Perspectives Pictet

As we had expected, the Fed raised short-term interest rates yesterday for the first time in almost a decade, increasing the target range for the federal funds rate by 25 basis points to 0.25-0.50%. The Fed has finally moved interest rates up from their historic lows. Market reaction has been muted, since the much-trailed hike was fully priced in across asset classes. But, as we have long stressed, attention will now shift to the pace and timing of further tightening, which will create...

The ECB will likely remain under pressure to act (again) in 2016. We see the risks tilted towards additional monetary stimulus by Q2 2016. Euro area HICP inflation was revised slightly higher in today’s Eurostat report, to +0.20% y-o-y in November (from 0.14% in the flash estimate to 0.15% in the final figure on the back of marginally stronger food and energy prices). Base effects are expected to push inflation higher in the next few months, although the renewed decline in oil prices...

Published: 16th December 2015 Download issue: A case of lacklustre Goldilocks The coming year can just about be described as a ‘Goldilocks’ environment (not too hot, not too cold), but not a very appealing one. It is likely to be characterised by weak inflation, an absence of momentum in economic growth, concerns about the effectiveness of monetary policy, ongoing weakness in emerging markets, and periods of elevated volatility in financial markets. This scenario for 2016, as outlined in...

Employment growth in the euro area has been broadly spread and includes many countries that were hard hit by the crisis. Almost one third of the recovery in euro area employment has come from Spain. Today’s Eurostat data showed that euro area employment increased by 0.3% q-o-q (1.1% q-o-q annualised; 1.1% y-o-y) in Q3, thus posting its ninth quarter-on-quarter consecutive expansion. The Q2 figure was slightly revised up by 0.1pp to 0.4% q-o-q, the highest growth rate in more than seven...

Today, the Riksbank left both the repo rate (-0.35%) and its QE programme unchanged (for a total of SEK200bn in bond purchases by June 2016), as expected. The Swedish central bank's forward guidance was strengthened somewhat as its Executive Board said that “policy rates will not be raised until CPIF inflation has stabilised around 2% during the first half of 2017”. Meanwhile, the Board stated that is was “highly prepared” to ease policy, “even between the ordinary policy meetings”,...

China is actively trying to loosen the link between the Chinese yuan and the US dollar. In 2016 the divergence in monetary policies should prompt a gradual move towards CNY6.70 per USD. Since the beginning of November, the Chinese yuan (also known as the renminbi) has moved from roughly CNY6.32 per USD to CNY6.46 per USD, with an acceleration over the past few days. This depreciation means that the Chinese yuan has lost more than 2% against the US dollar, rekindling fears of a broad CNY...

Core retail sales rose by a strong 0.6% m-o-m in November, above consensus expectations (+0.4%). Today’s retail sales report was rather upbeat. Although consumption growth can be expected to slow somewhat in Q4, we remain sanguine on overall consumption growth in 2016. Nominal total retail sales increased by 0.2% m-o-m in November, slightly below consensus expectations (+0.3%). Total sales were dented by a 0.8% m-o-m fall in nominal sales at gasoline stations (on the back of lower...

As deleveraging pressures ease and credit conditions improve, conditions should be finally in place for business investment to accelerate in 2016. Today’s GDP release by Eurostat showed euro area investment stagnating in Q3 (0.0% q-o-q), below consensus expectations (+0.2%), following an upwardly revised albeit still modest 0.1% q-o-q increase in Q2. Private investment has failed to boost activity in any meaningful way since the latest leg of the recovery started two years ago. Subdued...

The ECB's latest easing package fell short of market expectations. However, Frederik Ducrozet, Senior European Economist at Pictet Wealth Management, explains that the ECB may well act again during 2016.

The ECB's latest easing package fell short of market expectations. However, Frederik Ducrozet, Senior European Economist at Pictet Wealth Management, explains that the ECB may well act again during 2016.