KEY TAKEAWAYS OF THE WEEK
Economists’ insight: Higher-than-expected US job creation; first steps towards repealing Obamacare; and a decline in China’s PMIs (p. 1)
› In the United States, unemployment declined to 4.4% in April, its lowest level in ten years. Hourly earnings decelerated to an annual rate of 2.5%.
› The House of Representatives voted to repeal Obamacare. Republicans now need the support of Democrats to get the bill through the Senate, which will likely lead to changes in the bill.
› China’s PMIs have fallen in April, a sign that the economic cycle should have probably peaked. Brazil’s economy has gradually improved, and India’s PMIs have shown that demonetisation had only a limited impact on its economy.
Focus: The ECB’s exit strategy cannot be the same as the Fed’s (p. 5)
› Our analysis of the Eurosystem’s balance sheet shows that the ECB should reduce the size of its balance sheet before starting to raise its benchmark rates.
› We therefore do not expect the rate hike cycle to begin any time soon, despite the recent communications caused by several ECB members who suggested that the forward guidance could be discussed.
› In addition, rate hikes are likely to be more gradual in the eurozone than in the United States, and upward pressure on the euro should remain contained.