Global weekly: A bumpy ride

News item -

ABN AMRO Private Banking, Expertise, Investments, Hedge funds

Oil prices as well as financial markets dropped sharply since the start of the year. After ECB President Mario Draghi hinted Thursday on more stimulus measures in March, investor sentiment turned rapidly.

Macro outlook

Since the start of this year, oil prices have fallen by almost 25%. This week, oil prices dropped temporarily below USD 27 per barrel. This has not only resulted in a sharp sell-off in the currencies of oil-exporting countries, but also in a general deterioration in sentiment in financial markets. Nevertheless, we believe that oil prices have been pushed too low and should gradually recover. This should alleviate the pressure on currencies of oil-exporting countries and improve investor sentiment.

President Mario Draghi of the European Central Bank (ECB) left little doubt on Thursday that the ECB would step up stimulus at its next meeting in March. Draghi remained vague about  what the ECB exactly would do, but the bank would consider all options. Our base scenario remains that the ECB will cut its deposit rate by 10 basis points (bps) in March and increase the monthly pace of asset purchases by EUR 10 billion. After Draghi’s statement, investor sentiment turned abruptly and stocks rebounded vigorously. Oil prices also jumped by more than 10% after having dropped to a 10-year low.

The US economy is currently in a soft patch, but we expect GDP growth to slowly pick up to around trend rates after the slowdown at the end of 2015. We do not expect a recession. The US labour market is strong and we see labour market data as important in gauging the state of the business cycle. Economic data that was released in the past few days, however, disappointed. Based on weaker retail sales and inventories, we revised our GDP growth forecast for the fourth quarter of 2015 somewhat lower. The forecast for 2016 was also revised to 2% from 2.5%.

We have also lowered our outlook for the eurozone, but we continue to see growth. The domestic fundamentals in the eurozone remain consistent with the recovery regaining traction during the course of the year. The incoming economic data for the fourth quarter has disappointed. We therefore expect the overall growth in the eurozone to be more moderate than previously expected. We have revised our eurozone GDP forecast down to 1.6% this year (from 1.9% previously) and to 1.9% next year (from 2.2%).

Download the Global weekly to read more.