In this special episode, we preview 2018, doing a tour around the world, discussing the economies, stocks, bonds and commodities of course.
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- Trumponomics: The economy is doing well, with Trump not doing too much, neither getting in the way. After the tax cuts, we still cannot expect any infrastructure spending. Will tax cuts give growth a boost? Probably a limited one. Towards the end of the year, mid-term elections will take centre-stage.
- Flattening wages and yield curve: We move to the economy discussing an interesting revelation about wages and income. Is a recession somewhere on the horizon or will taxes prevent it? Will Powell react to lower inflation? They could signal a change early on.
- Euro-zone politics: Italy faces messy and very unpredictable elections that could lead to a populistic government sometime in the spring. This is the big unknown of the year. In Germany, a stable coalition will eventually emerge and will be positive for the euro-zone. In France, Macron had a bumpy start, but the optimism is already having an influence and there is a good chance for reforms. Spain could suffer from the Catalan crisis also in 2018, as Spain will not gain Catalan business.
- Brexit bites: The UK lagged behind in 2017 and 2018 could be worse as businesses are preparing for a hard Brexit. A recession cannot be ruled out amid this vulnerability. The BOE isn’t optimistic and nor should we be.
- ECB exiting QE: Bond scarcity and strong growth could prompt Draghi and co. to stop bond-buying in September, despite leaving the door open to keeping the program alive. The ECB has very few tools to tackle a new downturn. The ECB can find bonds only if Germany goes for a massive spending program.
- Oil in 2018: After seeing a normalization in oil prices and a fall in inventories in 2017, will the price rise in 2018? There are two “central banks” which are working against each other: production cuts from OPEC and Russia vs. the US shale industry. We examine the potential disruptions for oil production in the Middle East and elsewhere against rising output from the US. Oil prices may be limited to the upside, barring an outright war between Iran and Saudi Arabia.
- North Korea: The rogue North Asian regime caught the attention of the world and triggered safe-haven flows into the yen. Will Kim Jung-un keep scaring markets in 2018? A miscalculation could be dangerous, but perhaps 2017 was peak fear.
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