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Highlights: Russia's Central Bank is on the horns of dilemmas. Turkey is seeing a very significant worsening of its corruption indicators. In Tunisia, the economy is ailing despite the aid, but there is some political hope. In South Africa, the budget has been revised in a toxic atmosphere. In China, the Communist Party's Plenum was held under the banner of transparency... Brazil cuts its key rate for the first time since 2012 (but only by 25bp).
Fears about 'hard Brexit' have escalated in recent days and that has pushed GBP to fresh multi-year lows. We expect the concerns to linger and lower our GBP forecasts. We expect GBP/USD to finish the year at 1.23 and EUR/GBP at 0.90. Further out, we expect a cautious recovery because we believe that 'hard Brexit' will be avoided and that the UK will able to secure an enhanced free trade agreem ent with the EU in the coming years.
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.
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.
The housing market has been experiencing a marked rebound since early 2015. Transaction numbers grew 15% in 2015. In mid-2016, cumulative 12-month totals were again up by about 15% and are nudging the high points of the previous, 2004-2007, cycle. Prices have started rising again, even if the trend is still modest. That said, the ongoing boom is fairly atypical, with some clearly upside factors, but also some persistent weaknesses.
We are expecting a slight improvement in economic growth in 2016, with volume GDP growth of 1.3%, compared with 1.2% in 2015 (slightly below the Eurozone average), a rate that should continue through into 2017.
Edition November 8, 2016
Tunisia: GDP, current balance & exchange rate
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