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Chief Economist's Comment - 10 Nov 2019    

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...
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  • 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”.
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Sunday Wrap: Kurzzusammenfassung

Publikation nur auf Englisch verfügbar

  • Den Aufruf von Bundesfinanzminister Olaf Scholz, die europäische Integration durch die Vollendung der Europäischen Bankenunion zu vertiefen, und
  • Den Beitrag des ungarischen Notenbankgouverneurs Gyorgy Matolcsy, in dem er den Euro als „schädlichen und fruchtlosen...
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Publikation nur auf Englisch verfügbar

  • Den Aufruf von Bundesfinanzminister Olaf Scholz, die europäische Integration durch die Vollendung der Europäischen Bankenunion zu vertiefen, und
  • Den Beitrag des ungarischen Notenbankgouverneurs Gyorgy Matolcsy, in dem er den Euro als „schädlichen und fruchtlosen Traum“ bezeichnet, als „Falle“, aus der „wir einen Ausweg finden müssen“.
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Sunday Wrap: Breve riassunto

Pubblicazione disponibile solo in inglese

  • La richiesta del ministro delle finanze tedesco Olaf Scholz di maggiore integrazione europea attraverso il completamento dell'Unione bancaria europea e:
  • L’articolo del governatore della banca centrale ungherese Gyorgy Matolcsy in cui definisce l'euro un "sogno...
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Pubblicazione disponibile solo in inglese

  • La richiesta del ministro delle finanze tedesco Olaf Scholz di maggiore integrazione europea attraverso il completamento dell'Unione bancaria europea e:
  • L’articolo del governatore della banca centrale ungherese Gyorgy Matolcsy in cui definisce l'euro un "sogno dannoso e infruttuoso"; una "trappola" da cui "dobbiamo trovare il modo di liberarci".
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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 - 25 Sep 2019

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...
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  • 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 maintaining our 2020 growth forecast of 2.7% (2018: 3.6%). Weakness is currently concentrated in the euro area, the UK and China, although we continue to expect the main drag on growth over the forecast period to come from the US as its economy slows. Our downward revision reflects two major developments: 1. trade tensions have intensified; and 2. the near-term outlook is slightly weaker than we had anticipated. Market expectations of monetary policy have eased in response, but broad financial conditions are similar to what they were three months ago. Risks are skewed towards a more-frontloaded and sharper downturn.
  • US: We confirm our GDP growth forecasts of 2.2% in 2019 and of 0.7% in 2020, with quarterly growth projected to slow to below potential during the second half of the year and to be followed by a mild recession in 2020. Currently, the major drivers of growth are private and public consumption, but the fiscal stimulus will progressively fade. Manufacturing, business investment and exports are weak, reflecting the intensification of trade tensions and slower global growth. Payroll gains have eased. An expected squeeze in profit margins will likely stretch weak corporate balance sheets. Headline and core PCE inflation remain well below 2%, likely due in part to temporary factors. We expect the Fed to cut rates by 25bp in December, 1Q20 and 2Q20 (i.e. well below the present “dots”), reflecting our forecast that US growth will be slower than the Fed expects.
  • Eurozone: The economy remains weak, pulled down primarily by Germany and Italy, with GDP growth set to average 1.2% this year and 0.9% in 2020. The latest indicators signal rising risk that the manufacturing recession might start spilling over into the services and construction sectors, which have shown resilience so far. The ECB’s package of stimulus measures will provide long-lasting accommodation via compression of the term premium, while tiering and more-appealing conditions of TLTRO-III should bring relief to banks and contribute to preserving a smooth transmission of monetary policy. The ECB is now likely to remain on hold well into Christine Lagarde’s term, which begins on 1 November.
  • CEE: Economic growth is likely to hover at 1.7% in 2019 and 2020. Excluding Turkey, which is expected to exit recession next year, and Russia, where growth could stay below 1.5%, GDP growth in CEE may decline to around 2.8% in 2020  and thus fall below potential for the first time since the global financial crisis. External risks are expected to drive the slowdown, which should gradually affect employment, wage growth and consumer spending. Credit and fiscal impulses, as well as large inflows of EU funds, will not be sufficient to reverse the downturn. Central European central banks will likely have to remain on hold due to inflation being above-target for most of 2020. The central banks of Russia and Turkey are expected to cut interest rates further, to 5.75-6% and 13.5% respectively. 
  • UK: We expect either a Brexit deal or an extension to be agreed by 31 October, although uncertainty surrounding the Brexit process will last for years and will inevitably flare up during an early election, which is likely to be held in November or early December of this year. The underlying pace of UK growth has slowed. Even assuming an orderly Brexit, we project below-trend growth of 1.1% in 2019 and of 0.8% in 2020. A no-deal Brexit would likely lead to a significant fall in UK output. We expect the BoE’s MPC to cut the bank rate to zero in 2020 amid a slowdown in global growth. In the event of a no-deal Brexit, the MPC would likely cut rates to zero much more swiftly.
  • China: We are sticking with our GDP growth forecasts of 6.2% in 2019 and 5.9% in 2020. High-frequency indicators still point to sluggish domestic and external demand as renewed trade tensions continue to weigh on business and market sentiment. Beijing is expected to continue to use a mix of monetary and fiscal policies to maintain reasonably high GDP growth, while triggering the depreciation of the CNY will likely remain an option of last resort in a scenario of heightened trade tension with the US.
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CEE Quarterly - 25 Sep 2019  

