Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Macro Brief: there was good news and bad news
Christopher Dembik
Head of Macroeconomic Research
Summary: Amid heightened focus on growth in both the Eurozone and in China, one of the most pressing issues is how will the ECB elaborate on its TLTRO plans.
Concerns about growth in the Eurozone increased yesterday as the Sentix expectations survey reached its lowest level since Q3 2012, at minus 15.6. This indicator tends to lead the real economy by 6 months, which is another confirmation that growth is doomed to decelerate further in the euro area adding pressure on the European Central Bank to stimulate the economy more and more.
On the other side of the world, China has added further stimulus. The government plans to cut the VAT rate that covers the manufacturing sector by three percentage points. This is only one measure among many others to offset the current negative economic trend. As economic data remains bad, we expect that China will announce more such measures in the coming weeks.
However, as we all know, the current focus is more on the central banks from developed countries, especially the European Central Bank. Markets should be rather quiet in coming days, waiting for insights regarding a new round of targeted longer-term refinancing operations in the euro area. In our view, the ECB's governing council should refrain from giving a lot of detail concerning the calendar as there are still some technical issues to resolve. Focus should be on forward guidance – “lower for longer” – to reassure investors.
In the short term, we will have plenty of economic data to monitor. There is no much to expect from ISM non-manufacturing, which is still broadly well-oriented in the US, contrary to ISM manufacturing.
Elsewhere, Eric Rosengren and Neel Kashkari, board members of the Federal Open Market Committee, are due to speak this afternoon about the macroeconomic outlook and monetary policy. We will pay attention to the remarks from Kashkari who is, in our point of view, one of the best US economists. He has been saying for several months that the Fed would face great difficulties in raising interest rates. His speech will certainly provide some food for thought.
Today's Calendar (All times GMT)
03:30 Australia, RBA Overnight Rate
07:30 Switzerland, CPI
08:50 France, Services PMI
08:55 Germany, Services PMI
09:00 Eurozone, PMI indices
15:00 US, ISM non-manufacturing index
On the other side of the world, China has added further stimulus. The government plans to cut the VAT rate that covers the manufacturing sector by three percentage points. This is only one measure among many others to offset the current negative economic trend. As economic data remains bad, we expect that China will announce more such measures in the coming weeks.
However, as we all know, the current focus is more on the central banks from developed countries, especially the European Central Bank. Markets should be rather quiet in coming days, waiting for insights regarding a new round of targeted longer-term refinancing operations in the euro area. In our view, the ECB's governing council should refrain from giving a lot of detail concerning the calendar as there are still some technical issues to resolve. Focus should be on forward guidance – “lower for longer” – to reassure investors.
In the short term, we will have plenty of economic data to monitor. There is no much to expect from ISM non-manufacturing, which is still broadly well-oriented in the US, contrary to ISM manufacturing.
Elsewhere, Eric Rosengren and Neel Kashkari, board members of the Federal Open Market Committee, are due to speak this afternoon about the macroeconomic outlook and monetary policy. We will pay attention to the remarks from Kashkari who is, in our point of view, one of the best US economists. He has been saying for several months that the Fed would face great difficulties in raising interest rates. His speech will certainly provide some food for thought.
Today's Calendar (All times GMT)
03:30 Australia, RBA Overnight Rate
07:30 Switzerland, CPI
08:50 France, Services PMI
08:55 Germany, Services PMI
09:00 Eurozone, PMI indices
15:00 US, ISM non-manufacturing index
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