Investment Desk Bulletin

06 September 2017

Global tapering: Ready or not?

IDB 06 09 17

By Pau Morilla-Giner

In the first IDB after the summer break, we look at global economic conditions and key risks, including whether financial markets are ready for tapering.

Overall global growth continues to be robust and broad-based; leading indicators point towards solid momentum.

US activity is ticking higher and the economy is expected to grow by 2.5% in Q3, helped by a rebound in capital expenditure and stronger exports that have benefited from a weaker US Dollar. There has been a recent softening of consumer confidence and retail sales, but overall the backdrop is supportive.

Although wage growth is subdued and inflation contained, we expect the Fed to announce a tapering of balance sheet reinvestments in September.

The European recovery has continued to gain traction with a renaissance in credit growth and consumer confidence. We expect the European Central Bank to start gradually tapering Quantitative Easing in December.

UK GDP growth is now the lowest among the G7 nations, and a wage squeeze is underway with rising inflation being a contributing factor.

Key risks to markets include an adverse reaction to global tapering, asset market complacency, China (Chinese credit stimulus having less and less effect) and Italy (debt sustainability concerns resurfacing).