Separate ways

- "We identify the magnitude of the shock to global GDP that would derail the capex and labor market recovery in the eurozone. A 1pp slowdown in global growth vs. our baseline scenario would induce a shallow capex recession in 1H 2011, with employment managing to hold up in slightly positive territory next year. Global GDP would need to be around 3pp weaker than expected to trigger a significant capex recession and a double-dip in the labor market, a scenario that we deem as quite unlikely."
- "As worries about decoupling within the eurozone are increasing, a crucial issue is whether the investment upswing will be widespread within the area. From a cyclical point of view, one of the drivers of investment is capacity utilization. In this regard, Germany seems ready to benefit from a genuine pick-up in investment spending, while for Italy, Spain and Greece the picture is less supportive. Hence, now that global demand is moderating, only the most competitive countries will be the ones where the investment recovery will continue to support economic growth."
- "A sustainable revival in French domestic demand is probably the “swing factor” to determine whether the current growth divergence across the area will be long-lasting. Our analysis suggests that the legacy from the financial crisis should not meaningfully alter the historical pattern that sees shallower recessions in France being followed by more sluggish recoveries than in Germany."
- "The easing in eurozone core inflation has come to a halt during the summer, but we are still convinced that another leg of core disinflation remains the most likely outcome. We also show that the recent spike in food commodity prices poses some upside risks to our food CPI projections in three-to-six month’s time."
- "We argue that a large divergence in the GDP performance across the area and pockets of weakness in the banking sector of some peripheral countries increase the chances that the ECB will have to raise the refi rate before fully exiting unlimited liquidity provisions, tightening collateral rules and discontinuing the govies purchase program."
- "Although UK inflation remains surprisingly sticky so far, the BoE’s projections in the August Inflation Report brought a downward revision in the growth outlook and envisage a steep downward trajectory for CPI. Against this backdrop, the BoE is very likely to remain on hold for longer than previously expected: we now see the first rate hike in 4Q 2011."
- FI: "Given our outlook for steady policy rates, 2Y yields in EMU, the US and the UK should trade around the current levels until end-1Q 2011. Subdued growth and low inflation should keep demand for long-term maturities healthy, especially for top rated issuers. The belly of the curve has performed quite well in 3Q, but the 2/5-year spread still offers value for yield hunters. Core-periphery spreads to stay volatile in 4Q."
- FX: "Resuming EMU worries may keep EUR-USD in an overall tight trading range throughout the autumn, but persisting global uncertainty will keep volatility high and prevent the formation of clear trends on major FX rates. Currency markets will remain a playground for big-wave surfers rather than for free-climbers in the next few quarters as well."

Unicredit Euro Compass 2010Q4

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