In September 2008, the collapse of Lehman Brothers triggered the worst economic crisis in the developed world since the Great Depression. Within two quarters, real GDP contracted by 3.3% in the US, by 4.7% in the Eurozone and by 7.2% in Japan. The rebound in markets and real economies started over the course of Q2 2009 after the US Fed had signalled its readiness to buy massive read more
Torn between solid economic fundamentals at home and a series of political and external risks, European markets have struggled to find a direction this year. On balance, we have seen more of a move into risk-off territory (low Bund yields, wobbly equities, stronger USD and CHF) than a continuation of last year‘s risk-on trends (stronger equities, tighter yield spreads, stronger EUR). Our base case remains unchanged: economic read more
Tit for tat: By imposing tariffs on $34bn worth of US imports from China on Friday and eliciting an immediate like-for-like response from China, US President Donald Trump is bringing the world close to a genuine trade war. Escalating trade tensions pose the major risk to our positive outlook for the global economy and global markets. Trump’s threat to invoke “national security” reasons to levy tariffs on read more
Logic prevailed in the end. Horrified by the prospects of a messy divorce, the joint parliamentary faction of CDU and CSU finally forced their party leaders Angela Merkel (CDU) and Horst Seehofer (CSU) to find a compromise on the details of their hotly contested migration policy Monday night. Both parties would have had too much to lose if the CSU had walked out of the government. While read more
Migration, Merkel, Italy, EU reforms: A set of partly interlocking key issues in Europe will make headlines this summer. In an unlikely worst case scenario, the current German government may fall in early July and Italy may descend into a debt crisis over the summer. More likely, Merkel and Italy will muddle through and the EU will take some modest steps towards sensible reforms.
THE MIGRATION PROBLEM
Unease about read more
No big surprise in the programme: The latest draft of the government programme which 5Stars and Lega want to present to President Sergio Mattarella early next week includes a list of fiscally irresponsible and economically harmful measures but no direct threat to Italy’s euro membership. Before the proposals for more welfare spending, big tax cuts and a stop to key privatisation projects could be implemented, they would read more
Financial markets have taken the surge in support for radical anti-establishment parties in Italy in their stride so far. Does that make sense? Yes and no. Yes, the ultimate tail risk that Italy may leave the euro remains very small, although it has edged up a bit. No in the sense that the success of the 5Stars and Lega has raised some serious risks for Italy and read more
Europe and Germany can breathe a sigh of relief. Germany’s centre-left SPD has agreed to join chancellor Angela Merkel’s centre-right CDU/CSU in a renewed “grand coalition”. SPD members endorsed the draft coalition deal which party leaders had struck four weeks ago with a 66% majority, that is by a bigger margin than expected. This bodes well for the stability of the new government.
The Bundestag is scheduled read more
Could it be too good to be true? Some clients are responding to our upbeat macro outlook for 2018 with this question. Almost all seem to agree that the world made progress in 2017, that the starting situation for 2018 looks auspicious, and that the inevitable risks do not loom larger than usual. However, can the good times really last much longer? Very few clients probe the read more
Slowly, slowly, slowly, the British government is getting real about Brexit. Prime MinisterTheresa May’s Florence speech marks another modest step in that direction. After a referendum campaign in 2016 in which blatant distortions of the truth had carried the day, the United Kingdom is on the way towards acknowledging the facts of life in Europe.
The facts are simple:
• Upon leaving the European Union on 29 March read more