Macro Insights

Paris, 13/02/17


Global normalisation of monetary policies looms; European politics still a concern

  • We still  expect the first Fed hike in June. Fed Chair Yellen will deliver the first of her two-legged semi-annual monetary testimonies on 14-15 February. This would be the last chance for the Fed to shift market expectations ahead of its March meeting. However, with broader policy uncertainty remaining high and data solid, but not urgent, we do not expect such a signal this week. We maintain our outlook for the first hike this year in June.
  • All eyes on inflation in the UK. UK January CPI inflation might return to the Bank of England target (2.0%) in the upcoming release on Tuesday. On balance, we think we will have to wait until the following month. Unemployment and retail sales are also due this week and will help shape the outlook for Q1 GDP. Survey evidence suggests another solid quarter’s growth and we forecast +0.5% on the strength of this. 
  • Growth momentum confirmed in the Euro area. December industrial production data released last week surprised to the downside for France (-0.9% m-o-m vs consensus -0.7%) and Germany (-3% m-o-m vs consensus +0.3%). Meanwhile on the other hand, Italian IP surprised sharply to the upside (+1.4% m-o-m vs consensus -0.1%) and we believe there is an upside risk to Euro area Q1 GDP growth.
  • ECB tapering and politics at the heart of concerns. Fears of tapering have been weighing on peripheral spreads. In addition, uncertainty from the French presidential race and risk of early elections in Italy have pushed spreads above 70bps and 190bps respectively for France and Italy.
  • EMs also leaning towards end of accommodative monetary policies. The Mexican central bank surprisingly raised its key interest rate by 50bps to 6.25% on growing concerns about inflation and has resumed its pre-emptive tightening stance. We revise our interest rate call to 7.25% by year end (from 6.5% previously). The Reserve Bank of India (RBI) turns “policy neutral” and kept its policy rate unchanged at 6.25% against expectations of a cut. The central bank paid more attention to the persistent core inflation, as opposed to falling headline CPI. Nevertheless we think the risk of a rate cut, albeit much reduced, remains for H2, as the RBI could be proved to be too optimistic on growth and inflation.

Events coming up:

US: Fed Chair Yellen testimonies (Tuesday and Wednesday) and data releases (Fed Business surveys, retail sales, industrial production and CPI)

UK : CPI (Tuesday), unemployment (Wednesday), retail sales (Friday)

Euro area: ECB minutes (Thursday), HCPI for Germany and Italy, December industrial production for Euro area, 2016Q4 GDP growth for Italy

Market and asset types measured by the following indices: Equities = MSCI. Fixed Income = JP Morgan and BofAML. 


The Research & Investment Strategy (R&IS) team at AXA Investment Managers present their views on recent developments and the factors shaping markets over the week ahead. For more information on the R&IS team or any of the above comments, please contact us or follow us on social media for updates throughout the week



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