Macro Weekly – A stronger second half

door: Han de Jong , Nick Kounis , Georgette Boele , Roy Teo

Macro Weekly - 16 June 2014 - A stronger second half.pdf (381 KB)
  • Big Picture: At the start of the year, our view on the global economy was a relatively optimistic one. Six months later, we must concede that global growth in the first half was below our expectations. The main reason is a number of sometimes unfortunate setbacks, such as the bad weather in the US. The good news is that the underlying forces that made us optimistic are still there, while the factors that led to disappointments are disappearing. Like last Friday’s Holland-Spain match, a better second half lies ahead for the global economy.
  • Rates: Eurozone short rates look to have more downside potential as they digest the measures of the ECB earlier this month. Excess liquidity will jump and interbank rates will be pulled down towards the lowered policy rates. In the UK, short rates are going in the opposite direction following Governor Carney’s signal of early rate hikes. We have changed our forecast for the first BoE policy rate hike to November of this year from February of next year. Markets have almost fully priced in a BoE hike this year.
  • FX: The ECB’s decision to cut the deposit rate into negative territory has seriously dented the attractiveness of the euro. As a result, the negative relationship between peripheral spreads and EUR/USD has broken down. We expect further euro weakness in the months ahead, against the dollar in particular. Meanwhile, we have removed sterling versus the euro from our top pick list given that the upward adjustment in UK rate hike expectations is advanced, and sterling has already rallied strongly.