a2873dd348b6497a8d8f56a5911240c8067ac562fd69a3cb5cfcff1456c6e285;;[{"layout":"linklist","uid":2770,"publicationDate":"19 Apr 14:06","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186412.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRoNM4Q6WQS0n-zr0WxttQDmA==&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"CEE Data Watch","product":"EEMEA Macro Note","synopsis":"<p class=\"ucrIndent\">The highlights next week are the central bank meetings in Hungary, Turkey and Russia, and the presidential elections in North Macedonia. Fitch will review Bulgaria\u2019s sovereign rating and S&P will review Hungary\u2019s and Slovakia\u2019s sovereign rating. We expect no changes.<\/p>","hash":"a2873dd348b6497a8d8f56a5911240c8067ac562fd69a3cb5cfcff1456c6e285","available":"0","settings":{"layout":"linklist","size":"default","showanalysts":"-1","showcompanies":"-1","showcountries":"-1","showcurrencies":"-1","nodate":"0","notitle":"0","noproduct":"0","noflags":"0","dateformat":"d M G:i","nolinktitle":"0","synopsislength":"-1","synopsisexpand":"0","shownav":"0","oldestedition":"","limit":"12"}},{"layout":"linklist","uid":2769,"publicationDate":"19 Apr 13:52","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186411.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJMfHK85BPUzZRgM4NLkeUpk=&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Comparing Germany\u2019s trade risk with China","product":"Chart of the Week","synopsis":"<p><ul class=\"ucrBullets\"><li>Chancellor Olaf Scholz\u2019s recent trip to China has again triggered a public discussion about the German economy\u2019s dependence on China. Where do we currently stand' Our latest Chart of the Week shows one simple but crucial yardstick for Germany but also for other major industrialized countries over time: trade in goods with China and Hong Kong (HK), as a share of each national GDP.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Accordingly, there are signs of a moderate \u201cde-risking\u201d. For instance, Germany\u2019s traded goods with China & HK were worth nearly 5% of national GDP in 2023 compared to more than 6% in 2022 and roughly 5% in 2019 before the start of COVID-19. At the same time, Germany\u2019s traded goods with the rest of the world were higher in 2023 (66% of GDP) than in 2019 (with less than 65%), i.e. the decline in trade with China has been a distinct pattern. The major driver for the temporarily rising dependence in 2022 was probably the start of the Russia-Ukraine conflict which led to a rerouting of import flows. Especially petrochemical goods previously imported from Russia were (temporarily) replaced by goods produced in China, where huge petrochemical capacities exist.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Of course, apart from a deliberate shift in strategy of German companies, cyclical factors might also have played an important role in reducing the trade dependency on China. For instance, anemic growth in China has \u201cquasi-automatically\u201d limited the potential for further rises in German exports and will probably continue to do so, at least in 2024 and 2025.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>In respect to other major industrialized countries, the trade dependency on China has also recently decreased, although it still has remained at (much) higher levels in the case of South Korea and Japan. For instance, South Korean exports and imports to China & HK accounted for more than 17% of national GDP in 2023 compared to 20% in 2022 and less than 17% in 2019. In the case of France and Italy, trade ratios were far lower but still somewhat above their pre-pandemic levels in 2023, with 2\u00bd% and 3\u00bd%, respectively.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Going forward, we think that a further gradual, but long-lasting \u201cde-risking\u201d is likely in major industrialized countries. The most important reasons are the strategic competition between the US and China, the Russia-Ukraine war and related national security concerns in key industries such as semiconductors but also companies\u2019 efforts in putting more weight on the resilience of supply chains instead of efficiency. The latter factor will probably play a major role in the case of Germany, as signalled by recent surveys which flag companies\u2019 attempts in diversifying their suppliers and increasing their insourcing activities.<\/p><\/li><\/ul>"},{"layout":"linklist","uid":2765,"publicationDate":"19 Apr 10:01","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186407.