Policy Mixology
- 21 October 2024 (10 min read)
Paradoxically, although it is now consensus that the Fed should have been more prudent in September, the market is now almost exactly aligned with the FOMC’s dot plot. We have been warning against reading too much into such forecast given the imminent election in the US which could have some quite different effects on inflation. Such uncertainty does not exist in the Euro area. Of course, Europe has its own sources of political tension, but at least the fiscal stance for next year is clear: based on the government pledges in the three largest economies, the adjustment will reach 0.9% of GDP in the Euro area. This cannot be ignored by the ECB. Estimates of the impact of fiscal and monetary policy on GDP vary, but very few would argue that next year’s fiscal austerity won’t have some dampening effect on an already mediocre domestic demand. This should be among the reasons for which we think the ECB should depart from its “one meeting at a time” mantra, to which it stuck again last week. The fact that the Governing Council was unanimous in condoning a back-to-back cut which would have been very contentious just a few weeks ago is positive, but even if some measure of data dependence will of course remain, there is now enough clarity on the kind of internal risks to growth the Euro area is facing to warrant a less reactive approach. Next week in London the Chancellor of the Exchequer will unveil the budget for 2025. We think the UK presents a very clear case of potential cooperation between the central bank and the government, as a front-loaded fiscal adjustment is coming. We continue to reserve judgement on China’s fiscal stimulus as long as we do not get more precise information. We note that the market tends to react very positively to noises about a significant rise in central government debt issuance. If a large fraction is directed to a swap for local government debt, this may be positive in terms of financial stability, but the direct impact on activity could be quite limited.
Disclaimer
This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.
It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date.
All information in this document is established on data made public by official providers of economic and market statistics. AXA Investment Managers disclaims any and all liability relating to a decision based on or for reliance on this document. All exhibits included in this document, unless stated otherwise, are as of the publication date of this document.
Furthermore, due to the subjective nature of these opinions and analysis, these data, projections, forecasts, anticipations, hypothesis, etc. are not necessary used or followed by AXA IM’s portfolio management teams or its affiliates, who may act based on their own opinions. Any reproduction of this information, in whole or in part is, unless otherwise authorised by AXA IM, prohibited.
Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI’s express written consent.
Risk Warning
The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested.