The trillion-dollar question
The latest forecast from the US government’s Congressional Budget Office (CBO) paints a dismal picture for the budget deficit of the World’s largest economy. After clocking in at $665bn in 2017, the CBO expects the deficit to widen to $804bn in 2018 and reach close to one trillion dollars in 2019. For bond markets, this projection entails a significant increase in the net supply of Treasuries and comes just as the Federal Reserve is embarking on balance sheet reduction. The Fed’s guidance suggests a $250bn reduction of its Treasury holding in 2018 and an additional reduction of $360bn next year.
Bitcoins, cash and tulips
Bitcoins generated much excitement in 2017, starting off the year valued at just over $1 000 per bitcoin and closing the year at around $10 000, having peaked at close to $19 000 in mid-December 2017. While the extreme volatility of Bitcoin generates both spectacular gains and devastating losses, it significantly reduces the ability of the crypto-currency to serve as a means of payment; the purpose for which it was originally designed. Michala Marcussen, Group Chief Economist, explains the latest trends around the bitcoin.
Monetary Policy: back to normal?
The 2008 financial crisis witnessed unprecedented policy responses from the world’s major central banks. Main central banks cut their policy rate to near 0%, exhausting the conventional monetary options. Then, to further ease financial conditions, they started to design a variety of unorthodox monetary policy tools commonly labelled as “unconventional monetary policies”. These have included “lower-for-longer” forward guidance on the short-term rate, large-scale asset purchases, large-scale liquidity provis.
Investment holds the key
Global activity remains strong. Sentiment indicators point to continued expansion in 2018 and firm manufacturing activity supported by a pickup in investment. In the US, a large fiscal impulse will extend the business cycle. With key markets approaching full employment, GDP growth may be constrained by supply-side constraints, giving rise to some inflationary pressures.