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...
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  • 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 woes will drive the slowdown, with weakness gradually seeping into investment, employment, wage growth and private consumption.
  • Public policies became more inefficient in CEE as monetary stimulus from the ECB and Fed eased investor scrutiny. This is likely to change if global growth risks come to the fore.
  • Despite a potential breach of inflation targets in 1Q20, we expect central European central banks to remain on hold in 2019-20. The NBS is likely to keep rates on hold as well.
  • The CNB could be the first EU-CEE central bank to cut rates, while monetary stimulus will continue in Hungary at the expense of the HUF if economic growth weakens further.
  • We expect the CBRT to cut the real interest rate to zero before year-end. The CBR has room to lower the key rate to 5.75-6% by the end of 2020.
  • ECB’s QE may help anchor yields and extend debt maturity in CEE. We do not expect an increase in foreign holdings of CEE bonds.
  • We continue to prefer ROMANI EUR and RUSSIA USD in the credit space. OFZ, SERBGBs and ROMGBs may be more stable if risk appetite wanes.
  • CEE bonds (excluding Turkey) are likely to outperform other EM bonds in a risk-off scenario.

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

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Qualitative Lockerung (4Q19)

Übersetzung der englischen Originalversion vom 25. September 2019

  • Das Wirtschaftswachstum wird in den CEE-Ländern unter dem Potenzial bleiben und 2019 und 2020 bei 1,7 % liegen. Die Türkei dürfte aus der Rezession herauskommen, was aber durch ein schwächeres Wachstum in den EU-CEE-Ländern...
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Übersetzung der englischen Originalversion vom 25. September 2019