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRozxsvVNKkJg3RSzi3ly2SLA==&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"EEMEA Macro Flash - Croatian elections: tough negotiations ahead with HDZ in pole position to form a government","product":"EEMEA Macro Note","synopsis":"<ul class=\"ucrBullets\"><li> In Wednesday\u2019s election, the ruling party, the Croatian Democratic Union (HDZ; center right), together with a group of smaller parties, won the most seats (61 of 151), but this was not sufficient for a majority. This was broadly in line with expectations. <\/li><\/ul><ul class=\"ucrBullets\"><li> The main opposition group, the coalition led by the Social Democratic Party (SDP; center left), supported by President Zoran Milanovi', received 42 seats. <\/li><\/ul><ul class=\"ucrBullets\"><li> HDZ, led by incumbent Prime Minister Andrej Plenkovi', is the most likely party to lead the next government, but forming a coalition will likely involve tough, and potentially lengthy, negotiations.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> We see three potential outcomes: <\/strong> the most likely is a coalition between HDZ, the Homeland Movement (DP) and national minority representatives; a less likely option is one in which DP is replaced by Most; the least likely option is a coalition of opposition parties led by SDP.<\/li><\/ul><ul class=\"ucrBullets\"><li> Unless the third option materializes, President Milanovi', will likely remain in his post until the presidential elections in December. <\/li><\/ul><p class=\"ucrIndent\">The results of the elections on Wednesday were in line with expectations. The ruling HDZ party (together with some small parties) won the most seats, but this was not sufficient for a majority.<\/p><p class=\"ucrIndent\">The HDZ-led group won 61 seats out 151, five less than in the previous elections of 2020, while the main opposition group, the SDP-led coalition Rijeke pravde (Rivers of Justice) won 42 seats, one more than in the previous elections. The SDP-led coalition was supported by President Milanovi', who has signaled his aspiration to become prime minister, although he was not allowed to run as an official candidate in the elections (this would have required him to resign from his position as head of state, which he refused to do). <\/p><p class=\"ucrIndent\">Regarding the other parties, Homeland Movement (DP; conservative right) won 14 seats (two less than in the previous election); Most (Bridge; right) won 11 seats (three more) and Mo\u017eemo! (We Can!; left), which leads in the Croatian capital, Zagreb, confirmed itself at the national level by winning ten seats (three more than its showing in 2020). The rest of the seats went to two regional parties (Istrian Democratic Union [IDS]) in Istria two seats and Independent Platform North (NPS) in Northwestern Croatia, also two seats) and a liberal party (Fokus), which won one seat. Eight seats go to national minorities\u2019 representatives.<\/p><p class=\"ucrIndent\">At the time of writing, all votes have been processed, but the final results will be confirmed only once the State Electoral Commission confirms the validity of the election process in the coming days, which will also require repetition of the election process in some electoral locations due to confirmed irregularities (this is the usual procedure if such irregularities occur and generally has a minor impact on the overall results).<\/p><p class=\"ucrIndent\"><strong>FIGURE 1: <\/strong> PRELIMINARY RESULTS WITH ALL VOTES PROCESSED<\/p>"},{"layout":"linklist","uid":2759,"publicationDate":"17 Apr 15:10","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186400.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJMfHK85BPUzZsvDXz5EXu6Y=&P=1","protectedFileLinkDe":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186404.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJMfHK85BPUzZiaaJy-KquDg=&P=1","protectedFileLinkIt":""},"title":"Oil Update - Oil prices are likely to gradually decline","product":"Oil Update","synopsis":"<ul class=\"ucrBullets\"><li> So far, the reaction of oil prices to Iran's attack on Israel has been contained. Given the diplomatic pressure by Western powers, investors expect Israel to adopt a restrained response against Iran. <\/li><\/ul><ul class=\"ucrBullets\"><li> We agree with the market and we continue to expect tensions in the Middle East to remain mostly limited to the Gaza Strip, with limited regional fallout. For this reason, and given market fundamentals, we expect Brent prices to move back towards USD 85\/bbl soon. <\/li><\/ul><ul class=\"ucrBullets\"><li> An escalation of tensions, instead, involving an unrestrained retaliation by Israel, a blockade of the Strait of Hormuz, or attacks on oil facilities in Saudi Arabia, would likely push Brent prices above USD 100\/bbl. <\/li><\/ul><p class=\"ucrIndent\">So far, the reaction of oil prices to Iran's attack on Israel has been contained. After crossing USD 92\/bbl last Friday, Brent is now trading below USD 90\/bbl. The market already priced in a major attack on Israel since Teheran preannounced it but has found comfort in the limited damages and in the diplomatic efforts by Western and regional powers in avoiding an escalation of tensions. There