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...

14 May 19: Economics Thinking - 'Winners' and 'losers' in the eurozone's low interest rate environment

• In this note, we shed light on the effects of the decline in interest rates since 2008 in the four largest eurozone countries and in the eurozone as a whole.
• We focus on the interest-payments/earnings channel. This is the most direct mechanism through which monetary policy affects the real economy, although this is not the only transmission channel and possibly not even the most important.
• When...

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

• The need for coherent and unified European leadership at a time when global leadership is evaporating.
• Discuss the role of European elections in this context, and
• Suggest what might be the outcome with respect to the key European appointments.

09 May 19: Chart of the Week - President Trump´s approval rating jumps

• For many people outside of the United States it seems to be a foregone conclusion: Trade wars, the Mueller report, and his repeated ‘unpresidential’ behavior can only mean that Donald Trump will surely be a one-term president. Our Chart of the Week, however, challenges that story. According to RealClearPolitics (RCP), President Trump’s job approval rating has jumped in recent days. This morning,...

08 May 19: Economics Thinking - Trump’s auto-tariffs threat: trade linkages and market implications

• Aside from ongoing US-China trade talks, by 18 May, the Trump administration will have to decide whether to impose new tariffs on EU car imports, with the possibility to postpone a decision until 14 November.
• From a US perspective, higher car tariffs are seen as an appropriate measure to curb a widening US trade deficit with the eurozone, as half of it is due to bilateral trade imbalances in cars...

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

* I’ll first argue that the 1.5% growth rate in Q1 is unlikely to be maintained during the next four quarters – because of global forces.

* While this implies a need for policy stimulus across the eurozone (to eliminate the output gap), and with the ECB running low on (politically acceptable) tools, fiscal policy must be used to some extent.

* More importantly, however, trend growth needs to be...

03 May 19: Chart of the Week - US corporate profits flattered by tax cuts

• Earnings season has so far seen profits of S&P 500 firms rise by a meagre 1.6% in 1Q19 compared to 1Q18 (after roughly three-quarters of firms have reported). Our Chart of the Week shows that the improvement in profit margins is due to the tax cuts of the Trump administration. Indeed, corporate tax payments as a share of GNP (the red bars) have been in decline and dropped sharply when the Tax Cuts...

28 Apr 19: Chief Economist´s Comment - Sunday Wrap

• Is the world economy Goldilocks or a bear with a sore head?
• The fall in eurozone inflation expectations and the ECB’s reaction function
• I’ll end with a prediction on Brexit

24 Apr 19: Chart of the Week - We are all dancing to the Chinese credit cycle

• “When America sneezes, the world catches a cold” is a common phrase used to describe the importance of the US economy for the world economy. However, our Chart of the Week shows that in fact the world economy has been dancing to the tune of the Chinese credit cycle over the last decade. Indeed, whenever the Chinese ramp up credit growth, the world economy (proxied here by the Global manufacturing...

16 Apr 19: Chart of the Week - Undoing 46 years of UK integration with the EU was never going to be easy

• Disentangling the UK economy from the EU was always going to be a mammoth task. Our Chart of the Week shows 66% of UK trade in goods is covered by trade agreements as a result of the UK’s membership of the EU, either directly or indirectly. Trade with the EU accounts for 50% of UK trade, while the UK also currently benefits from the around 40 trade agreements that the EU has signed and applied...

10 Apr 19: Chart of the Week - Liquidity that does not flow makes life hard for the ECB

• Excess reserves in the eurozone have become a hot topic since the ECB hinted that it is studying a tiering scheme for the depo rate to ease pressure on banks. Debate on tiering among investors has gained traction also as weak economic data may require the ECB to strengthen its forward guidance on rates.
• The chart above shows some key figures on bank reserves. First, and most importantly, liquidity...

08 May 19: Rates Perspectives - Flows of eurozone investors into USTs: another factor keeping UST real yields low

• The ECB’s asset purchase program has triggered an increase in outflows of eurozone investors to debt securities of other countries, USTs in particular.
• While outflows have slowed down in the last few months, so far there has been no evidence of a reversal. This is the case despite the fact that the advantage for a EUR-based investor to invest in USTs has been eroding for some time.
• We share the view...

16 Apr 19: Rates Perspectives - ECB tiering and money market rates: The devil is in the details

• Tiering has become a hot topic recently. One important issue is that it may create upward pressure on short-maturity money market and repo rates.
• Tiering has been implemented in other countries with no pressure on money market rates. However, the eurozone has important differences compared to these other countries.
• Tiering in the eurozone would have to consider two important aspects: that excess...

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...

04 Apr 19: FX Perspectives - CZK: Valuation not a barrier to further gradual depreciation

• In this note, we consider a behavioral-equilibrium–exchange-rate (BEER) model for the CZK’s real effective exchange rate
• We find that variables such as productivity growth relative to the eurozone, the degree of openness, government debt as a percentage of GDP, net foreign assets and investment as a share of GDP do a decent job of explaining past movements in the CZK’s real effective exchange rate.
• ...

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,...