Europe:
ECB Sees Trump Administration as Key Risk to Global Economy
The European Central Bank cited the government of U.S. President Donald Trump as a key reason why the risks to the global economy remain tilted to the downside. The Frankfurt-based ECB said in an article from its Economic Bulletin on Wednesday that while some concerns over the prospects for world growth have diminished, such as China’s short-term outlook and the resilience of emerging-market economies, others have appeared. “Since the U.S. election, pressures for more inward-looking policies have risen,” it said. “In particular, there is significant policy uncertainty surrounding the intentions of the new U.S. administration regarding fiscal and, especially, trade policies, the latter entailing potentially significant negative effects on the global economy.” The ECB said an index of geopolitical tensions, which captures incidents of war, political tension and terrorist attacks, was broadly stable between early 2016 and the start of 2017. It also said that the impact of the U.K.’s vote to leave the European Union has been more benign than initially expected but medium-term risks remain over the outcome of Brexit negotiations.
U.S.:
Long bonds outperform on inflation concerns
The U.S. Treasury yield curve held near 10-year lows on Wednesday as investors evaluated the impact of hawkish Federal Reserve policy on the economy at the
same time inflation measures are deteriorating. New York Fed President William Dudley and Boston Fed President Eric Rosengren both took the view this week that
keeping interest rates low may pose risks to the economy. “I think the market may be pricing in a little higher odds of another rate hike before the end of the year, and that is helping drive some of the flattening,” said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York. Five-year note yields, which are highly sensitive to rate policy, rose to a four-week high of 1.80 percent on Tuesday. They last traded at 1.78 percent. Thirty-year bond yields, which are largely driven by future expectations of growth and inflation, meanwhile dropped to 2.72 percent on Wednesday, the lowest since Nov. 9. The yield curve between five-year notes and 30-year bonds flattened to 96 basis points, the narrowest since December 2007.
http://www.reuters.com/article/usa-bonds-idUSL1N1JI0L1
South America:
Brazil economic team eyes smaller cut in 2019 inflation goal
A majority in Brazilian President Michel Temer’s economic team backs a moderate cut in the 2019 inflation target to avoid signalling markets future monetary policy moves, a senior official who will be involved in any decision told Reuters. A sharp drop in inflation, which is well below the current target of 4.5 percent, has convinced the administration it needs to set a lower goal for 2019. Government officials, however, are still discussing whether to lower the target to 4.25 percent or a more aggressive 4.00 percent. The National Monetary Council, the country’s top economic policy body made up by the finance and planing ministers and the central bank chief, is scheduled to decide on the 2019 target at its next meeting on June 29. “It is better to opt for a target that does not signal monetary policy decisions in the short-term,” said the official, adding that a majority in the economic team agrees with that view. “It’s best to opt for a target that is closer to market expectations for that year.” Annual inflation at the end of 2019 is seen at 4.25 percent, according to a weekly central bank survey of economists.
http://www.reuters.com/article/brazil-inflation-target-idUSL1N1JH222
