15 Nov 19: Chart of the Week - UK Election: History predicts a Conservative win

• Our Chart of the Week shows that the Conservative party is likely to win the most seats at the 12 December general election and, in our view, an overall majority too. Historically, the net approval of the party leader (the percent of people satisfied minus the percent of people dissatisfied with the party leader) has been a very good predictor of the election winner, correctly predicting every...

10 Nov 19: Chief Economist´s Comment - Sunday Wrap

• German Finance Minister Olaf Scholz’ call for deeper European integration via the completion of the European Banking Union, and:
• Hungarian central bank Governor Gyorgy Matolcsy’s piece in which he calls the euro a “harmful and fruitless dream”; a “trap” which “we need to work out how to free ourselves from”.

04 Nov 19: Chart of the Week - The labor market is showing signs of softening

• In many advanced economies, manufacturing activity and trade are weak, reflecting trade tensions and slower global growth, but so far there are few signs that this weakness is spilling over into domestic labor markets and private consumption. Our Chart of the Week, however, shows that this may just be a matter of time. Job openings (or vacancies), which are typically a good predictor of the...

03 Nov 19: Chief Economist´s Comment - Sunday Wrap

• I’ll first discuss Lagarde’s dilemma at the ECB, and reflect on how she may go about it.
• I’ll then turn briefly back to the UK, where a general election – widely seen as a proxy referendum on Brexit – has been called for December 12. I see more trouble ahead.

27 Oct 19: Chief Economist´s Comment - Sunday Wrap

• Question 1: Why do you think the US will slow significantly next year, and what will trigger it?
• Question 2: How bad is European – and German – growth, and will there be a fiscal response?
• Question 3: What will the ECB do under Lagarde?
• Question 4: Brexit: Will we soon get a degree of certainty?

23 Oct 19: Chart of the Week - Eurozone non-financial firms: Worsening profitability, resilient investment (for now)

• Our Chart of the Week shows that investment spending by non-financial corporations (NFCs) in the eurozone has remained resilient despite a material worsening of these firms’ profitability. In the chart, our gauge of profitability is gross operating surplus, which is the national-account equivalent of EBITDA.
• With profitability weakening on the back of the slowdown in economic activity and rising...

20 Oct 19: Chief Economist's Comment - Sunday Wrap

• My general impressions from the meetings etc.
• My thoughts on the IMF’s three key publications, issued to set the agenda for these meetings.
• The latest Brexit misery and why the much needed restoration of a degree of predictability is nowhere in sight.

18 Oct 19: Chart of the Week - Italy’s budget plan: More revenue-raising measures, fewer spending cuts

• Our Chart of the Week shows the main features of the Draft Budgetary Plan (DBP) 2020 approved by the Italian government this week and submitted to the European Commission (EC). In its plan, the government confirmed the fiscal targets presented in the Update to the Economic and Financial Document 2019*, with the budget deficit target in 2020 that has been set at 2.2% of GDP, stable compared to this...

13 Oct 19: Chief Economist´s Comment - Sunday Wrap

• The UK and EU seem to be heading for a Brexit deal, thanks to a remarkably large helping of “fudge”;
• What does a Brexit deal mean for the big picture? It’s good news short term, bad long term;
• The Fed’s credibility is at stake as inflation expectations fall to historical lows.

11 Oct 19: Chart of the Week - US WTO tariffs on EU goods to have small direct impact

• Our Chart of the Week aims to gauge the direct impact on economic activity of the tariffs the US Administration has decided to impose on certain EU goods following the WTO ruling on the large civil aircraft case. Additional import duties amount to 10% on airplanes/aircraft, and to 25% on food, alcoholic beverages and other miscellaneous goods. The chart shows the tariff base, i.e. the value of US...

06 Oct 19: Chief Economist´s Comment - Sunday Wrap

• Monetary policy – in combination with additional regulation, too slow adjustments in parts of the banking system and fiscal tightening – has indeed caused severe stress in the financial system.
• But given its mandate, the ECB had no choice but to pursue its inflation target – and I’ll argue that the criticism is misplaced, including how precisely price stability is defined.
• Beyond disputes about...

