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Each week, the Economic Research Department of BNP Paribas reports on economic news.
- From ‘risk off’ to ‘risk on’
- Dovish Fed, for how long?
- Eurozone growth looking good
Looking back at the first quarter from an economic perspective, the picture is very mixed. In China, slowdown concerns continue to dominate. In Japan, data have been lacklustre and there is a risk of a new contraction. In the Eurozone, activity and sales data have been quite good and despite some softer survey data, our nowcasting model is in line with a quarterly growth rate of 0.5%. A similar method used by the Federal Reserve of Atlanta points towards first quarter annualised growth of 1.4% after reaching 2.3% earlier in the quarter. Admittedly, model-based estimates come with a margin of error but the recent more subdued readings provide food for thought. This has not stopped some Federal Reserve officials from calling for a rate hike as early as in April, on the back of a pick-up in inflation. Core inflation is now up 2.3% coming from 1.7% some months ago. This hawkish talk is quite different from the dovish signal sent by the latest FOMC meeting and it seems that markets attach more importance to the latter than to the former. The dovishness has supported risk appetite, thereby continuing a trend that started around mid-February, and on the back of this, Wall Street rallied and Treasury yields increased. The risk-on environment has been particularly welcomed in emerging markets which have seen a strengthening of their currencies. Whether the pendulum will eventually swing in the other direction again very much depends on the outlook for Fed policy.
William De Vijlder
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