is still a lot of uncertainty about how tensions in the region will unfold, but we continue to see a regional conflict involving direct conflict between Israel and Iran as unlikely -- which explains the muted reaction of oil prices. <\/p><p class=\"ucrIndent\">The different fronts<\/p><p class=\"ucrIndent\">Teheran\u2019s preannounced attack on Israel over the weekend, which involved hundreds of missiles and drones, was likely an isolated response to the suspected Israeli strike in Syria at the beginning of the month that killed Iranian military officers in the Iranian embassy in Damascus. It seems it was not intended to mark the beginning of a broader regional conflict at a time when the Iranian regime is already busy keeping order at home. On Sunday, Iran\u2019s permanent mission to the UN, tweeted: \u201cThe matter can be deemed concluded\u201d. <\/p><p class=\"ucrIndent\">Furthermore, no major regional actor wants an escalation in tensions.. In an official statement that was released today, Saudi Arabia and the United Arab Emirates (UAE) called for maximum \u201cself-restraint\u201d in the Middle East to avoid \u201cthe dangers of war and its dire consequences\u201d. The UAE has formal diplomatic ties with Israel, while relations with Saudi Arabia have been improving in recent years. Similarly, Western powers are calling for restraint on Israel\u2019s side. The G7 officially condemned Iran\u2019s attack, and while the US reiterated its commitment to Israel\u2019s defense, it warned that it will not participate in any offensive action against Iran.<\/p><p class=\"ucrIndent\">The Israeli government is clearly split on how to react. The hawks are pushing for a military response for fear of looking weak and encouraging further attacks from Iran. Options range from strikes on Iran\u2019s nuclear facilities or military bases within the country to cyberattacks or attacks on Iran\u2019s proxies in Lebanon or Yemen. The doves call for a tough diplomatic response from the West in order to focus all military efforts on the war in Gaza. Initially, the doves seemed to have prevailed. In an official statement that was released on Sunday, the government led by President Benjamin Netanyahu asked for: 1. The immediate recognition of the Iranian Revolutionary Guards Corps as a terrorist organization and 2. The imposition of tougher sanctions against Iran. The statement referred directly to sanctions on missiles. But then the hawks took over. On Monday night, Military Chief of Staff Herzi Halevi declared that Israel would respond militarily to Iran\u2019s attack, without providing any detail on the possible options. <\/p><p class=\"ucrIndent\">Now, doves and hawks are battling again on what comes next. A meeting of Israel\u2019s war cabinet set for yesterday was put off until today, as Western allies are putting in place a package of sanctions against Tehran to dissuade Israel from a major escalation. In general, Israel feels constrained not just diplomatically, but also militarily. The weekend events highlighted that, without US support, its defense capabilities are limited. Moreover, Israel benefited from the support of the Middle East Air Defense Alliance, which involves the US, Israel and some allied Arab countries (along with the UK and France). Without the support of its Western allies to undertake a bolder response against Teheran, Israel has little incentive to go on the offensive. It can actually claim victory that it was able to intercept the Iranian missiles and defend its territory, particularly after the Hamas-led 7 October attacks had put this into question. And it can concentrate its military efforts in the war against Hamas in the Gaze Strip. <\/p><p class=\"ucrIndent\">A drop in oil prices is our baseline<\/p><p class=\"ucrIndent\">Even if the situation is extremely fluid and the degree of uncertainty extremely elevated, our baseline scenario assumes that Israel will likely opt for a restrained response, relying more on diplomatic than military action. There might be a military response, but that would probably be largely symbolic and not trigger an Iranian retaliation. When it comes to sanctions and the oil market, it is possible that the US will choose to better enforce existing sanctions on Iranian oil, without fully removing the around 1.5mb\/d that Tehran is smuggling into the global market. Since the beginning of the war in Ukraine, Western powers have not fully enforced sanctions on Iranian oil exports to contain upward price pressures, given the market distortions created by sanctions on Russian oil. With the presidential elections approaching, US President Biden is likely to act cautiously on tightening Iranian oil sanctions, because tighter oil supply would risk fueling inflationary pressure domestically at a time when inflation is weighing on his popularity despite a solid economy, adding to risks that the Fed might have to delay rate cuts.