Newell Palmer:Monthly Economic Notes-June 2017

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Economic Overview

Global growth expectations are on the rise and there may be room for more upside surprises.  Reflation[1] is becoming synchronised, with non-US economies contributing as much as the US to growth expectations.  This marks a reversal from 2016, when the US was the locomotive.  The global economic recovery is broadening and there is room for growth forecasts to ratchet higher as reflation gains traction.  While some of the enthusiasm over Mr Trump’s policies might have waned, real hard data is likely to accelerate.  The five structural headwinds to global growth over the past four years are diminishing – fiscal tightening, the euro crisis, bank deleveraging, the decline in BRIC growth and the collapse in commodity prices, and US and euro area GDP growth may accelerate.  The three locomotives of global growth; US, China and Europe, are for the first time since the financial crisis, all contributing to global economic growth.[1] Reflation is the act of stimulating the economy by increasing the money supply or by reducing taxes.

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Monthly-Notes-June-2017.pdf

Newell Palmer: Monthly Economic Notes-May 2017

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Economic Overview

Politics remain a key focus for markets, but the latest developments in Europe are positive. In France, the first round of the presidential election ruled out the least market-friendly outcome, and although eurosceptic Marine Le Pen is in the run-off as expected, polls suggest reformist Macron should win. The snap election called in Britain for June is a material positive game-changer for Brexit negotiations.  Beyond politics, focus has been on fading conviction in so-called Trump trades – higher inflation expectations and interest rates and buoyant risk assets – following speed bumps on the US domestic agenda and increased geopolitical tension.

continue reading below: Monthly-Notes-May-2017.pdf

Newell Palmer: Monthly Economic Notes-April 2017

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Economic Overview

Investors are focusing more on politics and have become more selective in what they buy, the Bank for International Settlements (BIS) said and this could be a latest signal that markets may be breaking free from a dependence on central bank support. The BIS said in its quarterly report that there had been increased discrimination across asset classes, regions and sectors, in contrast to the cross-asset “herd behaviour” that has characterised recent years. “Politics tightened its grip over financial markets in the past quarter, reasserting its supremacy over economics,” the BIS said.

continue reading below:   Monthly-Notes-April-2017.pdf

Newell Palmer: Monthly Economic Notes-March 2017

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Economic Overview – March 2017

The rise of populism in politics is not a new theme and has been gradually building in the years since the 2008 Global Financial Crisis, but exploded in 2016 with the UK referendum on Brexit and the U.S. Presidential election. Financial markets withstood the shock from Brexit because the Bank of England moved quickly to ease monetary policy, while in the case of the U.S. election it was the prospect of fiscal policy easing and deregulation that spurred risk markets higher. In both cases, the rise of populism has increased uncertainty for financial markets. In 2017 the European political environment will be put to the test with elections to be held in the Netherlands, France and Germany while the situation in Italy is fluid and could result in an early election. For financial markets and investors each of these poses an event risk.

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Monthly-Notes-March-2017

 

“NASA Telescope Reveals Largest Batch of Earth-Size, Habitable-Zone Planets Around Single Star”


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This illustration shows the possible surface of TRAPPIST-1f, one of the newly discovered planets in the TRAPPIST-1 system. Scientists using the Spitzer Space Telescope and ground-based telescopes have discovered that there are seven Earth-size planets in the system.
Credits: NASA/JPL-Caltech

NASA’s Spitzer Space Telescope has revealed the first known system of seven Earth-size planets around a single star. Three of these planets are firmly located in the habitable zone, the area around the parent star where a rocky planet is most likely to have liquid water.

The discovery sets a new record for greatest number of habitable-zone planets found around a single star outside our solar system. All of these seven planets could have liquid water – key to life as we know it – under the right atmospheric conditions, but the chances are highest with the three in the habitable zone.

Continue Reading:  https://www.nasa.gov/press-release/nasa-telescope-reveals-largest-batch-of-earth-size-habitable-zone-planets-around

 

Newell Palmer: Monthly Economic Notes-February 2017

 

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Economic Overview
2016 was a year full of unsettling headlines and subsequent market overreactions, in most cases soon reversed. This may be even more the case in 2017, where we will first have to cope with the implementation of key commitments made in 2016 (most obviously, Mr. Trump’s policy priorities and the triggering of Article 50 by the U.K. to commence the Brexit process). And there are a lot of other new possible disruptive factors too – ranging from elections in Europe, to the upcoming Chinese leadership reshuffle. An additional point to remember is that in the past monetary policy tightening cycles – as the US is now embarking on – have often led to periods of increased volatility. At the moment, market volatility also seems rather low for the level of global economic policy uncertainty. Investors will therefore need to distinguish between short-lived market overreactions (as happened, for example, after the Brexit referendum vote) and longer-term structural market shifts.

