The lower real long-term yield spread and lower inflation expectation spread are consistent with the recent ebbing in Eurozone economic surveys and pick-up in US surveys; including PMIs and consumer confidence, explains Greg Gibbs, Analyst at Amplifying Global FX Capital.
“This divide in recent economic data is reflected in Citibank economic surprise indices (US +45, Euro -26). Industrial production data released last week were weaker than expected in several Eurozone economies. The divided Italian parliament is likely to weaken economic confidence in Italy. Germany’s labour cost index softened in recent quarters.”
“The trade protectionist to and fro between the USA and the Eurozone is perhaps the most combative of all countries since the US announced steel and aluminum tariffs. This poses a bigger risk for the Eurozone with a large trade surplus with the USA and a significantly larger share of exports as a contributor to GDP growth (Eurozone goods exports 20% of GDP, USA 8%).”
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