• Current Reports  

    Published on April 17th, 2014

    The 19th century French statesman Talleyrand once said “in order to avoid being called a flirt, she always yielded easily”. The same cannot be said of the ECB which in recent months has been teasing the market by talking a big game, but delivering relatively little. Like Jürgen Stark in Tuesday’s Financial Times, you could argue that the ECB’s job is mostly done: bond spreads have retreated from crisis levels, equity markets have roared back, the fall in inflation is mostly linked to southern Europe’s productivity improvements and the pullback in commodity prices, PMI surveys are on the up… On the other hand you could just as easily point to the record high number of jobless across the eurozone, the absence of export growth (which usually accompanies recessions) and the dangerous proximity of deflation, to argue that the ECB needs to do a lot more...
    Published on April 17th, 2014

    Even though Portuguese bonds have returned investors a 45% gain over the last year, this paper argues that they should stay long. The 10-year maturity still offers the second highest yield in the eurozone at about 3.65%. That amounts to a 220bp premium over bunds and 60bp above Spanish bonos. Although the dramatic improvement in European financial conditions stems largely from European Central Bank promises to support the euro system, Lisbon’s response to the crisis has been impressive—Portugal has not only hit Troika fiscal targets, but beaten them. The case to stay long Portuguese assets is that early promise can be turned into sustained recovery...
    Published on April 16th, 2014

    China’s top policymakers have spent the past week preparing the public for today’s weak GDP reading—a rise of 7.4% in 1Q14—by emphasizing that as long as enough jobs are being created, it doesn’t matter if growth is a bit below the 7.5% official target. This is a laudable attempt to wean the system off its obsession with GDP numbers and get officials to focus on more relevant indicators. And since the pace of job creation has slowed less than overall GDP, there is little chance that employment will fall short. The official target of 10mn new urban jobs this year—an increase from the 9mn goal for 2013—should be easily achieved, given that more than 11mn jobs have been created each year since 2006. A focus on the jobs target rather than the GDP target therefore conveniently supports the government’s preference for “fine-tuning” economic policy over yet another debt-financed stimulus...
    Published on April 16th, 2014

    In the latest bi-weekly review of global economics and investment, Charles Gave explains why it still pays to run a balanced portfolio, despite the market’s rotation. Will Denyer argues that outlook for US consumption remains favorable, even though consumer cyclicals have taken a beating. François-Xavier Chauchat examines the reasons behind the euro’s persistent strength. Andrew Batson looks at Beijing’s new focus on jobs and finds the indicators inadequate. And Udith Sikand and Joyce Poon argue that Asian dollar bonds are still more attractive than carry trades...
    Published on April 16th, 2014

    By reporting the relatively low figure of a 7.4% rise in first-quarter gross domestic product, down from 7.7% in the previous quarter, China has confirmed that the current pace of economic expansion is now roughly as weak as it was during previous downturns in 2008 and 2012. While the headline number was better than market expectations, and growth clearly picked up a little in March from the lows of January and February, there are worrying signs. The most serious is the continued deflationary pressure shown by the further slowdown in nominal GDP growth, to 7.9% in Q1 from 9.7% in Q4. Set against that, however, are the solid growth in household incomes—which at 8.6% real growth in Q1 are rising faster than GDP—and the continued strength of the job market. But this latest set of data is unlikely to generate the familiar debate over whether China should stimulate...