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Timothy Fox - Head of Research & Chief Economist
Edward Bell - Commodity Analyst
Published Date: 21 August 2017
Markets continued to be whipsawed by US political developments on Friday as the departure of Steve Bannon, one of the more controversial advisors to President Donald Trump, was received initially as an opportunity for more establishment figures to have a greater influence over policy making and rhetoric. However, that sentiment had ebbed by the end of the day and US assets generally closed the day in risk-off positions with a weaker dollar, lower Treasury yields and a declining equity market. Despite the removal of Bannon, whose policy positions on trade and diplomacy appeared anathema to establishment Republicans, there are still major challenges for the administration to build bridges with Congress in time to approve a budget and raise the debt ceiling and a general loss of faith from corporate America with Trump's leadership.
Despite the uncertainty surrounding politics, consumer confidence in the US is at buoyant levels. The University of Michigan consumer expectations index hit its highest level since January, no doubt helped by good labour market conditions and positive signals from equity markets. Consumption growth helped lead Q2 GDP performance and the strong levels of consumer sentiment should help Q3 on track for a decent outturn.
Eurozone inflation in July was flat m/m at 1.3% while core inflation which strips out food and energy prices rose slightly. The increase in core prices is welcome but is still far below the ECB's target of 2% price growth and the absence of inflation when balanced against improving economic performances sets clear the challenge for the ECB. Economic growth in the bloc is increasingly broad-based, with peripheral economies some way off their pre-crisis levels but at least heading in the right direction, while the core economies of Germany and Netherlands are effectively at full employment. The market will be closely watching the upcoming central bankers' symposium at Jackson Hole for any idea how the ECB will avoid choking off the recovery in peripheral economies without overheating core markets.
Performance of GCC bonds and sukuk in 2018
USD declines on renewed risk appetite