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Economics ResearchEconomics Products: Absolute Strategy Weekly, Economics Quarterly, Newsflow Monitor.
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Multi-Asset: 1.6% QE-free Bund yields
• The ASR/WSJ Global Composite Newsflow Indicator (CNI) of macro activity fell further in June to stand at 54.7, compared with a 57.0 reading in May. Global CNI readings of around 50 have tended to be associated with stock returns keeping pace with bond returns on a year-on-year basis (see Chart 1). The Global CNI experienced its third +1 standard deviation fall in as many months. But it is yet to reach levels consistent with a negative equity-to-bonds return ratio.
• Our proprietary NewsFlow indicators are created by searching the Dow Jones Factiva database for ‘positive’ and ‘negative’ macroeconomic news stories, counting them, and then calculating the difference (the ‘net’ news flow). The searches are done in English, so the global series will be dominated by stories from and about the Anglo sphere. But they still capture global trends well.
• The Global CNI is built up from six sub-indices – see Charts 2-7 on pages 2 & 3. The inflation sub-index remains the biggest drag on the composite series, having now fallen 53 points since the start of the year (Chart 6). In contrast, the Labour Market NewsFlow still shows above-trend readings (Chart 5). And, despite several hawkish central bank speeches during June, the Monetary Policy NewsFlow suggests media sentiment was generally more dovish, compared with previous months (Chart 7).
• A number of regional NewsFlow indicators experienced negative falls, deviating from their coincident indicators, the regional equity-to-bond returns ratio (Charts 8-12).
• Our Uncertainty NewsFlow drivers show that politics, specifically elections has kept policy uncertainty high, even as uncertainty around protectionism or tax policy has fallen away (Charts 50-53).
Multi-Asset: EM asset/FX correlations: changes and constants
We continue to expect the global economy to slow in 2H17 as the stimulus China fades. As mediocre growth resumes, attention could turn to secular themes. We look at three in this Quarterly. First, why is wage growth still so weak? Second, is deeper integration in the eurozone achievable? And third, can the eurozone’s cyclical upswing become something more sustained?
Our central scenario: “Reflation fades”
• We continue to expect slower global growth in 2H17
• Tighter financial conditions in China are set to be central to this trend
• With US fiscal stimulus hopes fading, there is little policy offset elsewhere
• Tepid wage growth suggests risks to inflation are becoming tilted down
PODCAST: Click here to hear a briefing by Dom
The changing behaviour of labour markets
• Labour markets have behaved atypically during this cycle
• The recovery has been ‘employment-rich’, yet wages have been sluggish
• Technology seems to be helping alter traditional working arrangements
• This might lower NAIRUs and reduce the sensitivity of wages to the cycle
PODCAST: Click here to hear a briefing by Dom
‘More Europe’: lost in translation
• Recent events have renewed the appetite for more eurozone integration
• Yet the impact of the current proposals could fall short of what is required
• And differences in economic philosophy hamper efforts at compromise
• We doubt real progress will be achieved, leaving the bloc vulnerable
PODCAST: Click here to hear a briefing by Michael
The eurozone: exploring the possibilities for potential
• Employment, rather than productivity, has driven the eurozone recovery
• If productivity growth doesn’t pick up, the region could hit a ‘speed limit’
• Unless regulatory reform & new technologies boost productivity …
• … slow trend growth could leave the bloc vulnerable to higher real rates
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