Global Economic Weekly: Yellen’s global perspective

Redacción - Viernes, 12 de Febrero

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Global Economic Weekly: Yellen’s global perspective • Chair Yellen's two-day congressional testimony suggested the Fed could further delay rate hikes on global concerns. • The Fed is particularly worried about the global spillovers from uncertainty around Chinese growth and policy. •  Another concern is USD strength, which tightens financial conditions, is a drag on trade, and helps hold down inflation.

Global: Yellen's global perspective

Chair Yellen's congressional testimony brought global concerns to the fore as factors that could lead the Fed to further delay rate hikes. Uncertainty about Chinese growth and policy, and the impacts of further US dollar strength, top the list of worries.

United States: you can't keep the goods sector down

The manufacturing sector has been on the downtrend, reflecting dollar and commodity headwinds to the US economy. Manufacturing payrolls and production data reveal that weakness is concentrated in sectors with high trade exposure. Strong domestic fundamentals should offset deterioration abroad, limiting the downside in the sector.

Euro Area: the ECB needs to think outside the box

We expect only a 10bp depo cut, and relative to consensus, we think the risk is that the ECB does not move at all. The focus will have to be on QE; we expect extension until September 2017 and accelerated by EUR 10bn/month. Credibility demands technical changes and improved communication. Tweaking TLTROs would be appropriate for the current turmoil.

Japan: What are financial markets pricing in?

There are many uncertainties for the outlook for financial markets and economic growth in Japan. Overall, though, we think the possibility has risen that the major risk-off moves so far this year have pushed financial asset prices down to oversold (or at least fair) levels relative to the potential for deterioration in economic fundamentals.

Emerging Asia: India: RBI OMO key for G-secs rally in FY17

We estimate net borrowing at Rs5,250bn. RBI to OMO US$23bn/Rs1,500bn to balance the supply-demand gap in the G-secs market. RBI needs to inject US$46bn of permanent liquidity in FY17 to fund 6.3% GDP growth (old series). US$19bn via FX, US$27bn OMO. Key risk: RBI continues to provide temporary liquidity via repos instead of OMO.

Emerging EMEA: Hungary: risks of unconventionality in the distance

We are most concerned during the hiking cycles as the NBH will likely be constrained by its higher interest rate exposure. Risks to lending from the self-financing program appear limited so far. We think the NBH will extend its influence on the longer end of the curve.

Latin America: it's mostly fiscal

In Brazil, fiscal policy will dominate the agenda and markets. The Bank of Mexico also made fiscal policy a focus. The Andeans will raise interest rates to combat high inflation, with rate hikes as soon as this month in Colombia and Peru. Argentina took a major step forward in solving its dispute with creditors.

UK: increasing our level of concern 

UK momentum looks OK so far. But market moves are now large and persistent enough to worry us about feedback to the economy. We cut our growth forecasts by 30bp for 2016 and 10bp for 2017, to 2.0% and 2.4% respectively. BoE hikes are in the long grass for now.

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