In the twice a year published Joint Economic Forecast by leading German institutes, growth projection for 2018 and 2019 were raised to 2.2% and 2.0% respectively. Both were upwardly revised by 0.2% from Autumn report. The released warned that while German economy “continues to boom”, “the air is getting thinner”. Still, “pace of economic expansion nevertheless remains brisk:” It pointed to upturn in the world economy, favorable situation in labor market and fiscal stimulus of the new coalition government as driving forces. Inflation is projected to slow to 1.7% in 2018 then rise again to 1.9% in 2019.
Global growth projection was revised up by 0.3% to 3.4% in 2018. The reported noted that “tax cuts in the USA will stimulate economic activity there, which may have a knock-on effect on other countries”. However, it also warned that the dynamic in the world economy will “gradually flatten off over the forecasting period”. And that’s partly due to “a harsher trade policy climate, which will burden global investments.”.
The report also pointed directly to the US announcement of steel and aluminum tariffs as “another step towards greater protectionism”. It warned that “any further escalation of the trade conflict will restrict international trade in goods and significantly damage world economic growth in the mid-term.” Even “mere discussion of such measures can increase uncertainty over a country’s future trade policy and weaken economic sentiment”.
A summary of the report can be found here. Or more details here.
Members of the Joint Economic Forecast Project Group
Deutsches Institut für Wirtschaftsforschung e.V. [www.diw.de]
in co-operation with:
The Austrian Institute of Economic Research WIFO [www.wifo.ac.at]
ifo Institute – Leibniz Institute for Economic Research at the University of Munich[www.ifo.de]
in co-operation with:
Swiss Institute of Business Cycle Research (KOF), ETH Zurich [www.kof.ethz.ch]
Institut für Weltwirtschaft an der Universität Kiel [www.ifw-kiel.de]
Halle Institute for Economic Research (IWH) [www.iwh-halle.de]
RWI – Leibniz-Institut für Wirtschaftsforschung [www.rwi-essen.de]
in co-operation with:
Institute for Advanced Studies, Vienna [www.ihs.ac.at]
Taking a look at 10 year yield, TNX’s strong rise yesterday now suggests that the pull back from Feb’s high at 2.943 has completed and the medium term up trend is resuming. Focus will be on this 2.943 resistance today, if not taken out, early next week. A firm break there should likely push TNX through 2013 high at 2.036. That will be an important signal of reversal of the multi decade down trend.
For dollar index, we maintained our view that a breakout is imminent as it’s close to medium term falling trend line. If the break out is accompanied by surge in treasury yield, then favor will be on the case of an upside breakout for bullish reversal. And in that case, we would likely see EUR/USD dropping through 1.22 handle. Let’s see how it’s going to play out.
GBP accelerating down as BoE Carney helped traders made up their mind
GBP had been rather resilient after triple misses of wage growth, CPI and retails sales. But selling finally picked up after comments from BoE governor Mark Carney yesterday. And GBP is now trading as the second weakest one for the week, just next to NZD.
Carney noted that Brexit uncertainty had prevented a “surge in investment” And, “unfortunately that means in the short term that the speed limit (of the British economy) is not increasing. Productivity is not increasing, which will limit the rate at which people’s wages can pick up.”
Near term action bias in GBP is starting to turn bearish.