This post is available in pdf format My Wedenesday Column – November 7
US job growth is buoyant, but is it all down to the Trump effect?
The US economy created 250,000 jobs in October, which is a bit higher than the average of 213,000 witnessed since the start of the year. However, October is usually a fairly good month for new job creation, with 271,000 in October 2017, and an average of 246,000 in the month of October since 2013 as compared to an average of 206,000 for other months.
The labor market is buoyant overall, reflecting a solid pace of economic growth although nothing to write home about with 2.25% per year on average since 2011. Continue reading
This post is available in pdf format Federal Reserve – My monday Column
The Federal Reserve meets on September 25 and 26, and a 25bps hike to the fed funds rate is expected, putting the effective rate in a range of between 2% and 2.25%, with another hike expected in December. The Fed now seems to agree on these four monetary tightening moves for 2018, so the next big question is 2019. During the latest update of economic and financial projections from the members of the Federal Open Markets Committee (FOMC) in June, three interest rate hikes were expected in 2019. How can we get a clearer idea of what’s to come?
Four interest rates are now confirmed by the Fed. I had mentioned this scenario at the start of the year due to the White House’s implementation of expansionary fiscal policy and I have not changed my mind: the hike to the fed funds rate is just a way to iron out the imbalances caused by this policy that seeks to fuel domestic demand.
This domestic momentum reflects the impact of two factors: the first is the direct effect of tax cuts and rising public spending, and we can see the positive effects of this twofold approach for demand; the other component is trade policy that aims to use domestic production to replace imports, thereby sharply driving up demand for companies’ goods and services.
So the White House has adopted a two-pronged approach: on the one hand it bolsters domestic demand and the other it directs this additional demand towards US companies rather than imports.
This internal momentum will have at least two direct consequences: the first is the risk of inflation because demand is strong and because of higher import duties. Continue reading
This post is available in pdf format My weekly Column – Italy Standpoint – PW
What were last week’s major changes?
The main change was in Italy with a strong and rapid drop in the interest spread with Germany.
Since the new coalition government came to office, fears have emerged on exactly how the campaign-trail program would translate into the forthcoming budget – an answer to this question is expected on September 27.
The government’s stance so far has been to be fairly relaxed, especially on the 3% threshold (of budget deficit as % of GDP), which explains why the yield spread with Germany widened considerably over recent weeks.
This was a source of concern as the Italian economy would soon have run up against financing difficulties due to the reluctance of non-resident investors – who hold around 35% of the country’s debt – to revisit the Italian market after withdrawing their investment in the country all summer. Italians cannot and do not want to leave the euro area, so additional pressure on liquidity and interest rates could have hampered funding for Europe as a whole.
However, the economic situation is swiftly changing in Italy, as economic activity slowed sharply over the summer months, Continue reading
The whole document is available in pdf format September round-up of the summer_s events
Let’s start with the global outlook – are signs on the world economy still as robust as they were?
The situation has changed since the start of this year. The world economy was fuelled by faster world trade growth in 2017, but this is no longer the case. Trade momentum has slowed since the start of 2018 and no longer looks able to drive the same impetus across the economy as a whole.
Business surveys worldwide point to a slowdown in export orders, reflecting more sluggish momentum worldwide.
Why did we see an acceleration in 2017?
Central banks loosened monetary policy in 2016, at a time when inflation was low in most countries, bar a few exceptions such as Russia and Brazil. The Federal Reserve raised its leading rates at a very slow pace and steered its communication to ensure that investors were not spooked, especially in emerging economies.
More accommodative monetary policies kindled domestic demand in each country, spurring on economic activity and trade, and triggering broad-based momentum that was beneficial for all concerned and set the world economy on a virtuous trend.
What has changed since then?
The Chinese’s retaliation measures have a strong impact on soybean.
The US price of soybean has dropped dramatically while at the same time its price in Brazil is surging.
Brazil which is already the main soybeans’ exporter will take advantage of the current mayhem between the US and China How a crop used in hog rations and cooking oil got caught up in a huge trade war — Read here www.bloomberg.com/graphics/2018-soybean-tariff/