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Chief Economist's Comment - 14 Jul 2019    

Sunday Wrap

  • The latest communication from the Fed and the ECB and why they are right that policy stimulus is appropriate.
  • Yet, as the ECB is set to ease further, the negative side-effects for banks – thereby weakening the all-important transmission mechanism – will become increasingly problematic because of the...
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  • The latest communication from the Fed and the ECB and why they are right that policy stimulus is appropriate.
  • Yet, as the ECB is set to ease further, the negative side-effects for banks – thereby weakening the all-important transmission mechanism – will become increasingly problematic because of the complexity of designing appropriate mitigating measures.
  • Therefore, a rethink of the policy imbalance is due. Christine Lagarde’s key challenge will be to put her generalist (as opposed to monetary policy specific) experience, as well as her great standing among the political leaders, to good use in helping them formulate a more appropriate balance in the European policy agenda. I’ll summarise what I think the agenda should look like.
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Sunday Wrap: Kurzzusammenfassung

Publikation nur auf Englisch verfügbar

  • Die neuesten Aussagen der Fed und der EZB und warum sie Recht damit haben, dass geldpolitische Stimulierung angemessen ist.
  • Dennoch: Nachdem die EZB auf weitere Lockerungen zusteuert, werden die negativen Nebenwirkungen für Banken – die den ungemein wichtigen...
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Publikation nur auf Englisch verfügbar

  • Die neuesten Aussagen der Fed und der EZB und warum sie Recht damit haben, dass geldpolitische Stimulierung angemessen ist.
  • Dennoch: Nachdem die EZB auf weitere Lockerungen zusteuert, werden die negativen Nebenwirkungen für Banken – die den ungemein wichtigen Transmissionsmechanismus schwächen – zunehmend problematisch, weil die Entwicklung geeigneter abmildernder Maßnahmen so komplex ist.
  • Daher ist es an der Zeit für neue Denkansätze in Bezug auf das politische Ungleichgewicht. Christine Lagardes wesentliche Herausforderung wird darin bestehen, ihre generalistische Erfahrung (im Gegensatz zu einer spezifisch geldpolitischen) sowie ihr hohes Ansehen bei den politischen Entscheidungsträgern sinnvoll zu nutzen, um sie dabei zu unterstützen, ein angemesseneres Gleichgewicht in der politischen Agenda Europas zu formulieren. Ich werde zusammenfassen, wie diese Agenda meiner Ansicht nach aussehen sollte.
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Sunday Wrap: Breve riassunto

Pubblicazione disponibile solo in inglese

  • Le ultime comunicazioni della Fed e della BCE e perché hanno ragione a giudicare opportuno uno stimolo di politica monetaria.
  • Tuttavia, mentre la BCE si prepara a un ulteriore allentamento, gli effetti collaterali negativi per le banche – e di conseguenza...
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Pubblicazione disponibile solo in inglese

  • Le ultime comunicazioni della Fed e della BCE e perché hanno ragione a giudicare opportuno uno stimolo di politica monetaria.
  • Tuttavia, mentre la BCE si prepara a un ulteriore allentamento, gli effetti collaterali negativi per le banche – e di conseguenza l’indebolimento dell’importantissimo meccanismo di trasmissione – si faranno sempre più problematici a causa della difficoltà di predisporre idonee misure di mitigazione.
  • Si impone quindi un ripensamento dello squilibrio politico. La principale sfida di Christine Lagarde sarà impiegare la sua esperienza generalista (in quanto contrapposta a un’esperienza specifica di politica monetaria), nonché la sua notevole levatura tra i leader politici, per aiutarli a formulare un migliore equilibrio a livello di agenda politica europea. Spiegherò sinteticamente come penso dovrebbe essere impostata l’agenda.
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- 15 Nov 2018  

