Category Archive: 2.) Pictet Macro Analysis

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Squaring off over the Italian budget

2018-10-10

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2018-10-10

Italy Macro Assumptions
The Italian government’s budget plans set it on a collision course with the European Commission. The road to some kind of agreement is likely to be long and bumpy. The Italian government has confirmed its deficit target at 2.4% of GDP for 2019. This represents significant slippage from a previous budget deficit target of 0.8% in 2019.

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German September PMIs surprisingly weak

2018-10-09

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2018-10-09

Germany Manufacturing Orders, 2012 - 2018
Recent German soft and hard data in the manufacturing sector has been surprisingly weak. Data released today showed that the final manufacturing PMI fell to 53.7 in September, from 55.9 in August. Factory orders rose by 2.0% month-on-month (m-o-m) in August, having contracted for six out of the seven previous months.

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Further consolidation of EUR/USD rate likely

2018-10-05

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2018-10-05

EUR/USD vs. GDP Growth Differential, 2000-2019
Short-term noise means we are neutral on the euro over the next three months, but see potential for its gradual appreciation against the dollar thereafterWe have long argued that growth and interest rate differentials are two key components for the direction of the US dollar. Both these drivers should continue to support the dollar over the short term.

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Chinese PMI data points to further growth moderation

2018-10-04

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2018-10-04

Chinese Official and Caixin PMIs
More policy support is expected, and may lead to slight rebound in Q4.China’s manufacturing PMIs softened further in September, indicating that growth momentum is likely continued to moderate in Q3 and that the weakness may extend into Q4.In response to the weakening growth momentum, especially in the context of escalating trade tensions with the US, the Chinese government has turned to policy easing since June.

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Italy tests the EU’s tolerance

2018-10-02

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2018-10-02

Italian public debt dynamics under three different deficit dynamics
The populist government’s plans to increase the deficit could set it on a collision course with Brussels. We remain bearish Italian bonds and euro peripheral bonds in general.Leaders of Italy’s coalition government and the finance minister yesterday agreed on a 2.4% GDP deficit target. The new target is higher than our expectation of a deficit “above but close to 2.0%” in 2019.

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A bit too early to be worried about French consumers

2018-09-29

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2018-09-29

France: consumer confidence index and households consumption expenditure
Despite the recent fall in French consumer confidence, spending should pick up in the second half of the year. The French economy disappointed in the first half of this year. While there was a widespread ‘soft patch’ in the euro area, the source and size of the slowdown in France stands out. The real GDP growth rate fell by 0.5 points, much more than the rest of the euro area. Moreover, while the slowdown in the other countries was mainly due to...

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Credit Growth Remains Buoyant in the Euro Area

2018-09-28

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2018-09-28

Euro Area Bank Loans to Non-Financial Corporations, 2010 - 2018
Financial conditions remain supportive and are not expected to tighten much in the coming months. Lending to non-financial corporations in the euro grew by an annual 4.2% in August, its fastest rate since April 2009. Forward-looking indicators suggest that euro area credit growth should remain strong over the coming months.

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Cut to Swiss inflation forecast

2018-09-23

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2018-09-23

Swiss Monetary Policy, 2005 - 2018
The Swiss National Bank has revised down its medium-term forecast for consumer inflation. We still expect a first SNB rate hike in September 2019. At the end of its quarterly monetary assessment meeting, the Swiss National Bank (SNB) left its main policy rates unchanged.

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Italian material deprivation rates still the worst among large euro area economies

2018-09-22

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2018-09-22

Latest poverty figures provide government with an argument for fiscal stumulus.Severe material deprivation rates gauge the proportion of people whose living conditions are severely affected by a lack of resources. According to Eurostat, “it represents the proportion of people living in households that cannot afford at least four of the following nine items: mortgage or rent payments, utility bills, hire purchase instalments or other loan payments;...

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Contrasting Fortunes within the Euro Area

2018-09-21

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2018-09-21

Euro Area Average Growth
The four biggest euro area economies slowed in H1 2018 due to a number of factors, including weak exports. We expect a rebound in H2—except in Italy, where political uncertainty has been denting business confidence. Forward indicators show that Italy is the only of the four major euro area economies to face weaknesses both in export-led manufacturing and services, due domestic political uncertainties (including the upcoming state budget) as well as...

