Business & Finance
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The week ahead is set to be dominated by sentiment towards the US-China trade dispute, though on the data front looks quieter than previous weeks as we enter the festive period.
Eurozone manufacturing rebounded in recent months, due to stronger domestic and foreign demand, while services activity showed signs of contagion as business confidence was depressed. Unlike the eurozone, the UK manufacturing and services PMI has remained lacklustre around Brexit uncertainty of late. We believe that until clarity emerges on the political front, the reading will likely continue to contract.
On Thursday, the Bank of England has its December monetary policy committee (MPC) meeting. In November, the MPC appeared to shift to a more dovish tone, with two members dissenting in favour of a rate cut as a result of the weakness from Brexit and a slowing labour market.
Finally, the final estimate of UK and US gross domestic product growth for the three months to September is expected on Friday.
One of the most influential US economic advisors and policymakers, Paul Volcker, died on 8 December at the age of 92. He was perhaps best known because of the “Volcker rule”, banning proprietary trading by large banks, implemented among banking reforms after the 2008 credit crisis.
Volcker’s defining achievement was his success in ending an extended period of high inflation as US Federal Reserve (Fed) chairman under presidents Jimmy Carter and Ronald Reagan. His aversion to inflation became evident during his college days at Princeton University when he tried to convince his mother, without success, that he should receive a bigger allowance than his sisters’ received years earlier.
The Fed again faces a tough challenge, this time trying to avert a prolonged period of low, rather than excessive, inflation. In doing so, the central bank plans to implement a new inflation framework in 2020 with the aim of letting inflation rise above the target rate temporarily. While the intention does not necessarily translate in higher inflation, it should justify some premium when forecasting US inflation.
Inflation data have lately recovered from their 2019 lows and are likely to enjoy some support due to the “base line” effect. However, the core personal consumption expenditures deflator, the Fed’s preferred inflation measure, is still below the central bank’s 2% target and is unlikely to accelerate in the medium term. This is reflected in the lower 10-year breakeven inflation rate (see chart), or the difference between nominal and inflation-adjusted bond yields, that is 1.70%.
Given the relatively low level of breakeven rates, inflation-linked bonds, which protect against an unexpected rise of inflation, seem attractive in our view.
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MEB leaders have travelled to Paris to meet several key partners and prepare for operations scheduled for the end of the year and 2021, with the aim of facilitating Monaco’s recovery.
The government is hoping to lure visitors back to the Principality with its new ‘Monaco Safe’ label, a guarantee that businesses are following strict health measures.
The MonacoTech startup incubator has unveiled five new projects it has selected to join its programme, two of which were established right here in the Principality.
The government is urging Monegasques to get involved in the UN’s Young Professionals Programme, which is now accepting applications.