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16/02/17
Europe
ECB – defending the old ground

While we don’t think we’re on the cusp of persistently fast Eurozone inflation, the ECB’s price forecasts materially understate the…

10/02/17
Europe
Alive and kicking

Europe faces key elections this year. Uncertainty about the outcomes with the possibility of populist parties winning is driving up…

09/02/17
Global
UK – Kafka’s Castle

Brexit is about to begin in earnest. Yet the paucity of detail in the UK government’s White Paper betrays the…

Europe: ECB – defending the old ground

While we don’t think we’re on the cusp of persistently fast Eurozone inflation, the ECB’s price forecasts materially understate the impact of current trends. While that’s fine for now, by the time the ECB’s current asset purchase programme expires, changes to the medium-term inflation outlook will warrant a more hawkish appraisal. Short-rates look too low on that basis. This should also continue to feed into higher long-term rates. We remain short bunds and Italian and Irish 10yr bonds. This will also become positive for the euro at a time when the supremacy of the US dollar is at risk from the uncertainties of Trumpism.

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Europe: Alive and kicking

Europe faces key elections this year. Uncertainty about the outcomes with the possibility of populist parties winning is driving up EZ bond yields. In particular is the fear that Front National Marine Le Pen could win in France. We don’t think will happen and the pro-EU centre will prevail. Don’t short French bonds. The EU and the EZ are alive and kicking!

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Global: UK – Kafka’s Castle

Brexit is about to begin in earnest. Yet the paucity of detail in the UK government’s White Paper betrays the weakness of its negotiating position. The EU will want to make it hurt. Amid this uncertainty, the UK economy’s dependence on household consumption will be sorely tested. Rising inflation in response to earlier GBP-weakness is already eating into purchasing power. The overly-sanguine Bank of England could quickly find itself in a serious policy bind. We expect sterling to resume its slide against both the dollar and the euro. A move to parity against the euro is on the cards for 2018. The UK yield curve should also continue to steepen.

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