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European labour market remains in rude health

2018-09-15

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2018-09-15

Euro area: Job creation by country between Q2 2013 - Q2 2018
But there is room for further improvement.This week euro area employment data confirmed that labour market recovery remains on track. Employment grew at 0.4% q-o-q in Q2 2018, marking the 20th consecutive quarter of expansion. Employment is now 2.4% above its pre-crisis (2008) level. Since Q2 2013, 9.2 million jobs have been created in the euro area.

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A successful bank should be boring

2018-09-14

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2018-09-14

No changes to the ECB’s monetary stance and policy guidance mean we are holding to our forecasts for quantitative easing and rate hikes.The ECB made no change to its monetary stance and policy guidance at its 13 September meeting. The end of quantitative easing (QE) was confirmed for after December, following a final reduction in the pace of net asset purchases to EUR15bn per month in Q4 2018.Much of the focus was on the updated ECB staff...

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Switzerland Q2 growth numbers are impressive, but details are mixed

2018-09-12

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2018-09-12

Swiss quarterly GDP growth with adjustment for sport events 2014-2018
Manufacturing and sports events served as boosts to growth, while domestic consumption was a letdown.The latest Swiss GDP figures were impressive. According to the State Secretariat for Economic Affairs’ quarterly estimates, Swiss real GDP grew by 0.7% q-o-q in Q2, slightly above our 0.6% projection and consensus. Average growth in the first half of 2018 was therefore the strongest since 2010.

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Italian 2019 draft budget: a bumpy road ahead

2018-08-31

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2018-08-31

Italian Fiscal Timeline
Tensions between Rome and Brussels could lead to significant market volatility before an agreement is found. September will be a key month for gauging the Italian government’s budgetary plans for 2019. The government has communicated neither a precise timeline for implementing the measures announced in its ‘contract for government’ nor a precise cost analysis for these measures.

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A trying time for euro

2018-08-21

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2018-08-21

EUR/USD vs. EA - US growth differential as % (with AA&MR projections)
The euro has hit new lows against the US dollar. We are revising down our EUR/USD projections for the next few months.The euro broke to the downside from its tight trading range relative to the US dollar since the end of May. These new lows go against our expectations of a gradual appreciation of the single currency relative to the greenback in the second half of the year and indicate that we have underestimated the short-term risks related to the...

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Revising our euro area 2018 GDP growth forecast down

2018-08-01

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2018-08-01

Euro area real GDP growth and EC economic sentiment index, 2005 - 2018
The cut to our growth forecast reflects slippage in euro area data.According to Eurostat’s preliminary flash estimate, euro area real GDP expanded by 0.3% q-o-q in Q2 2018, below consensus expectations. This was the weakest growth in two years and is down slightly from GDP growth of 0.4% q-o-q in Q1.Following today’s GDP growth data and recent economic indicators, we have revised down our GDP growth forecast for 2018.

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Ceasefire in US/EU tariff dispute

2018-07-28

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2018-07-28

EU and US: average trade tariff rate 1990-2018
The two sides have agreed to discuss lowering barriers to transatlantic trade, helping to de-escalate tensions. While positive, the US’s dispute with China still needs watching.US President Trump and EU Commission President Juncker this week struck an unexpected deal to de-escalate the trade dispute between the EU and the US.

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What will the rest of the year bring?

2018-07-17

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2018-07-17

Risk assets have disappointed this year and global equities were trendless, but as long as fundamentals can re-assert themselves, there could still be some life in risk markets.Global equities were trendless and the overall performance of risk assets lacklustre in the first half of 2018.

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Europe chart of the week – UK GDP growth

2018-07-13

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2018-07-13

UK monthly GDP Jun 2016-Jun 2018
Short-term rebound in the UK, driven by services.The Office for National Statistics (ONS) published this week a new rolling monthly estimate of UK GDP. The release pointed to a rebound of growth in Q2 (quarterly data will be published on August 8). According to the ONS, the rolling three-month growth to end-May was 0.2%, compared to 0% in the three months to end-April (see chart below).Looking at the details, the services sector (79% of the...

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European cars at a crossroad

2018-06-18

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2018-06-18

European Union: New car registrations 2010-2018
Falling momentum in new car sales, together with the threat of US tariffs is adding to the uncertainty facing the European car industry.Last weekend’s G7 summit in Canada ended badly, with President Trump withdrawing his support for the summit’s final statement. Heightening tensions between Europe and the US are Trump’s hints that the White House is considering import tariffs on cars and car parts.

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