<\/p><p class=\"ucrIndent\">Given all these considerations, our baseline scenario is that the conflict in the Gaza Strip does not further escalate into a clash between regional powers but will have only limited fallout in the region. This implies that no major oil facilities or trading routes (the Strait of Hormuz, in particular) will be affected, while Iranian oil exports will be only partly curtailed. At the same time, according to the latest update of the International Energy Agency, global oil demand is losing momentum now that the post-Covid rebound is largely complete, an expanding EV fleet acts as a further drag and China\u2019s economic performance disappoints (Chart 1). <\/p><p class=\"ucrIndent\">CHART 1. DEMAND IS LOSING MOMENTUM<\/p>"},{"layout":"linklist","uid":2744,"publicationDate":"14 Apr 11:59","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186385.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJACkeUMzD3sVemA1nxpvuc0=&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Sunday Wrap","product":"Sunday Wrap","synopsis":"<ul class=\"ucrBullets\"><li> The US is countering China on at least three fronts ...<\/li><\/ul><ul class=\"ucrBullets\"><li> The changed relationship between the US and China will ...<\/li><\/ul>"},{"layout":"linklist","uid":2743,"publicationDate":"12 Apr 14:05","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186384.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRobEKVsp7ObefiamXYmcmx7Q==&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"CEE Data Watch","product":"EEMEA Macro Note","synopsis":"<p class=\"ucrIndent\">Next week\u2019s highlight will be the general elections in Croatia. <\/p>"},{"layout":"linklist","uid":2726,"publicationDate":"09 Apr 15:16","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186366.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJACkeUMzD3sVU_uBRzW76pk=&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Two months to go before the European election","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> The upcoming European Parliament (EP) election is due to take place on 6-9 June 2024. Our Chart of the Week provides an update of indications from opinion polls, in terms of the number of seats political groups are expected to win compared to six months ago and compared to the number of outgoing MPs elected in 2019. <\/li><\/ul><ul class=\"ucrBullets\"><li> Compared to six months ago, the main trends appear to be the following. There has been an increase in the number of seats projected to be won by the center-right European People\u2019s Party (EPP), and, according to national polls conducted in the main EU countries, this looks to mirror an improvement in the prospects of the Italy\u2019s Forza Italia, the Spanish Partido Popular and the German CDU-CSU. In March, the EPP formally nominated President of the European Commission Ursula von der Leyen as its Spitzenkandidat. <\/li><\/ul><ul class=\"ucrBullets\"><li> In contrast, polls suggest there has been a decline in the number of seats likely to be won by the center-left Socialists and Democrats Group (S&D). Moreover, Renew Europe has continued to lose ground over the last six months, as the French Renew coalition has suffered a further decline in popularity, especially compared to the French Rassemblement National, which belongs to the Identity and Democracy Group (ID). In Germany, Italy and Spain, the popularity of parties affiliated with Renew Europe does not seem to be taking off. While seat polls had shown gains by the ID compared to six months ago, those gains have partly faded in the latest polls. Lastly, progress by the European Conservatives and Reformists Group (ECR) has slowed to a halt recently. <\/li><\/ul><ul class=\"ucrBullets\"><li> When recent polling is compared with the composition of the outgoing European Parliament, it seems to confirm a decline in support for the liberal-centrist grand coalition formed by the EPP, the S&D and Renew, mainly in favor of the ECR and ID groups. Still, the grand coalition is likely to hold, albeit with a contained margin compared to the 361 seats needed for a parliamentary majority. The Greens\/European Free Alliance (Green\/EFA) is also set to lose seats in the new parliament. At the same time, and despite their ideological differences, the EPP and ECR are unlikely to be able to win enough votes to form a majority coalition. Even when one considers that the ID group might do well, a potential coalition composed of the EPP, ECR and ID might not gather enough votes to win a majority and, above all, continues to appear unlikely, in our view. It remains that, even if the right-wing groups (ECR and ID) are not part of the governing coalition despite an increase in their representation, they might play a key role in shaping alliances in the new parliament on issues where there is dissent within the ranks of EPP, S&D and Renew, potentially affecting future EU policy, particularly on immigration and the EU\u2019s green transition.