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  • US- Prepping the markets for a hike

    Edition February 16, 2017

    US economic performance is likely to warrant further gradual increases in the federal funds rate. Chair Yellen reiterated her view that "waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession."


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  • FOMC: Policy unchanged. No hints on timing of next hike

    Edition 2 February, 2017

    As widely expected, the FOMC left its monetary policy unchanged with the Fed funds rate target range maintained at 0.5% to 0.75% at its February meeting. The Fed's balance sheet reinvestment policies were also unchanged.


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  • Political issues – Where the anger is coming from

    Edition January 18, 2016

    The issue of populist movements does not stop at elections. In the longer term, it poses the problem of the legitimacy of elites and solutions for reconciling democracy and globalisation. In fact, we have now entered into a political cycle, ie, a point in history where politics has taken over from the economy and is imposing its own rationality. There is no going back: we are seing a transition of both internal and external political equilibrium.


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  • US: October employment report sees earnings accelerate

    Edition 4 November 2016

    October nonfarm payrolls rose by 161K, which is likely closer to a sustainable pace of employment generation going forward with the economy near full employment. The October unemployment rate crept down to 4.9% while the participation rate slipped to 62.8%. October average hourly earnings rose 0.4% MoM, and accelerated to a 2.8% annual pace (after revisions to September). We expect earnings to strengthen in the months ahead with the economy close to full employment.


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  • US - November FOMC: Waiting for Godot?

    Edition October 28, 2016

    We expect the FOMC to keep policy unchanged at its November 2 meeting with the Fed funds target range maintained at 0.25% to 0.5% and no change in the FOMC's portfolio reinvestment policies. We continue to look for the FOMC to hike rates at its December 14 meeting as part of a gradual pace of rate normalization, including two additional 25 bps rate hikes during 2017.


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  • US: Fed policy unchanged in September as FOMC eyes December rate hike

    Edition September 22, 2016

    The FOMC, as widely expected, opted for unchanged policy at its September meeting with the Fed funds target range maintained at 0.25% to 0.50%. Market participants saw a relatively low probability for a rate hike with policymakers split over the near-term rate normalization path. We look for the FOMC to hike the Fed funds rate by 25 bps on 14- December. Chair Yellen's comment that the case for a rate hike has strengthened was echoed in the statement. Moreover, the FOMC noted that the "near-term risks to the economic outlook appear roughly balanced."


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  • US - July FOMC minutes: door remains open to rate hike this year

    Edition 18 August 2016

    FOMC voters thought it was appropriate to wait for additional information in order to gauge the underlying momentum in the labor market and economic activity before taking another step in removing monetary accommodation. "Most participants anticipated that economic growth would move up to a rate somewhat above its longer-run trend during the second half of 2016 and that the labor market would strengthen further." We believe that Chair Yellen is willing to test the downside of the natural rate of unemployment in order to meet the Fed's maximum employment mandate.


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  • US: Robust payroll gains continued in July

    Edition August 8, 2016

    July nonfarm payrolls rose by a robust 255K. The 3-month moving average of payroll gains moved up to 190K in July. We look for average monthly payroll gains to decelerate this year with the economy near full employment. The July unemployment rate was unchanged at 4.9%. Alternative labor slack measures were generally stable. The participation rate rose to 62.8%.


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  • US - FOMC: Steady in July but setting up a hike later this year

    Edition July 28, 2016

    The FOMC maintained its current monetary policy settings today, in line with market expectations. Neither the 0.25% to 0.50% Fed funds target range nor the Fed's current portfolio reinvestment policies were changed. The assessment of current economic conditions in the policy statement was more upbeat, reflecting stronger job gains in June and an expected acceleration in Q2 real GDP growth to be reported on Friday.


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  • ECB QE bond scarcity (2 of 3): options, not solutions

    Edition July 11, 2016

    In the current conditions, the ECB will face a shortage of bond before the end of this year. We think that Eurozone economic conditions will encourage the ECB to extend QE until at least September 2017, and the basic conclusion to that is that the ECB will have to change its PSPP. Several options are possible – and in reality the PSPP already has enough flexibility to address this shortage: the ‘substitute purchases'. However, while these substitutes appear sufficient to address the shortage of bonds from small countries, things may be more complex where Germany is concerned (and the Netherlands soon after). We do not think that the ECB will let the flexibilities come into force for Germany without making a formal decision about it, and we see the dropping of the capital key as highly complex politically. Scrapping the deposit rate limit appears to be a better option, even if it could push short-term sovereign rates way lower and then pose difficulties for money-market funds – beyond distorting the market further in unchartered waters.


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