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...
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  • 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 3.25-3.50% range in mid-2019 before falling back to 2.75% by year end, with the curve inverting. Pressure on core EGBs is likely to be limited. We expect BTP spreads to widen to 350-375bp in 1H19 due to high supply and political uncertainty, before easing back to 275bp later in the year.
  • FX: EUR-USD is likely to slip to 1.08 by mid-2019, reflecting the risk picture and the US-eurozone growth differential. A reversal back to 1.20 seems likely in 2020 as the Fed starts cutting rates. Sterling has room to rebound once Brexit-related uncertainty recedes. The JPY and the CHF will likely rise over a two-year horizon.
  • Equities: We expect 2019 to be a volatile – and mostly unattractive – year for equities. Our 2019 year-end index target for the Euro STOXX 50 is 3300, for the DAX 12000 and for the FTSE MIB 19800. 2019 will be dominated by a slowdown in earnings growth globally. We still consider consensus estimates to be too optimistic.
  • Credit: Investors should prepare for considerable spread widening in 2019 as there will be a slowdown in earnings alongside an economic deceleration. Credit fundamentals of European corporates are in better shape than those of US peers and a decline in issuance activity will partly offset the substantially reduced demand from the CSPP.
  • CEEMEA: EMFX should continue to perform poorly in trade-weighted terms given the deteriorating trend in global trade volumes, but EMFX-USD could get a lift along with EUR-USD in 2H19. EM credit will likely face pressure in 1H19 but some relief should be seen in 2H19 as the dollar eases and US yields come down.
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2019-20 Outlook: Abschwung in Sicht – defensive Anlagen bevorzugt

  • Macro: Das Wachstum der Weltwirtschaft dürfte sich 2019 weiter auf 3,4% abschwächen. 2020 sollte die USA in eine Rezession abgleiten und die globale Konjunktur dürfte sich noch stärker abkühlen. Die US-Notenbank Fed wird ihre Zinsen vermutlich im 1. Halbjahr 2019 weiter anheben, um 2020 ihre...
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  • Macro: Das Wachstum der Weltwirtschaft dürfte sich 2019 weiter auf 3,4% abschwächen. 2020 sollte die USA in eine Rezession abgleiten und die globale Konjunktur dürfte sich noch stärker abkühlen. Die US-Notenbank Fed wird ihre Zinsen vermutlich im 1. Halbjahr 2019 weiter anheben, um 2020 ihre Geldpolitik mit drei Zinssenkungen wieder zu lockern. Der EZB dürfte unterdessen gerade genug Zeit bleiben, um die Negativzinsen im 1. Quartal 2020 zu beenden, bevor sich das Wachstum in der Eurozone deutlich verlangsamt.
  • Staatsanleihen: Wir erwarten, dass die Renditen der 10-jährigen US-Treasuries Mitte 2019 bei 3,25% bis 3,5% ihren Höhepunkt erreichen. Bis zum Jahresende 2019 dürfte sich die Kurve invertieren und die Renditen sollten auf 2,75% zurückfallen. Der Druck auf europäische Staatsanleihen wird vermutlich begrenzt ausfallen. Wir rechnen im 1. Halbjahr 2019 aufgrund des hohen Angebots und der politischen Unsicherheiten mit einer Ausweitung der Renditeaufschläge für italienische Staatsanleihen auf 350 Basispunkte (Bp.) bis 375 Bp. Im weiteren Jahresverlauf sollten sie dann nachgeben auf 275 Bp.
  • Devisen: EUR-USD dürfte bis Mitte 2019 auf 1,08 fallen, wofür die Risikolage und die Wachstumsdifferenz zwischen den USA und der Eurozone verantwortlich sind. 2020 wird sich der Kurs vermutlich auf 1,20 erholen, wenn die Fed ihren Lockerungszyklus aufnimmt. Das Pfund Sterling könnte zulegen, sobald die Unsicherheiten im Zusammenhang mit dem Brexit nachlassen. Der japanische Yen und der Schweizer Franken werden über einen Zeitraum von zwei Jahren wohl zulegen.
  • Aktien: Wir rechnen damit, dass die Aktienmärkte 2019 von Volatilität geprägt und überwiegend unattraktiv sein werden. Unser Jahresendziel 2019 für den Euro STOXX 50 liegt bei 3.300, für den DAX erwarten wir 12.000 Zähler und der FTSE MIB sollte 19.800 Punkte erreichen. Das Jahr 2019 wird weltweit von einer Abschwächung des Gewinnwachstums dominiert werden. Wir schätzen die Konsenserwartungen immer noch als allzu optimistisch ein.
  • Unternehmensanleihen: Anleger sollten sich 2019 auf eine deutliche Ausweitung der Risikoaufschläge vorbereiten. Hierfür werden das langsamere Gewinnwachstum sowie die Abkühlung der Konjunktur ausschlaggebend sein. Die Fundamentaldaten europäischer Unternehmensanleihen befinden sich in einer besseren Verfassung als diejenigen ihrer US-Pendants. Ein Rückgang der Emissionsaktivitäten wird den erheblichen Rückgang der Nachfrage seitens des CSPP vermutlich teilweise aufwiegen.
  • CEEMEA: Da der Welthandel abflaut, dürften die handelsgewichteten Devisen der Schwellenländer auch künftig eine schwache Performance erzielen. Im 2. Halbjahr 2019 sollten die Schwellenländerwährungen im Vergleich zum US-Dollar gemeinsam mit EUR-USD Auftrieb bekommen. Unternehmensanleihen aus Schwellenländern werden im 1. Halbjahr 2019 vermutlich unter Druck geraten. Im 2. Halbjahr könnte indes eine gewisse Entlastung bevorstehen, wenn der Greenback und die US-Renditen nachgeben.
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The Unicredit Economics Chartbook - 27 Jun 2019