<\/li><\/ul>"},{"layout":"linklist","uid":2719,"publicationDate":"08 Apr 15:17","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186359.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRo0vkDVpTDJx1MxThkzF3htw==&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"EEMEA Macro Flash - Slovakia: presidential election consolidates government power","product":"EEMEA Macro Note","synopsis":"<ul class=\"ucrBullets\"><li> Peter Pellegrini, chairman of Slovakia\u2019s parliament and candidate of the country\u2019s governing alliance, was elected as the president of Slovakia on Saturday.<\/li><\/ul><ul class=\"ucrBullets\"><li> Mr. Pellegrini\u2019s main impact as president will be felt when he appoints a new head of the intelligence agency, three members of the Judicial Council and two judges at the Constitutional Court. <\/li><\/ul><ul class=\"ucrBullets\"><li> The government\u2019s stronger hold on power bodes ill for democracy and the rule of law in Slovakia, given recent attempts to weaken the fight against corruption. Because of this, Slovakia risks losing access to EU transfers.<\/li><\/ul><ul class=\"ucrBullets\"><li> The budget deficit is likely to exceed 6% of GDP in 2024, similarly to 2023, thus spending limits are likely to be breached.<\/li><\/ul><ul class=\"ucrBullets\"><li> We expect SLOVGBs to underperform their peers, despite that Slovakia\u2019s Debt and Liquidity Management Agency (ARDAL) has covered approximately 70% of Slovakia\u2019s funding needs this year. <\/li><\/ul><p class=\"ucrIndent\">The presidential election held in Slovakia on Saturday was won, with 53% of the vote, by Mr. Pellegrini, who is the current leader of Hlas-SD. In the second round of voting, he defeated the independent candidate and former minister of foreign affairs, Ivan Kor'ok, who won the first round of voting with the support of the pro-European opposition. Mr. Pellegrini managed to mobilize voters at the last moment, especially many supporters of the strongly Eurosceptic and pro-Russian candidate, \u0160tefan Harabin, who received almost 12% of the vote and came third in the first round, and from the Hungarian minority. Mr. Pellegrini received significant support from Hungarian media during the election moratorium period. The turnout reached 61% in the second round, the highest turnout for a presidential election in Slovakia since 1999. It increased by almost ten percentage points compared to the first round (52%).<\/p><p class=\"ucrIndent\">The powers of the president are predominantly representative and appointive. The president also has significant powers pertaining to foreign policy, although most of them have been transferred to the government by past presidents. The president still participates in NATO meetings, while competencies regarding the EU have been formally transferred to the government. A pro-government president will help strengthen the government's internal power in the country. The new president will first appoint a new head of the intelligence agency, which outgoing President Zuzana 'aputov\u00e1 has temporarily blocked. From the perspective of consolidating power, appointive powers in the judiciary seem crucial. The president appoints 3 out of 18 members of the Judicial Council (the judicial oversight body), with 3 members being appointed by the government and parliament and 9 elected by judges. The president also appoints judges at the Constitutional Court, choosing from candidates proposed by parliament (there are twice as many candidates as judges). <\/p><p class=\"ucrIndent\">After the current government tried repeatedly to water down anti-corruption legislation, the last major domestic barrier protecting democracy and the rule of law in Slovakia remains the Constitutional Court. Most constitutional judges were elected in 2019 for a term of 12 years. Only one constitutional judge\u2019s term ends during this parliamentary term (in 2026), while another position became vacant in the fall, after the resignation of one judge. The parliament has not yet selected candidates from whom the president can choose. The government coalition has already considered taking control of the Constitutional Court by expanding the number of judges. However, the government lacks the parliamentary constitutional majority to implement this plan. An external constraint to such changes is the threat that Slovakia\u2019s access to EU funds could be suspended. This prospect has already forced the current government coalition to partially adjust proposed changes several times.