04 Oct 19: Chart of the Week - US producers bear most of the cost of retaliatory tariffs

• Our Chart of the Week shows that US farmers have been hit hard by retaliatory tariffs imposed by China on US goods, particularly US soybean farmers. The price of soybeans in the US and Brazil typically move in lockstep. However, when China announced a 25% tariff on US soybeans in June 2018, US soybean prices fell more than 20%, while prices in Brazil held up. The large fall in US prices is...

04 Nov 19: Rates Perspectives - Estimating and discussing the term premium on German bonds

• We estimate the term premium of German bonds based on the methodology proposed by Adrian, Crump and Moench. We find that the term premium has declined sharply during 2019 and is currently negative.
• The term premium is strongly correlated with the 5Y5Y forward inflation, which explains 90% of the movement of the term premium. We also estimate, using a linear model, that the ECB monetary policy...

02 Oct 19: Rates Perspectives - BTPs caught between macro fundamentals and appetite for carry trades

• In recent years, the performance of Italian government bonds has been influenced by a combination of political risk, macro fundamentals and appetite for carry trades. Given the variety of drivers, we have developed a framework to help us understand the fair value of BTPs.
• We present two fair-value models for the 10Y BTP spreads. The first is a quarterly model whose goal is to provide a fair value...

25 Sep 19: The UniCredit Economics Chartbook - Global slowdown under way – and still downside risk (4Q19)

• Dear Reader, welcome to the latest issue of our Economics Chartbook, in which we are fine-tuning some of our growth forecasts to take into account a weaker global economy. Major central banks have been supportive, especially the ECB, but this can only mitigate the downside risks.
• Global: We are revising slightly downward our global GDP growth forecast for this year by 0.1pp to 3.0% while...

24 Jul 19: CEE Quarterly - Zentralbanken kämpfen gegen den Abschwung (3Q19)

Übersetzung der englischen Originalversion vom 27. Juni 2019

• Das Wirtschaftswachstum in CEE dürfte sich nach einem starken 1Q19 aufgrund des schwächeren Wachstums des Handels in der Eurozone, den USA und der Weltwirtschaft verlangsamen.
• Die EU-CEE-Region dürfte 2019 um 3,6% und 2020 unter dem Potenzial (2,8%) wachsen. Die westlichen Balkanländer dürften sich mit einem Wachstum von rund 3% im Jahr...

16 Oct 18: Shortened version of the Euro Credit Pilot (October 2018)

This is a shortened version of the Euro Credit Pilot, which we deem to be an acceptable minor non-monetary benefit under MiFID II.

• Corporate credit spread performance has shown some interesting divergence between synthetics and cash bonds. In synthetics, credit risk premiums have drifted wider over the last two weeks. The iTraxx Main traded at around 68bp from the time of the roll into the new...

15 Nov 18: UniCredit Macro & Markets - 2019-20 Outlook: Get defensive as growth slowdown looms

• Macro: Global growth is likely to moderate further to 3.4% in 2019, with the slowdown set to intensify in 2020 as the US slips into a mild recession. The Fed will probably hike rates through 1H19 and reverse course in 2020 with three cuts. The ECB will have just enough time to exit negative rates in 1Q20 before eurozone growth weakens materially.

• FI: We expect 10Y US yields to peak in the...

25 Sep 19: CEE Quarterly - Qualitative easing (4Q19)

• Economic growth will remain below potential in CEE, hovering at 1.7% in 2019 and 2020 as Turkey’s exit from recession offsets weaker growth in EU-CEE1.

• GDP growth in EU-CEE could slow to 2.8% in 2020 from 3.8% in 2019, falling below potential for the first time in a decade.

• Western Balkans are more vulnerable to supply shocks, and economic convergence could be temporarily suspended in 2020.

• External...