Economic and Strategy Viewpoint
USD breakout: causes and consequences
- Although the latest appreciation in the USD has coincided with a pick up in market volatility, we see the rise in the greenback as an overdue response to divergent monetary policy. The move is reflationary outside the US and favours Japanese and Eurozone equities over emerging markets.
- The danger from a market perspective is that dollar strength combined with weakness in commodity prices causes the Federal Reserve to stay looser for longer, with the risk we see significant bubbles emerging.
UK: Back to business
- With Scotland voting to stay as part of the UK, policy makers can turn their attention towards the strength of the economy. Recent official data has remained strong, but leading business surveys are pointing to moderation. Moreover, falling commodity prices could lower CPI inflation significantly in coming months. The Bank of England is expected to raise interest rates early next year, but could a slowdown in growth and inflation prompt a delay?
Brazil: Up the Amazon without a paddle
- Elections are almost upon us in Brazil, and investors are eager to see a change of government and, they hope, of economic fortune. Yet Brazil faces an array of challenges without an easy or quick solution, whoever wins.
Views at a glance
- A short summary of our main macro views and where we see the risks to the world economy.