Macro Weekly – Rays of light

by: Han de Jong , Nick Kounis , Aline Schuiling , Roy Teo

Macro Weekly - 10 March 2014 - Rays of light ()
  • Big Picture: A lot of special factors have affected the economic data lately. There has been unusually bad weather in the US and Japan and unusually good weather in Western Europe. It does not stop there. Chinese data is muddied by the New Year, and its trade data is affected by ‘over-invoicing’. On top of all that, the current geo-political tension is getting in the way of a clear picture on the underlying strength of the global economy. Still, we see rays of light in the economic data and continue to be optimistic. We expect global growth to surprise on the upside this year.
  • Rates: The ECB continued to sit on its hands at the March meeting and seems prepared to accept a prolonged period of low inflation, which is not without risks. The extended staff projections show inflation not yet reaching the price stability goal even in 2016. We expect inflation to fall in the coming months and end up below the ECB’s forecasts this year and the next, implying that further policy easing is still a possibility, although Mr Draghi’s remarks suggest that the chances of further action have clearly fallen. 
  • FX: The EUR surged after the ECB left policy on hold and sounded relaxed about the low inflation outlook in its press conference. Still, we continue to expect EUR/USD to move lower in coming months. Meanwhile, a slew of better economic data releases supported the AUD, while an improvement in risk sentiment eased demand for safe haven currencies like the JPY and CHF. The flipside of this move was that most emerging market currencies rebounded. The Chinese yuan strengthened after China maintained its growth target.