18 Jun 19: Chart of the Week - Inflation expectations in the eurozone: Markets and the real economy disagree

• Market-based measures of inflation expectations in the euro area are in free fall. The 5Y5Y inflation swap, which measures inflation expectations over the five-year period starting five years from now, entered a steep declining trend at the end of 2018 and recently fell to an all-time low below 1.15%. Together with rising downside risks to the growth outlook, this has put pressure on the ECB.
• Howev...

16 Jun 19: Chief Economist's Comment - Sunday Wrap

• The causes and effects of this bizarre state of affairs of the world’s second most important currency not having an underlying safe asset, which contributes to the now record low – negative – yields.
• And I’ll briefly reply to those who questioned my statement last Sunday that the euro has nothing to do with Italy’s poor growth performance.

12 Jun 19: Chart of the Week - Uncertainty is bad for trade

• Uncertainty causes businesses to defer trade and investment. Our Chart of the Week shows that global trade growth is closely related to business confidence. Business confidence (measured here by the OECD industrial confidence indicator and standardized to match the mean and variance of global trade growth) fell further in May. The data, which was released yesterday, is published two months ahead...

09 Jun 19: Chief Economist´s Comment - Sunday Wrap

• Very briefly on the US and UK.
• Mostly on Italy and the additional confusion out of Rome on mini-BOTs and on Conte’s threat to resign.
• But I also note a couple of (small) bright lights when it comes to the hope of a push-back of extreme nationalism, namely from my native Denmark and from Germany’s Bundestag.

05 Jun 19: Chart of the Week - Weaker growth to stop German jobs boom

• If there has been any continuity in European economics in the last few years then it has been this: strong job creation on the German labor market. Employment rose by nearly 4½mn (or by more than 10%) since the great financial crisis. Unemployment was falling steadily to less than 5%, its lowest level since reunification.
• However, the May jobless data released last week startled investors by...

05 Jun 19: Economics Thinking - Financial cycles in the eurozone: no signs of immediate risk

• Recently intensified trade tensions between the US and China, as well as fading US fiscal stimulus, have skewed the risks to a recovery in global growth to the downside.
• Given a weak global environment, economic activity in the eurozone is likely to expand by only 1% annually in 2019 and 2020. However, our analysis shows that there is no immediate threat stemming from the eurozone financial cycle,...

02 Jun 19: Chief Economist´s Comment - Sunday Wrap

• The latest disagreement between Italy and the Commission
• This weekend’s change-over at the ECB, and what it may mean for policies down the road ...
• ... and, more immediately, what lies in store for Thursday’s ECB meeting.

31 May 19: Chart of the Week - The US yield curve warning light is glowing red

• It is widely known that US recessions tend to be preceded by an inversion of the yield curve; that is, long-term rates fall below short-term rates. Our Chart of the Week plots the difference in yields between the 10-year Treasury note and the 3-month Treasury bill (grey line, left-scale), with the grey shaded areas denoting NBER-dated recessions. This yield spread turns negative (i.e. the slope of...

26 May 19: Chief Economist´s Comment - Sunday Wrap

• Trump’s probably well-intended, but poorly designed, confrontation with China, and why we are in for long term trouble, with particular volatility likely during the next five weeks.
• Theresa May will be gone, but the political chaos in the UK will continue, raising the risk of a no-deal Brexit.
• European elections: What to look for.

23 May 19: Chart of the Week - Financial conditions in the spotlight as market mood sours

• Financial market developments play an important role in influencing the economic outlook, mainly through four channels: interest rates (both at short and longer maturities), the exchange rate, credit spreads and equity prices. In normal times, short-term rates are the main policy tool through which central banks can affect financial market conditions more broadly and, in turn, the real economy.
• Our...

19 May 19: Chief Economist´s Comment - Sunday Wrap

• Uncertainty rises as the trade war broadens to the tech sector. Financial conditions should be monitored carefully to gauge where growth is heading.
• The Fed is firmly in wait-and-see mode, while the ECB faces trade-offs when deciding on the pricing of TLTRO III.
• The importance of mutual trust for the next leg of eurozone integration.

16 May 19: Chart of the Week - President Trump’s “hidden” protectionism towards Europe

• According to administration officials, US President Trump had put off a decision on whether to impose auto tariffs for about six months. A final decision is expected by Saturday (18 May). While this gives carmakers especially in Germany some breathing room, some European countries have already been targeted by the US administration in the form of non-tariff barriers.
• Under President Trump, Italy...

17 Jun 19: Rates Perspectives - Spain: Still a periphery country, judging from its foreign investors’ base

• Spain has recently rallied sharply against core bonds, trading not too far from the spread lows seen at the beginning of 2018 and very near pre-crisis spread (beginning of 2010). This is due to the positive view investors have on its economic growth, as well as their appetite for carry trades, but reservations on taking on exposure to Italy.
• That said, the structure of the foreign ownership of...

24 May 19: Rates Perspectives - SOFR and SONIA derivative markets: Small in size but growing

• The Libor reform is becoming an increasingly hot topic, particularly as December 2021, the date after which Libor contributions will no longer be guaranteed, approaches.
• The proposal that is receiving the strongest momentum is to move to benchmarks based on risk-free rates (RFR). The US and the UK have robust transaction-based RFR with a history of at least one year. In the eurozone, the ECB is...

12 Jun 19: FX Perspectives - Updating our BEER model: Fundamental support for the US dollar is waning

• The latest update to our FX fair-value model BEER by UniCredit suggests that fundamental support for the US dollar is waning. Our BEER estimate of EUR-USD is now at 1.15, and our projections point to its rising above 1.20 in 2020. High uncertainty surrounding global trade may continue to weigh on the euro in the near term. However, our 2H19 forecasts project that the exchange rate will catch up...

09 May 19: FX Perspectives - The BoJ was right and farsighted – monetary-policy prospects in Japan and implications for the JPY

• The BoJ has been criticized for keeping monetary policy extra loose while other central banks began, or were close to starting, the process of normalizing interest rates.
• Yet, some G10 central banks have taken a break from hiking rates or have started discussing a return to easing. The BoJ, as the last holdout in this regard, now appears farsighted in its strategy. In addition, the BoJ revised its...

20 Nov 18: Shortened version of the Euro Credit Pilot (November 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.

• Slower economic and earnings growth will weigh on European credit markets, which will likely experience more-pronounced spread widening in 2019. However, given their more-stable debt trajectory over the last few years, as well as the ECB’s delayed tightening relative to...

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...

07 Jan 19: CEE Quarterly - Approaching the end of the cycle

• The business cycle is turning in developed and emerging markets (EM) and weaker global growth will impact CEE as well. Given this pessimistic global outlook, the main themes in CEE in 2019-20 are:

• Growth is likely to remain above potential in 2019, falling below it in 2020 due to weak global trade.

• EU-CEE could outperform other EM regions by virtue of its smaller reliance on foreign capital inflows,...