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    Macroeconomic Outlook Europe: ND RD

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    The ECB is expected to announce further quantitative easing in December as inflation remains below its 2% target. The previous round of QE in 2015 caused the euro to drop below $1.10 and drove yields on German and peripheral bonds into negative territory. The ECB is determined to meet its inflation goal and has revised its monetary tools accordingly, including potentially cutting its deposit rate. However, the market reaction was muted due to uncertainty around the timing of US interest rate hikes. Lower borrowing costs are likely to boost equity prices as yields become less attractive. Growth forecasts for the EU are improving with projections at 1.9% for 2016. Emerging markets face risks from US rate hikes, which could trigger capital outflows

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    Macroeconomic Outlook Europe: ND RD

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    The ECB is expected to announce further quantitative easing in December as inflation remains below its 2% target. The previous round of QE in 2015 caused the euro to drop below $1.10 and drove yields on German and peripheral bonds into negative territory. The ECB is determined to meet its inflation goal and has revised its monetary tools accordingly, including potentially cutting its deposit rate. However, the market reaction was muted due to uncertainty around the timing of US interest rate hikes. Lower borrowing costs are likely to boost equity prices as yields become less attractive. Growth forecasts for the EU are improving with projections at 1.9% for 2016. Emerging markets face risks from US rate hikes, which could trigger capital outflows

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    Macroeconomic Outlook

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    The ECB is expected to announce further quantitative easing in December as inflation remains below its 2% target. The previous round of QE in 2015 caused the euro to drop below $1.10 and drove yields on German and peripheral bonds into negative territory. The ECB is determined to meet its inflation goal and has revised its monetary tools accordingly, including potentially cutting its deposit rate. However, the market reaction was muted due to uncertainty around the timing of US interest rate hikes. Lower borrowing costs are likely to boost equity prices as yields become less attractive. Growth forecasts for the EU are improving with projections at 1.9% for 2016. Emerging markets face risks from US rate hikes, which could trigger capital outflows

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    39 views1 page

    Macroeconomic Outlook Europe: ND RD

    Uploaded by

    spam4rt
    The ECB is expected to announce further quantitative easing in December as inflation remains below its 2% target. The previous round of QE in 2015 caused the euro to drop below $1.10 and drove yields on German and peripheral bonds into negative territory. The ECB is determined to meet its inflation goal and has revised its monetary tools accordingly, including potentially cutting its deposit rate. However, the market reaction was muted due to uncertainty around the timing of US interest rate hikes. Lower borrowing costs are likely to boost equity prices as yields become less attractive. Growth forecasts for the EU are improving with projections at 1.9% for 2016. Emerging markets face risks from US rate hikes, which could trigger capital outflows

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    Macroeconomic Outlook

    Europe
    October has been characterized by signals of further QE by the ECB after the 22 nd of October, projected to take
    place in the next meeting of December 3 rd, as recent data regarding third quarter inflation failed to meet the target of below
    2% year on year since the first purchase of over 60 billion euros of assets on a monthly basis in the beginning of 2015. The
    effect of such strategy was an instantaneous euro slip to below 1.1$, the slump of German and even peripheral countries
    (Spain and Italy) yields into negative territory. The ECB seems to be irrevocably determined to meet its inflation goal. As
    such, it has revised the monetary instruments to pursue its monetary milestone, including a possible decrease in the deposit
    rate. Nonetheless, the reactions to the announcement were tamed by the uncertainty prevailing in the financial markets
    regarding the US monetary policy (the overwhelming debate about the if and when interest rates will finally hike). The
    reduction in borrowing costs is likely to prop up equity prices, as yields become less attractive for investors. Future
    prospects in terms of growth projections are improving, as the yield curve exhibits a positive trend and growth consensus is
    spotted at around 1.9% for 2016.

    Emerging Markets
    Uncertainty regarding the right timing of the US policy action is of no good for Emerging Markets. A future US
    interest rate hike will foster capital flights, pressuring currencies to depreciate as a consequence. The primary risk of such
    strategy is well known as the original sin, as such economies issue dollar denominated debt, spurring currency risk as a
    consequence. However, the huge foreign reserve building up in past years might be sufficient enough to tame the negative
    outcome of a possible currency depreciating pressures.
    India has been the Emerging Markets champion, where growth has been sustainable (likely to surpass the
    decelerating China this year) and stocks benefited from an unanticipated central bank rate cut of 50 basis points.
    Brazil and Russia are the two Emerging Markets mostly at risk, as the recent downgrade to Brazil Sovereign debt to
    junk, after the last primary deficit announcement of 0.5% of GDP confirmed the fiscal inconsistence prevailing in this
    country. We are likely to observe capital outflows after such event due to requirements from pension funds to only keep high
    investment grade assets. The Russian exposure to the Syrian conflict increased volatility in energy prices, and the situation
    in Ukraine is still influencing bond spreads.

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