Global growth returning, slow removal of monetary stimulus key to outlook - Westpac

Analysts at Westpac, note that the FOMC’s tightening cycle and balance sheet normalisation continues as markets are fully priced for a December policy tightening, although are questioning 2018 outlook with new Chair Powell. Inflation still the missing piece of the puzzle.

Key Quotes

“Broader US financial conditions remain accommodative, and point to US outperforming the Eurozone in the year ahead. Markets also focus on US tax reform to provide additional impetus. Here, negotiations and politicking continues. For households, while significant change is in train, the net benefit will be marginal and temporary. For corporates, the cut in the corporate tax cut is a big near–term positive, but many questions remain over the outlook.”

“Despite solid 2017 growth, Europe still faces low inflation and litany of political hurdles. ECB delivered a dovish taper when announcing continuation of APP until September 2018. Further, ECB staff reports of high underemployment and labour market slack will ensure policy remains highly accommodative for some time yet.”

“Despite a BoE hike in November, the backdrop is far from positive. Brexit costs, political fragility and a “safe” Budget suggest growth prospects remain impaired. Tory infighting keeping significant pressure on PM May and Brexit deadlock could tip discontent into a leadership challenge. Labour maintain a slim lead over Conservatives but, at present, it would be insufficient to ensure a majority.”

“China’s 19th National Congress outlined a new ‘vision’ for the economy, and authorities will increasingly target quality of growth over quantity. We expect to see growth progressively slow. Deleveraging efforts and financial reforms to continue, albeit in a very slow and methodical manner.”