Macro Weekly – A bumpy recovery

by: Han de Jong , Nick Kounis , Georgette Boele

Macro Weekly - 24 February 2014 - A bumpy recovery ()
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  • Big Picture: Economic data continues to be very soft, with the weather in the US being the main culprit. Adverse weather conditions continued in February in large parts of the US. Even if things return to normal now, it won’t be until the March data is released in April before we will get a clearer picture of underlying economic trends. We stick to our view that the global economy will do better in 2014 than in 2013, that the US will be the leader in terms of direction, that Europe will re-connect to the international economic cycle, that Japan will withstand the tax hike in April, albeit with additional BoJ help, and that emerging economies will be volatile but not fall into crisis.
  • Interest rates: The minutes of the FOMC’s January meeting showed that members argued that tapering would continue unless there was an appreciable change in the economic outlook. In our view, US economic data are likely to strengthen in coming months as the bad weather effect fades, and given that fundamentals are positive. As such, Treasury yields are likely to move higher. Meanwhile, the ECB is edging towards policy easing in March, which should help to anchor core eurozone government bond yields at current low levels. 
  • FX: The US dollar recovered last week, as the FOMC signalled that the bar to stopping tapering is high, while uncertainty in emerging markets was also supportive. The weaker-than-expected US data was largely ignored. The Swedish krona was out of favour after inflation data surprised on the downside, increasing the risk that the Riksbank will further cut interest rates. Meanwhile, the Chinese yuan declined against the US dollar, with concerns surrounding slower growth in China as the key driver.

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