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Monthly-Notes-February-2017.pdf

Newell Palmer: Monthly Economic Notes-January 2017

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Economic Overview

The International Monetary Fund has warned that the deep uncertainty over Donald Trump’s economic policies exposes the global economy to big risks if US interest rates and the US dollar rise sharply, but it also offers potential growth benefits. The performance of the world economy and financial markets may hinge on whether the incoming US president embarks on a risky short-term spending spree that triggers negative global spill overs or implements sensible long-term reforms that deliver sustainable higher economic growth. Another source of potential volatility is the upcoming French, German and Dutch elections in 2017.

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Monthly-Notes-January-2017.pdf

Newell Palmer: Monthly Economic Notes-December 2016

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Economic Overview

Goldman Sachs examined the key Trump policy proposals — higher tariffs on trade, curbing illegal immigration, increased federal stimulus, tax cuts for corporations and Americans — and found that while the plan would give the US a short-term bump in GDP growth, it would be a drag on global growth. The near-term effects are positive because the fiscal stimulus package boosts US demand and this has positive spill over effects to other economies. However, the longer-term effects on US growth are negative because the fiscal boost peters out and the other policies — higher tariffs, reduced immigration, and tighter Fed policy — weigh on growth. The policy proposals have negative spill over effects on other economies, especially in emerging market economies with partially fixed exchange rates or US-dollar based economies. The reason for the greater impact there is that the Trump agenda is likely to result in higher US interest rates and therefore a stronger dollar. Essentially, lower imports to the US and a stronger dollar from Federal Reserve rate hikes, combined with higher servicing costs for debt held in dollars, would curtail economic activity, especially in emerging markets, and drive global GDP lower than it would be otherwise. Global growth is expected to be 0.1% lower annually than the baseline projection without Trump’s policies by 2020. While this may not seem like a lot, global growth was at only 3.1% for 2015, and analysts call anything under 2% growth a global recession, so there is little room for negative shocks.

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Monthly-Notes-December-2016-continual.pdf

 

Newell Palmer: Monthly Economic Notes-November 2016

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Economic Overview

 

The lack of inflation and the possibility of deflation has been the focus of central banks around the world as they cut interest rates and then embarked on non-conventional monetary policy such as quantitative easing in an attempt to stimulate growth and push prices higher.

However, inflation is seemingly at an inflection point. The word ‘deflation’ may exit the financial lexicon over the coming months as commodity prices stabilise and global excess capacity is slowly reduced, and investors position for modestly higher rates of inflation.

Inflation in both the UK and the US has reached the highest rates in almost two years at 1.0% and 1.5% year-over-year respectively.  In the US economy the rise in the price of oil over the last year is filtering through into higher energy costs, meanwhile the UK inflation rate got an additional boost from the tumbling value of the pound.

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Monthly-Notes-November-2016.pdf

Newell Palmer: Monthly Economic Notes – October 2016

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Economic Overview

Since the Global Financial Crisis (GFC), central banks have relied on experimental monetary policies. However, these policies have more of an impact on financial markets rather than economic fundamentals.  Asset prices have been driven higher to the point where valuations for global equities, fixed income and housing markets are at or near record highs. Quantitative Easing (QE) had become the tool of choice for most global central banks needing to promote economic growth and inflation when lower interest rates have failed.  Unfortunately, QE has not been as successful as hoped in achieving its key objective. Global growth has slowed and price inflation remains well below target in the vast majority of developed nations.  We may now be at an inflection point.  The Bank of Japan’s (BoJ) September meeting was a key turning point in central bank policy where it changed its monetary framework from targeting the monetary base to focusing on yield curve control.  Under its new policy framework, the BoJ will buy and sell long-term bonds in order to keep the 10-year bond yield at 0%. This means that if 10-year government bond yields fall below 0%, the BoJ will actually have to sell bonds rather than buy them, which effectively amounts to quantitative tightening, not easing.

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Monthly-Notes-October-2016.pdf