Despite all the noise (Italy, Trump’s trade policy, emerging markets, etc.), the global economy’s reflation process continues and will become more and more evident. Long-term interest rates are therefore going to have to move upwards significantly. In terms of other issues, although we still think that the tightening of global financial conditions can take place in an orderly manner, the fact that overheating risks in the US continue to edge up increases the likelihood that we will experience volatility in the markets.
The US continues to grow well above potential and to create jobs at rates that more than double what is sustainable in the medium-term. In a context of zero spare capacity (or even a positive output gap), it is quite likely that price and wage pressures will continue to rise (with regards the latter, we expect October to be affected by an unfavourable base effect and for this to be followed by year-on-year growth rates of over 3% by the end of the year).