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Eurobank Global Macro Themes & Market Implications for the EA Periphery and the CESEE (June 2019)

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Eurobank Global Macro Themes & Market Implications for the EA Periphery and the CESEE (June 2019)

 Please find herebelow* the link of our Eurobank Global Macro Themes & Market Implications for the EA Periphery and the CESEE. It provides an insight of the latest global economic and market developments, focusing on the prevailing macro themes and their implications on the EA peripheral economies and the CESEE region.

Summary
The global economic outlook has worsened lately, dragged down by uncertainty amid escalating US/China trade tensions and prolonged Brexit-related woes.
Central banks’ dovish shift, combined with healthy labor markets and personal consumption in major economies, are expected to underpin the global economy

Macro Picture
• USA: Weakness in globally-exposed economic data, while domesticallyoriented indicators remain solid
• EA: Weaker economic data and increased economic uncertainty point to slower growth in 2019
• UK: Q2 GDP growth is expected to slow mainly due to unwinding of Brexit related stockpiling seen in the prior quarter
• EM: Economic growth is set to continue in 2019, but at slower pace compared to 2018
• CESEE: The broader region remains resilient to the deterioration of the world growth outlook

Policy Outlook
• USA: First rate cut most likely in July, with a total of 50-75bps of cumulative rate cuts in H2 2019
• EA: First deposit rate cut likely in September; Deposit tiering and QE relaunch are also possible
• UK: The BoE is expected to stay on put on rates awaiting more clarity on the domestic political and global outlook
• CESEE: ECB’s recent dovish tone provides regional central banks with time to battle inflationary
pressures

Markets
• FX: Currency wars on the back of trade wars led to a lower USD in June. But with central banks across the globe joining the dovish chorus, a renewed USD uptrend cannot be ruled out completely
• Rates: The drop in yields across the globe continued as dovish comments/statements by major central banks were the key drivers, pushing 10yr USTs below 2.0% and the German curve to negative levels
all the way to the 17 years tenor
• EM: Central banks to the rescue of EM credit as they boost the “hunt for yield”. Even negative idiosyncratic stories like Turkey and Mexico were not enough to halt buying pressure in June
• Credit: Tighter spreads and lower yields despite a busy primary market. Talk of a new CSPP by the ECB is the main highlight for EUR credit. Idiosyncratic stories on the rise especially in the high yield space

Key Downside Risks
• Renewed escalation of trade war: Re-escalation of USChina trade dispute; the US imposes EU auto tariffs
• Increased EU political uncertainty: Delay in the formation of consensus in the European Parliament for the appointment of the next European Commission President; renewed confrontation between Italy and the European Commission
• No-deal Brexit: The next Conservative Party leader is more open to a no-deal Brexit; the UK House of Commons fails to reach consensus on Brexit by the 31 October deadline and the EU leaders do not agree to delay Brexit further
• EM sensitivity: Should the US-Sino trade war continue to linger, EM’s economic growth could be hampered
• China: In case of further tariffs escalation, domestic demand may weaken

*The link: 

file:///C:/Users/john/Downloads/Global%20Macro%20Themes%20%20Market%20Implications%20for%20the%20EA%20Periphery%20and%20the%20CESEE_June%202019-FINALi.pdf

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