Guide to the Markets
The eurozone recovery remains broad-based and the cyclical momentum is still pointing towards relatively strong growth for 2018. However, the macroeconomic picture now appears to be more balanced, with several lead indicators posting downside surprises in the quarter. This may be partly explained by the strength of the euro weighing on the export sector. Inflation, and specifically wage inflation, remains a well-publicised concern for the ECB, and although we have seen small improvements in this metric we are still far from target rates. (p. 10, 24, 26)
Guide to the Markets presents a wide range of macroeconomic data that can help liquidity investors assess the economic backdrop and position their portfolios, covering issues including:
- Despite the moderation of lead indicators, it must be noted that these are falling from a very high water mark. At a global level, there are no signs of near-term recession risks, with nearly all Purchasing Managers’ Indices (PMIs) printing above 50 (p. 5).
- Household consumption remains the main driver of economic growth during the year. The improving labour market dynamics, allowing a decline in the household saving rate and the confidence to embrace credit, has been a clear positive contributor. With unemployment continuing to trend downwards, we expect consumer confidence and spending to remain elevated in 2018 (p. 6, 23, 24, 28).
- The ECB’s asset purchases programme of 30 billion euro per month runs until (“at least”) September 2018, and considering the consistently dovish tone from President Mario Draghi in response to the benign inflation environment we would not be surprised if quantitative easing were extended further. In terms of forward guidance on interest rates, the ECB is maintaining that rates are likely to stay at current levels “for an extended period of time and well past the end of the net asset purchases”.
As you consider these important topics, we will be happy to share our market views and tailor liquidity solutions to best meet your needs.