter into the summer lull, it is useful to take a step back. The global economy is in better shape than it has been in several years. This has allowed other central banks to follow the Fed and gradually start their exit journey, a process that is a historic challenge given the unprecedented level of monetary accommodation. But with inflation still below target, a key part of the normalisation puzzle is still missing. Although labour market tightness has not yet fed to wages, and hence to inflation, we expect it will. Core inflation should move higher over the medium-term in the US and Europe, supporting further monetary tightening and a normalisation of yield curves. While no policy change is expected by the Fed on 26-July, an announcement to begin phasing out its balance sheet reinvestment is likely in September and we expect another rate hike in December. As for the ECB, rate hikes are still far off, and we expect the central bank to announce another QE extension and tapering in October. Our global macro outlook is little changed this year. We expect growth to rebound from the slowest pace post-crisis in 2016, though relative to consensus we are more positive on the US and more bearish on Japan. In China, we continue to expect a gradual deceleration, but see upside risks to growth in the second half of the year. We are generally constructive on risk assets, expecting material upside to US equities in the next 18 months and positive but more balanced performance in EM. There are signs the dollar has peaked, but we do not expect a material devaluation yet. We are more positive on the euro, seeing upside versus the dollar and sterling. We expect yield curves to normalise gradually, but there is risk of a more sudden upward shift, depending on the path of core inflation. David Folkerts-Landau, Group Chief Economist Key pages this month: P6 Global economy in a better place P8 Central banks overview P11 Current low inflation regime vs. 1960s and 1980s P17 Signs of dollar top You can access a two-page update of Deutsche Bank Research's views on global macro, monetary policy and markets, as well as some of the key themes driving them, at any time by downloading The House View Snapshot from: houseview.research.db.com. [more]
28.06.2017
20
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Global investors have recently been forced to sift through mixed signals from macro data and markets. Chief among these discordant messages is the apparent dichotomy between softer inflation, lower yields and flatter curves, and falling oil prices on the one hand, and still solid global growth and firm risk sentiment on the other hand. We remain generally optimistic in our global macro outlook despite these mixed signals. Supply-side factors, rather than a weaker demand outlook, underpin the fall in oil prices, and this is positive for growth for oil importers. The softening core inflation trend is due primarily to temporary factors, particularly in the US, and the uptrend should resume given the solid growth momentum. Indeed, our global growth outlook is little changed since the start of the year. We marked down US growth on lower odds of Trump’s policy agenda, but still expect deregulation and modest fiscal stimulus to support above-trend growth. This downgrade is compensated by upgrades to eurozone and China growth. Our market views largely reflect this overall constructive tone: we are not concerned about the discordance between firming risk assets and falling rates; the normalisation of US and Europe rates should resume in coming months. In FX we have turned more positive on the euro but stay bearish sterling. Our base case that political risk would not escalate is playing out. Moreover, the intervention to resolve ailing banks in Veneto is positive and lowers risk in Italy. The exception, as expected, is the UK, where the outcome of Brexit has become more binary: the risk of a soft Brexit has risen, but so has that of a crash Brexit. David Folkerts-Landau, Group Chief Economist Key pages this month: P6 Mixed signals P8 Oil less a concern for risk assets P11 Flat US yield curve but low risk of recession P17 Europe political risk not materialising P23 Limited scope for further oil weakness You can access a two-page update of Deutsche Bank Research's views on g [more]
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