BofAML: Global Economic Weekly: Toss the textbooks

Redacción - Viernes, 19 de Agosto

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 Global Economic Weekly: Toss the textbooks
•   The money multiplier and velocity are concepts from a time when central banks targeted money, not interest rates.
•   The QE-era did not fundamentally change the fact that monetary policy works through financial conditions.
•   International data show lower money multipliers are a side effect of QE, and velocity is dominated by a non-monetary trend.

Global: Toss the textbooks

Concepts like the money multiplier or the velocity of money aren't any more useful indicators of monetary policy in the QE-era than before the financial crisis. Central banks expanded their balance sheets to successfully ease financial conditions and reduce longer-term interest rates, not to "print money" for its own sake.

United States: A bridge and a road to the future

We take a close look at the prospect for infrastructure spending in the US. In our view, such spending will likely increase moderately under either presidential candidate, providing perhaps a tenth or so of stimulus to the economy.

Euro Area: Italy - zero growth was no fluke

2Q GDP growth has been particularly disappointing for Italy. However, soft data were decent in 2Q, and remained so this summer. We thus investigate the relationship between surveys and real activity data and we find a regime shift after 2013.

Emerging Asia: Bottom line: Rates turning, capital risks overdone

RBI's liquidity pre-commitment is cutting macro risks from banks. Our bank analysts believe that the NPL cycle has peaked. Excess G-sec demand is softening yields: 10y to slip to 6.75%. Excess loan supply should ease lending rates by 25bp more. PSU bank capital risks are overdone in our view. We believe the government is incentivized to recapitalize banks to support growth.

Emerging EMEA: Russia: the end of the "August curse"?

RUB is set to avoid negative seasonality this year, as oil and EM recovery helped to offset seasonal outflows. Most of the RUB rally should be behind us as further strength might be constrained by the expected CBR easing and weak CA. We keep our RUB65/$ forecast for 2016 eop and continue to like the short end of OFZ on the easing outlook.

Latin America: Start me up

In Brazil, the final impeachment vote starts Thursday, 25 August. The BCB increased the pace of FX swap auctions.The conflict with teachers continues in Mexico, adding to social unrest. We expect 2.1% growth for 2Q GDP as the deceleration continues. We lowered our growth forecast for Chile to 1.3% and 1.9% for 2016 and 2017, respectively.

 
See report (attached) for further information.

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