Monetary easing in the pipeline (3Q19)

  • Global: We are slightly lowering our global growth forecast for this year to 3.1% from 3.2% while maintaining our estimate of 2.7% growth in 2020. The downward revision reflects higher macroeconomic uncertainty in the form of renewed trade tensions between the US and China. In our baseline scenario,...
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  • Global: We are slightly lowering our global growth forecast for this year to 3.1% from 3.2% while maintaining our estimate of 2.7% growth in 2020. The downward revision reflects higher macroeconomic uncertainty in the form of renewed trade tensions between the US and China. In our baseline scenario, we assume there will be another round of trade talks; this might reduce tensions, although uncertainty will continue to linger. The risks to our global growth forecasts are now more skewed to the downside.
  • US: Economic growth has peaked, and the descent towards a recession in 2020 has begun. Following a solid start to the year, momentum slowed in the spring and is likely to continue to do so in the coming quarters. Renewed trade tensions have increased the risk that a recession will begin even earlier than we have projected. Heightened uncertainty surrounding the economic outlook in the US, coupled with lower inflation rates and volatile financial markets, has caused a dramatic shift in the US monetary-policy outlook. We are bringing forward our forecast for the first 25bp rate cut to September 2019 and now expect a total of four 25bp cuts in the cycle, instead of three.
  • EMU: We confirm our GDP growth estimates of 1.0% for both 2019 and 2020, amid ongoing decoupling of a struggling manufacturing sector and more-resilient services activity. ECB President Mario Draghi’s rhetoric has turned very dovish in response to “pervasive” uncertainty, which has amplified downside risks to the eurozone’s economic outlook, and the rising likelihood of front-loaded Fed easing. We now expect the ECB to cut the deposit rate by 10bp in September and to implement mitigating measures to support the profitability of banks. Additional easing is likely to occur sometime around the turn of the year, probably via a reactivation of quantitative easing.
  • CEE: Following a strong 1Q19, GDP growth is likely to slow gradually amid weaker credit and fiscal impulses and looser labor market conditions. We expect EU-CEE1 to grow by 3.6% in 2019 and below potential (2.8%) in 2020, while the western Balkan economies will likely expand by around 3% in 2019 and by 2.5% in 2020. Turkey’s economy has probably shrunk again in 2Q19 but could exit recession if it secures financial support later this year. In Russia, a likely technical recession in 1H19 may be followed by muted recovery in 2H19 and 2020. Inflation could miss targets this year in Hungary, Romania, Turkey and Russia and could return to target range in 2020 in all countries but Turkey if oil prices fall and the EUR appreciates. EU-CEE central banks are expected to remain on hold in 2019-20 due to the dovish turn by the ECB and the Fed, weak growth prospects and a lack of time to avoid inflation peaks. We expect the CBR to reduce its policy rate to 6.5% by mid-2020, and the CBRT to cut to 16.5% this year and 13% next year if external support is secured.
  • UK: Underlying economic activity is likely to remain subdued, and we are lowering our forecast for annual GDP growth this year by 0.1pp to 1.3%, while keeping our 2020 forecast unchanged at 0.9%. Stockpiling ahead of the original Brexit date has generated substantial quarterly volatility and will likely cause growth to flat-line in 2Q19. While Brexit uncertainties have increased, we still expect the UK to leave the EU with a deal, possibly requiring another extension. The next BoE move will likely be a cut in 1Q20, followed by two more later that year.
  • China: We are sticking with our GDP growth forecasts of 6.2% in 2019 and of 5.9% in 2020. The multifaceted policy stimulus adopted by Beijing at the turn of 2018 has fed through to the economy and should stabilize growth for the rest of the year, particularly if Beijing and Washington decide to return to the negotiating table. Should trade tensions with the US escalate instead, we expect the Chinese government to respond by easing credit further and depreciating the currency.

1EU-CEE includes all CEE countries that are members of the EU: Bulgaria, Croatia, Czechia, Hungary, Poland, Romania, Slovakia and Slovenia.

