Weekly Economic Insights - 1 April 2019

Macro Highlights - 4/1/2019

Highlights of the week

Economist insights: Inversion of the yield curve in the US, an even more dovish ECB, improvement in Chinese PMIs and encouraging signals for US residential investment

US Federal Reserve

  • The sharp drop in the 10-year Treasury yield in March led to an inversion of the yield curve over the 3-month/10-year segment, sparking investor concerns of recession risk
  • According to our analysis, however, the inversion of the yield curve is not comparable to previous inversions, as the Federal Reserve’s large balance sheet compresses bond premiums
  • However, as long as global economic data has not reassured investors, the Fed should maintain a very dovish communication, according to our analysis


  • Mario Draghi reinforced the dovish tone of his communication by indicating that the ECB could, if necessary, again delay the date at which it plans to raise its key rates…
  • … and he suggested that the central bank could implement measures aiming to reduce the effects of the negative interest rates on European banks’ profitability…
  • … which supports our scenario of a durable extension of the ECB’s status quo on interest rates, including the deposit rate


  • China’s official government PMI for the manufacturing and non-manufacturing sectors improved in March, buoying the composite index
  • These surveys support our scenario according to which China’s GDP growth could accelerate slightly in H1 2019

United States

  • Growth in residential investment continued to slow in the last quarter of 2018, as expected. In all it declined by 0.3% in 2018 vs. 2017
  • However, the recent drop in mortgage rates, the rebound in confidence surveys and the favourable financial position of households argue in favour of a moderate rebound in 2019

Chartbook: Our chart of the month 

  • Our Chartbook's chart of the month presents our analysis of the sharp drop in US and German yields in March and their outlook

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