Global Economic Weekly The nuanced season ahead

BofA Merrill Lynch Global Research - Viernes, 29 de Agosto

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Global: the nuanced season ahead  Geopolitical tensions linger but we look for a supportive global backdrop in coming months.  United States: wage wars Behavioral economics can provide important insights into why wage inflation will respond slowly initially and stronger later, supporting the theory of "sticky wages." 

China: a review of hot money flow - U-shape in 2014? 

We expect the capital outflow in June and July is short-lived and we predict rising capital inflow in 2H. The rapid return of offshore RMB could increase China's onshore RMB liquidity supply, in our view. We analyze the impact of capital flow on onshore RMB liquidity with a new framework by considering inflow of offshore RMB. 

Euro area: one small step for Draghi, one big (missed) step for ECB?

We still expect there will be ABS purchases, and that QE could become a reality before June next year. For September, we do not rule out smaller measures, such as fine-tuning TLTROs or a timeline of how and when ABS purchases could occur. 

Japan: debate regarding inflation expectations 

Inflation expectations-related data show that inflation expectations are definitely rising and are up yoy, but imply the possibility that the pace of the rise has slowed somewhat since mid-2014, in our view. 

Emerging Asia: time to reform 

It is a reform season after the recent or earlier elections. In India and Indonesia, it is key to focus on infrastructure projects and fiscal expenditure reform. Meanwhile, there are governance reforms at different scopes in China, Korea and Japan. 

Emerging EMEA: Russia and Ukraine - at the Rubicon 

A sharp conflict escalation limits room for political resolution and raises risks of a new wave of sanctions on Russia, in our view. We believe Russia is well positioned to withstand short-term sanction pressure, but problems could arise in the longer term. Early parliamentary elections in Ukraine decrease chances of the conflict resolution before end-October. 

Latin America: slowly out of the growth siesta in 2H 

LatAm GDP growth was disappointing in 1H, with a significant slowdown in 2Q; only Colombia outperformed expectations. We expect growth to accelerate slowly in 2H, driven by Mexico. Brazil will probably be in a technical recession in 3Q. Slow growth will keep pressure on fiscal and monetary policies to remain expansionary in 2H. 

UK: BoE quiet again after the noisy minutes 

We envisage the BoE leaving interest rates and QE on hold next week, issuing no accompanying statement as usual. 

Australia: RBA preview - when in doubt do nothing 

We preview next week's RBA Board meeting, and with the unanimous expectation that rates will be on hold, focus will again be on any changes in tone contained in the accompanying communication. 

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