<\/p><p class=\"ucrIndent\">The government coalition says it is committed to consolidating public finances. However, this year's consolidation is, in our view, an accounting exercise, relying mostly on reallocating EU-funded energy aid from 2023 to this year. Eurostat is unlikely to accept this, in our view. Therefore, we assume that the budget deficit will increase from 6.3% of GDP this year from 6.1% of GDP in 2023 (more details can be found on pages 65-66 of our 2Q24 CEE Quarterly). The approved budget does not meet local spending limits to which the government committed in its bid for funds from the Recovery and Resilience Facility. Therefore, a penalty of up to EUR 200mn is expected. In the coming years, instead of tightening spending limits, the government intends to follow new EU rules (and spending limits). The contours of consolidation are currently unclear. The budget deficit is expected to decrease by 0.7-1.0pp per year in the near future. Concerns about losing access to financial markets or increasing risk premiums have led ARDAL to accelerate the issuance of new debt. So far this year, ARDAL has issued EUR 7.123bn of bonds, out of an estimated need amounting to EUR 10-11bn, i.e. approximately 70% of the annual planned issuance.<\/p><p class=\"ucrIndent\">Despite good issuance, we expect SLOVGBs to underperform their peers. Their yield spread to SLOREP bonds has widened to 45-50bp this year at the 10Y maturity, and further widening could be in the cards if EU transfers are frozen and the budget deficit fails to be adjusted. <\/p>"},{"layout":"linklist","uid":2713,"publicationDate":"07 Apr 13:23","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186353.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJACkeUMzD3sVKttnV97OPnk=&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Sunday Wrap","product":"Sunday Wrap","synopsis":"<ul class=\"ucrBullets\"><li> I\u2019ll discuss the underlying difference between the US and European inflation pictures as it now reveals itself, the difference focus of Fed vs ECB communication - and the key issues it raises for policies going forward.<\/li><\/ul><ul class=\"ucrBullets\"><li> I\u2019ll then briefly review the biggest geopolitical risks during 1Q, arguing that some have intensified while others have eased \u2013 and what they tell us about the year ahead.<\/li><\/ul>"},{"layout":"linklist","uid":2712,"publicationDate":"05 Apr 17:15","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186352.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJACkeUMzD3sV8HYd1mrXYmo=&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - US: Strong payrolls won\u00b4t preclude rate cuts, but increase the risk of delay","product":"Data Comment","synopsis":"<p><ul class=\"ucrBullets\"><li>The US economy added an impressive 303k payrolls in March as the economy continues to outperform expectations and its peers. Revisions to the prior two months saw a net rise of 22k. More than half of the job gains in March came from the government and education & health sectors, which tend to be acyclical. It has been mentioned by several Fed officials in recent weeks that strong payrolls are not necessarily inflationary and do not preclude rate cuts, to the extent that it reflects rising labor supply. In a recent paper (see New immigration estimates help make sense of the pace of employment | Brookings), the authors estimate that based on much higher estimates of immigration from the Congressional Budget Office (CBO), the sustainable level of job gains (i.e. that needed to absorb population growth and not apply upward pressure on the unemployment rate) have risen from previous estimates of around 100k to about 180k per month this year. Payroll growth is running above this level, with the three-month average payroll gain rising to 276k and the six-month average increasing to 244k.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>Still, rising immigration is not the only way the labor force can rise, and the participation rate is also on the increase. Indeed, the labor force participation rate rose to 62.7% from 62.5%, which together with the rise in the population saw a large 469k increase in the labor force. Unemployment fell just 29k, and the unemployment rate fell very slightly (to 3.83% from 3.86%, to two decimal places). Household employment (an alternative measure of employment to payrolls, derived from the household survey) showed a rebound of 498k after three months of falls. It still leaves household employment 400k lower than four months ago, which is difficult to reconcile with the recent strength of payrolls (even if the CBO is right that immigration has been much higher than that estimated by the Bureau of Labor Statistics, which would explain some of the gap between the two measures of employment, it cannot explain why household employment has fallen outright). The household survey is a smaller sample than the payroll survey and tends to be more volatile, so we tend to put more weight on payrolls, but it adds to uncertainty regarding the true health of the labor market. It\u2019s also worth noting that the jump in household employment was entirely driven by part-time workers, while full-time workers fell.