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CEE Quarterly - 27 Jun 2019

Central banks fighting the downturn (3Q19)

  • Economic growth is likely to slow in CEE after a strong 1Q19 due to weaker eurozone, US and global trade growth.
  • EU-CEEis likely to grow by 3.6% in 2019 and below potential (2.8%) in 2020. Western Balkans are likely to perform slightly worse, with growth around 3% in 2019 and 2.5% in 2020.
  • Turkey’s...
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  • Economic growth is likely to slow in CEE after a strong 1Q19 due to weaker eurozone, US and global trade growth.
  • EU-CEEis likely to grow by 3.6% in 2019 and below potential (2.8%) in 2020. Western Balkans are likely to perform slightly worse, with growth around 3% in 2019 and 2.5% in 2020.
  • Turkey’s economy probably contracted again in 2Q19 but could exit recession at the turn of the year if it secures financial support. A deeper recession is in the cards otherwise.
  • In Russia, a likely technical recession in 1H19 may be followed by a muted recovery in 2H19 and 2020.
  • Throughout CEE, domestic demand could slow gradually amid weaker credit and fiscal impulses and the gradual easing of labor market conditions.
  • Inflation could miss the target this year in Hungary, Romania, Turkey and Russia, returning to the target range in 2020 in all countries but Turkey if oil prices fall towards USD 60/bbl and the EUR appreciates.
  • EU-CEE central banks are expected to remain on hold in 2019-20 due to the dovish turn of the ECB and the Fed, weak growth prospects and no time to avoid inflation peaks.
  • We expect cuts from the CBR to 6.5% by mid-2020 and from the CBRT to 16.5% this year and 13% next, provided external support is secured.
  • Market exuberance amid dovish core central banks favors FX bonds. Our top picks are ROMANI EUR, POLAND EUR and RUSSIA USD.
  • EU-CEE local-currency bonds need a strong EUR story. Both short and long-term rates in Russia are attractive amid an expected bull-flattening of the curve.
  • Turkey is a binary trade, depending on how authorities handle political and economic risks. A positive scenario would see a large rally in TURKEY FX bonds and short-term rates.
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Rates Perspectives - 10 Jul 2019

BTPi breakeven curve: Too flat and too low

  • BTPis have missed the last leg of the BTP rally and, as a result, now trade at real yields that are very close to the nominal curve.
  • While investors are concerned that Italian inflation may be negatively affected by weak economic growth, current breakeven levels are well below our economists’...
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  • BTPis have missed the last leg of the BTP rally and, as a result, now trade at real yields that are very close to the nominal curve.
  • While investors are concerned that Italian inflation may be negatively affected by weak economic growth, current breakeven levels are well below our economists’ forecasts.
  • We show how BTPis in the five-year area would fare in different inflation and real-yield scenarios. This analysis suggests that BTPis are likely to outperform nominal BTPs in most cases.
  • We expect Italy to sell a new BTPi in November. A successful sale is likely to support the asset class as a whole, through a liquidity effect.
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FX Perspectives - 08 Jul 2019

PLN and REER equilibrium: As cheap as it gets?

  • We attempt to model the PLN real effective exchange rate using longer-term structural macroeconomic variables. Government debt, net foreign assets, investment spending, real interest rate differentials and share of exports to the eurozone all appear to be important factors influencing long-term...
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  • We attempt to model the PLN real effective exchange rate using longer-term structural macroeconomic variables. Government debt, net foreign assets, investment spending, real interest rate differentials and share of exports to the eurozone all appear to be important factors influencing long-term valuation.
  • Our models indicate that the PLN is currently undervalued by about 5% on a real exchange rate basis. Historically, this is extreme, suggesting the currency appears exceptionally cheap. This calls for medium-term bullish exposure.
  • That said, timing is key. The PLN has been undervalued since 2015, around the time when global growth slowed down and following the NBP reducing the policy rate to 1.50%.
  • We examined a number of variables to attempt to identify the factors that have driven this wedge. Our results suggest that survey indicators of global manufacturing sentiment likely matter more than the PLN’s real rate advantage, which has become less of a driver since 2012. We will be closely monitoring trends in German manufacturing business expectations.
  • Bottom-line: The Polish zloty appears extremely cheap at current levels, warranting bullish exposure. That said, an improvement in global growth sentiment, especially for German manufacturers, would need to be seen for the PLN to appreciate. The PLN’s rising real rate advantage (as some of its trading partners ease policy) will likely prove insufficient.
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