Macro Weekly – Key questions for 2014

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

Macro Weekly - 6 January 2014 - Key questions for 2014 ()


  • Big Picture: Confidence in the global economy started to strengthen in the second half of 2013. Harder economic data also improved, but less impressively. We are optimistic that underlying economic conditions will continue to improve in the months ahead, bringing the harder economic variables, such as output, consumption and employment closer to where confidence indices suggest they should be. In the first Macro Weekly of 2014, we raise five questions, suggest answers, and list a number of risks concerning the global economic outlook.


  • Rates: Interbank rates are starting to come down as the ‘year-end’ effect wanes and underlying liquidity conditions remain ample, for now. However, overall financial conditions in the eurozone remain too tight against the background of undershooting inflation. Therefore further ECB action remains necessary, though we do not expect any moves at this week’s meeting. Meanwhile, we think the trend of eurozone peripheral bond spread compression has further to go, with Spain likely to outperform Italy on better economic fundamentals.


  • FX: Given the likelihood of ample ECB liquidity and the possibility of further policy action, we do not expect the strength of the euro to last. Meanwhile, the Fed decision to taper bond purchases accompanied by a dovish statement accelerated the sell-off of the yen, a trend we expect to continue. EM currencies have been only moderately on the defensive. Underperformers in the EM universe have specific domestic factors at play, rather than being just the usual list of suspects that have sold off in the past when tapering worries flared up.