Equity and bond markets are stabilising. Macroeconomic data and market fundamentals continue to be strong, while political risks have lessened.
In the US, the positive effect of President Trump’s pro-growth policies may be lessening, as a consequence of the Republican party’s inability to bring its health care bill to a vote in the House of Representatives. Expectations of US fiscal stimulus may also be diminished, given that the Republican’s domination in the House, Senate and Executive branch does not appear to ensure the easy passage of legislation. Strengthening fundamentals, however, overshadow these political stumbling blocks. This view is confirmed by the continued good performance of the cyclical portion of the market.
In the eurozone, the economy is gaining some momentum, with economic growth running at comfortably above-trend rates. This is one reason behind our change in view regarding the European Central Bank’s (ECB) monetary policy. We now expect that the ECB will make an earlier exit from its super accommodative policy than we had expected. It is still a long way off, however. Our new view is that the ECB will start to reduce its monthly purchases in January 2018 by EUR 10 billion per month. This would lead to an end of the programme by June 2018. The central bank is expected to follow this with a 10-basis-point increase in the deposit rate in September 2018. For more information, read Change of ECB View, published by ABN AMRO Group Economics.
Download the Global Weekly to read more.