Weekly Economic Briefing

Summertime, and the policy's easy

26 July 2016

Global Overview

  • Accommodative policy across developed and emerging markets seems to have pulled economies back from the brink through the first half of this year. While this is good news in the short-term, it obscures longer-term structural issues.
  • Supportive monetary policy is a crutch for market confidence, evidenced by the positive impact of the US hiking cycle cessation. As economic fundamentals improve, Yellen’s foot may come off the brakes earlier rather than later.
  • The UK sustained a sharp uncertainty shock in the form of the referendum result to leave the EU, reversing the rates trajectory short-term. Indeed, the Bank of England needs to act swiftly and aggressively to minimise damage.
  • In Japan and the Eurozone, extraordinarily supportive policy has become rather ordinary. Indeed, expectations are sky-high for Japan to do even more following its policy meeting this week; the ECB is likely to follow.
  • Emerging markets have been some of the major beneficiaries of loose US policy, not to mention aggressive fiscal easing in China. This has been enough to calm markets but considerable structural and political challenges remain.
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US

The good news for the US is that recession seems further off than it has in months. The bad news for markets is that this may bring forward the next Fed rate hike.

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UK

We are starting to get early indicators of the effect of the EU referendum on the economy. As expected, these early signs don’t look good.

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Europe

The Eurozone recovery continues to rumble on, although political uncertainty poses a fresh challenge. Expect the ECB to try and offset this headwind with easier policy.

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Japan & Developed Asia

The BOJ's credibility has taken a battering of late. Will it finally take a stand?

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Emerging Markets

2016 has seen a fair amount of turbulence in the EM world. Political risks have emerged but have been outweighed by improvements in China and uncertainty in the developed world.

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Standard Life Investments’ Global Strategy team provide regular analysis of the key economic data that has been influencing financial markets.

Available on a weekly basis, the Weekly Economic Briefing takes a detailed look at the global economic issues that have been impacting our investment strategy. The regional approach aims to provide an easy-to-navigate guide to the most recent developments in the global economy.

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