Monday, January 22 2018 | ASIA TODAY INTERNATIONAL - Reporting the Business that Matters in Asia
Updated: 4 hours 7 min ago
For a further year, geopolitical events have continued to occupy the lead stories on the world’s traditional and digital media. We shouldn’t be surprised by this, if we accept that global geopolitics is in a state of transition and that the spaces left by certain actors are being rapidly filled by others.
The new year will probably start much as the old one ends, with the markets in positive mood. Risk appetite has been the dominant note for much of the year, except for a few brief bouts of volatility generated by political events and geopolitical tensions.
The year 2017 started with plenty of uncertainty for the global economy. President Trump had just been elected, the emerging economies were not doing particularly well and Europe was facing a difficult electoral cycle, with the memory of the Brexit referendum still fresh.
The FOMC increased the Fed funds rate to 1.25%-1.50%. Fed funds futures steepen on an optimistic economic growth outlook for 2018. The 10-year Treasury yield has moved sideways in 2017. The baseline is for a gradual increase in long-term yields with the yield curve slope flattening by an additional 15 basis points.
Highlights: BCBS issued report on supervisory colleges. EBA issued an opinion on DPD exemptions for material exposures. ESMA issued technical advice on short-selling regulation, and updated several documents regarding MiFID II and MiFIR. The EC presented two proposals for directives and seeks feedback on them.
The changes in spending patterns that have come about in the past twenty years confirm that digital information and communication technology has now become an integral part of consumer behaviour. Irrespective of age, income, sex or any other demographic or socioeconomic characteristic, today’s consumers are highly connected.
Economic update focusing on the effects of tax changes on home prices
The Basel Committee on Banking Supervision (BCBS) announced on December 7th that an agreement was reached on the finalisation of the Basel III post-crisis framework. The calibration of the output capital floor was the most significant pending element and the main focus of negotiations. These announcements will help bring clarity to the banking regulatory framework.
Highlights: ECB published its 2018 supervisory priorities, and issued a consultation on the assessment of internal models for counterparty risks. EBA issued consultations on internal models benchmarking, published impact assessments for LCR and the full Basel reform, and updated the quantitative analysis for MREL. Finally, SRB published its 2017 MREL policy statement.
In October 2017, the nominal annual growth rate of traditional bank deposits (demand + term) was 13.2%, 2.0 percentage points higher than that observed the previous month and 0.6 percentage points higher than the rate recorded in October 2016.
Financial stability is defined by its ability to facilitate economic growth. Yet in the “new normal” economic environment of prolonged moderate growth, low nominal and real interest rates, an aging population, and rising longevity, the economic environment poses risks to financial stability.
Official GDP figures have been revised up in 3Q to 1.02% QoQ, which implies a higher projection for 4Q17 (BBVA-GAIN: 1.04%). Further gains in confidence are not fully reflected in hard data. Global trade recovery continues, but at a slower pace. Global headline inflation accelerated in November driven by volatile components, but core pressures remained subdued.
Our MICA-BBVA model estimates a GDP growth at 0.6%-0.7% in 4Q, signaling a steady pace or mild acceleration. Confidence increased further in December to record levels. Hard data were somewhat disappointing in October, but these not seem to affect the underlying trend. Inflation increased slightly to 1.5% but the core measure remained stable and subdued at 1.1% in November.