  • Das Wirtschaftswachstum wird in den CEE-Ländern unter dem Potenzial bleiben und 2019 und 2020 bei 1,7 % liegen. Die Türkei dürfte aus der Rezession herauskommen, was aber durch ein schwächeres Wachstum in den EU-CEE-Ländern ausgeglichen wird. 1
  • Das BIP-Wachstum in den EU-CEE-Ländern könnte sich von 3,8 % im Jahr 2019 auf 2,8 % im Jahr 2020 verlangsamen und damit zum ersten Mal seit einem Jahrzehnt unter das Potenzial fallen.
  • Die westlichen Balkanländer sind anfälliger für Angebotsschocks, und die wirtschaftliche Konvergenz könnte 2020 vorübergehend ausgesetzt werden.
  • Externe Probleme werden die Verlangsamung vorantreiben, wobei die Schwäche allmählich Investitionen, Beschäftigung, Lohnwachstum und den privaten Konsum erfasst.
  • Der Einfluss der öffentlichen Politik in den CEE-Ländern wurde von den monetären Impulsen der EZB und der Fed überlagert, die dazu beitrugen, die Bedenken der Anleger zu verringern. Dies dürfte sich ändern, wenn die globalen Wachstumsrisiken in den Vordergrund treten.
  • Trotz einer möglichen Verletzung der Inflationsziele im 1Q20 erwarten wir, dass die zentraleuropäischen Zentralbanken 2019-20 eine abwartende Haltung einnehmen werden. Die NBS wird die Leitzinsen voraussichtlich ebenfalls unverändert lassen.
  • Die CNB könnte die erste EU-CEE-Zentralbank sein, die die Zinsen senkt, während die monetären Impulse in Ungarn auf Kosten des HUF anhalten werden, wenn sich das Wirtschaftswachstum weiter abschwächt.
  • Wir erwarten, dass der CBRT den Realzins bis zum Jahresende auf Null senkt. Die CBR hat einen Spielraum, den Leitzins bis Ende 2020 auf 5,75-6% zu senken.
  • Die Anlagenkäufe der EZB können dazu beitragen die Renditen zu verankern und die Fälligkeit der Verbindlichkeiten in CEE zu verlängern. Wir erwarten keinen Anstieg der Auslandsbestände an CEE-Anleihen.
  • Unter den Anleihen bevorzugen wir weiterhin ROMANI EUR und RUSSIA USD. Falls die Risikobereitschaft nachlässt, könnten OFZ, SERBGBs und ROMGBs stabiler sein.
  • CEE-Anleihen (ohne Türkei) dürften sich in einem Risk-Off-Szenario besser entwickeln als andere EM-Anleihen.

1Die EU-CEE umfasst Bulgarien, Kroatien, Tschechien, Ungarn, Polen, Rumänien, die Slowakei und Slowenien, alles CEE-Länder, die Mitglieder der EU sind.

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Rates Perspectives - 04 Nov 2019

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...
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  • 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 accounts for 40-70bp of the compression in the term premium.
  • Term premiums at historical lows (and even negative) reduce the appeal of long term fixed income securities. This is especially the case in jurisdictions where the likelihood of a decline in rate expectations is limited, such as the eurozone.
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FX Perspectives - 23 Jul 2019

HUF: No, it´s not undervalued

  • In this note, we consider a macro fundamentals-based equilibrium exchange rate model for the trade-weighted real effective exchange rate (REER) of the Hungarian forint.
  • We find that variables such as productivity (compared to the eurozone), net foreign direct investment and government debt (both...
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  • In this note, we consider a macro fundamentals-based equilibrium exchange rate model for the trade-weighted real effective exchange rate (REER) of the Hungarian forint.
  • We find that variables such as productivity (compared to the eurozone), net foreign direct investment and government debt (both expressed as a percentage of GDP), terms of trade (TOT) as well as real interest rate differentials (RIR) help explain past movements in the HUF REER.
  • Overall, we devise four different model specifications that suggest the HUF real exchange rate is between 2% below and 1% above its equilibrium rate.
  • This contrasts with some prevailing views that the forint is somewhat undervalued. Declining productivity growth (compared to its trading partners) has been an important driver weighing on the currency’s equilibrium value.
  • While the models signal that the currency is close to equilibrium, we find that past deviations from equilibrium are reasonably well correlated to Hungary’s interest rate differential against its main trading partners and – more recently – indicators of global growth sentiment.
  • Conclusion: We find that the HUF is more or less fairly valued, in contrast to the views of some market participants that the currency is undervalued. Over the longer term, an improvement in productivity could see the fair value improve over time. On a multi-quarter basis, we believe the stance of NBH monetary policy and global growth will be more important for the value of the currency.
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