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  • UK: Heightened political uncertainty versus hopes for a softer Brexit

    Edition June 16, 2017

    The 8 June snap election was a shock for Theresa May as it resulted in a loss of the Conservative party's absolute majority in Parliament. Even though she decided not to resign, she is vulnerable to challenges within her party at any time. This hung parliament heralds a period of political instability and significant uncertainty over the sequence of future events. It also opens up a wide range of outcomes for Brexit. Meanwhile, a minority government is unlikely to last its full five-year term, increasing the risk of another snap election.


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  • United-Kingdom - Consumers' resilience under scrutiny

    Edition April 10, 2017

    The resilience of the British economy in the post-referendum period has taken many by surprise. Some made rapid conclusions that ‘Brexit has had no effect on the economy'. To state this, however, is to voluntarily omit that Brexit has not yet occurred. We are still at the very beginning of the negotiation process, which started officially on 29 March. The main effects of the referendum result so far have been through foreign exchange.


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  • ECB: The cat that walked by himself

    Edition March 8, 2017

    Rudyard Kipling's cat is the wildest animal of the Wet Wild Woods, not because he refuses to respect the bargain negotiated – on the contrary, he respects it whatever happens – but because he respects only the bargain and refuses to submit to any other kind of pressure: man's boot-throwing or the dog's bite. He is the cat that walks by himself. Mario Draghi is ready to do "whatever it takes", "whatever the ECB must", "without any limit" to respect the bargain negotiated in the European Treaty: price stability.


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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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  • France - 2017 Budget: Deficit cut to 2.7% of GDP in 2017

    Edition October 5, 2016

    The public deficit forecast for 2017 has been set at 2.7% of GDP (3.3% in 2016), with growth forecasts of 1.5% in 2016 and 2017 – slightly higher than the consensus. The public debt ratio is forecast to fall very slightly in 2016 already. The structural effort will again be significant and concentrated on public spending, whose growth in value terms has been markedly slowed. Our own deficit forecast is slightly higher that the government's, at 2.9% of GDP in 2017.


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  • World – Macroeconomic Scenario for 2016-2017: That elusive missing link

    Edition October 3, 2016

    At a time when world trade is flagging – for reasons that are as much structural as cyclical – and when it is no longer a growth driver, households continue to be growth's chief pillar. They consume and they invest. Following a period of deleveraging, the improving labour market, the steady – if sluggish – rise in wages, positive wealth effects and low inflation – which is driving gains in purchasing power – constitute a series of fundamentals that, so far, is proving resilient.

    Although the drivers do not all have the same power, they should nevertheless allow both the US and European economies to grow at a rate of 1.6% in 2016. That rate is respectively close to and much higher than those economies' potential growth rates of 1.6-1.7% in the US and 1% in the Eurozone. That said, we cannot see any recovery in productive investment, which is clearly not at the level we could have hoped for. It is also futile to hope for a sharp increase any time soon in what (in the olden days…) used to constitute a ‘growth engine'.


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  • ECB: think different

    Edition September 9, 2016

    The ECB did not officially extend QE, but they clearly pointed towards a change in the modalities over the near-term ("tasked the relevant committee"); we see it as a step towards an official extension in October or in December this year, along with an easing of purchase modalities, probably a removal of the deposit rate floor.


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  • ECB: Chronicle of a QE Extension Foretold

    Edition 6 September 2016

    Paradoxically, the six-month 'official' extension of QE is insignificant, despite amounting to EUR480bn: QE is already in open-ended mode and markets are already convinced that it will run beyond March 2017. As long as markets continue to expect the extension, the timing of its announcement matters little. President Mario Draghi will, we expect, point to the extension on Thursday to ensure this remains the case.


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  • ECB - can Mario Draghi be boring?

    Edition July 22, 2016

    The ECB press conference has been in line with expectations: Mario Draghi only gave us a rendezvous in September, when the ECB will publish its new macroeconomic projection and when the consequences of Brexit on the Eurozone will be clearer. We agree with the ECB that the Eurozone does not need an acceleration of monetary easing and that the Brexit does not change things dramatically. We maintain our view that the ECB will extend QE by six months and that it will be announced in September. This extension will probably come with an easing of the purchase modalities to face the bonds scarcity.


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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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