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>If strong payroll gains reflect improved labor supply, then it should not be putting upward pressure on wage growth. The wage data is generally consistent with this. Average hourly earnings rose 0.3% mom, in line with expectations, after a modest (upward-revised) 0.2% mom rise in February. It took the year-on-year rate down to 4.1% from 4.3% in the prior month. This is not far from the 3-3.5% range that would be broadly consistent with 2% inflation over time assuming 1-1.5% labor productivity growth (the pre-pandemic trend). Recently, labor productivity growth has been materially stronger than this, although it seems likely to be temporary.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li>The Fed will likely see strong payrolls as further evidence that there is no great urgency to cut rates, in contrast to historical rate cutting cycles when the economy showed signs of a material slowdown. That means the risks to our forecast for the first rate cut in June, and 125bp of rate cuts in total this year, are skewed towards a later start and fewer cuts. But we are not changing our baseline forecast. As mentioned, several Fed officials, including Chair Powell, have indicated that strong payroll gains do not preclude the labor market coming into better balance, and rate cuts, if these strong payroll gains reflect improved labor supply. Moreover, leading indicators of the labor market point to a softening in labor demand ahead (including both the decline in small businesses\u2019 hiring intentions and the quits rate, and the rise in job cut announcements). The next key release is the March CPI report on Wednesday.<\/p><\/li><\/ul><p class=\"ucrIndent\"><p>Chart 1 shows that nonfarm payrolls rose a strong 303k in March after a rise of 270k in February. The three-month average payroll gain rose to 276k in March from 272k in February, and the six-month average increased to 244k from 235k.<\/p><\/p>"},{"layout":"linklist","uid":2711,"publicationDate":"05 Apr 15:14","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/emergingmarkets_docs_2024_186351.ashx?EXT=pdf&KEY=l6KjPzSYBBGzROuioxedUNdVqq1wFeRoqRVjBRLflPdvPSC5EiiVDA==&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"CEE Data Watch","product":"EEMEA Macro Note","synopsis":"<p class=\"ucrIndent\">The highlights next week are March CPI figures for Czechia, Hungary, Romania, Serbia and Russia, and the central bank meeting in Serbia. The sovereign rating for Slovenia will be reviewed by Fitch and Moody\u2019s and we expect no changes. S&P will review the sovereign rating for Czechia and Romania, and we also expect no changes. Before that, on Saturday, there will be the second round of presidential elections in Slovakia.<\/p>"},{"layout":"linklist","uid":2709,"publicationDate":"05 Apr 12:03","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2024_186349.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJACkeUMzD3sVdnhMslUc8ZE=&P=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - US: The labor market is key for services inflation","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> The labor market is key for services inflation and the timing and pace of Fed rate cuts. The labor market is half of the central bank\u2019s dual mandate (of maximum employment and stable prices) and, as our Chart of the Week shows, wages are closely associated with the stickier component of inflation, namely non-housing core services (or \u201csupercore\u201d) inflation. This is because the wage bill is by far the largest input cost for services-providing firms.<\/li><\/ul><ul class=\"ucrBullets\"><li> Most indicators still point to a modestly tight, but softening labor market. The number of job openings to unemployed persons fell to 1.36 in February, down from its peak of 2.0 in March 2022, but above its pre-pandemic level of around 1.2. The quits rate is below its pre-pandemic level and tends to lead the aforementioned job-openings-to-unemployed ratio. The unemployment rate rose to 3.9% in February, up from 3.4% in January 2023. Reflecting this, measures of wage growth continue to ease, although they remain modestly above the 3-3.5% range that most Fed officials deem to be consistent with meeting the 2% inflation target over time. The March employment report due to be released later today will provide additional information on recent dynamics regarding labor market tightness.<\/li><\/ul><ul class=\"ucrBullets\"><li> The spike in monthly core inflation in January has raised fears that resilient economic activity and employment growth could see inflation pick up again or stabilize somewhat above the 2% target. But unless and until measures of labor market tightness either stop or reverse easing, which seems unlikely, the main story of underlying disinflation remains on track.<\/li><\/ul>"}]