Experience the Decision Economics Difference for yourself.
The Global Markets Weekly – 11/24/17
German Economic Strength Trumps Political Uncertainty
Except for the euro’s temporary roller coaster, EU bond and stock markets reacted calmly to news of the collapse of Chancellor Merkel’s efforts to form a coalition government. Depending on the resolution of the stalemate and the composition of the “Jamaica coalition,” the euro could face headwinds further down the road as some of the minority parties like the Greens and FDP are euro-skeptic and against debt bailouts.
For now, it remains unclear how the German political uncertainty would play out. But what is fairly clear is that a weakened Chancellor Merkel, assuming she remains the head of the SDU party, and a fragile German coalition would be a blow to President Macron’s ambitious proposals for further EU economic and financial integration.
The German debacle also seems to galvanize Europe’s populist movement. Despite pushbacks in this year’s elections in The Netherlands, France and Austria, populism, as represented by the Alternative for Germany party (AfD), gained a foothold in the German Bundestag for the first time, and continues to pose a threat to established political parties throughout Europe.
Despite heightened political risk, including dysfunction in Washington, disarray over Brexit, stalemate in Germany and upcoming elections in Italy in early 2018, the underlying economic prospects both in the U.S. and EU remain solid. As noted last week, Decision Economics, Inc. (DE) expects real GDP growth in Germany to average 2.2% this year and the same in 2018, while it broadens out to include the rest of the EU periphery. All EU members are showing positive growth for the first time since the financial crisis. Importantly, the variability or the difference in growth rates is the lowest in the bloc’s history, implying more sustainable growth conditions in the period ahead.
Against Germany’s unsettled political backdrop, DE expects the ECB to maintain its ultra-accommodative stance, continuing to pump plentiful liquidity to the markets, while keeping interest rates low for longer. The latter, combined with expectations for relatively strong growth and rising corporate earnings underscore DE’s ongoing overweight exposure to EU equities in the Baseline Portfolio.
Coming Week’s Key Indicators and Events:
| Release | DE / Consensus | Comment | |
| U.S. | Revised Q3 GDP (We)
ISM Manuf. (Fr) PCE Inflation (Th)
Fed Speakers |
3.3%/ 3.2% SAAR
58 / 58.4 0.1% / 0.1% m/m |
Up from advance 3%, Q4 may bring third straight 3%-plus gain, first since 2004.
Very solid performance post-storms. Year-ago rates steady well below 2%, but core may tick higher to 1.4%, from 1.3%. Yellen offered balanced views last week, but influence diminishing given exit. Appears before Senate (We). Also Dudley, Williams (We), Bullard (Fr) |
| Euro | Nov flash CPI (Th)
|
1.5% / 1.6% y/y | Tilts a bit higher, but core still at or below 1% y/y. |
| U.K. | Manuf PMI (Fr) | 56.3 / 56.5 | Steady and solid in recent months. |
| Japan | Oct. CPI ExFE (Fr) | 0.2%/ 0.2% y/y | Chances of meeting inflation target remain slim, keeping purchases and targets rolling. |
| China | Manuf PMI (Th)
Cxn Mfg PMI (Fr) |
51.7 / 51.5
51.2 / 51.0 |
DE remains upbeat on growth prospects relative to consensus. |
| Other Cen. Banks | South Korea (Th) | Hold / Hike | Economic conditions may allow a hike, but geopolitics and prices suggest hold for a few more months, waiting for Fed. |
[private]gmw_1124[/private]
Research Studies
DE | Sinai Economic and Market Perspectives | Seeds of A Sovereign Debt Crisis Planted – 02/03/21
[private] [/private] Seeds of A Sovereign Debt Crisis Planted Allen Sinai* The U.S. and Global economies have undergone a fiscal/debt revolution of huge import from which there will be no turning away! The main catalysts read more
A TAILORED APPROACH
We know investment professionals have specific needs, in terms of type and method of information support.
meet
allen sinai
& the team
