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US: Financial conditions point to relatively faster growth vs the Eurozone - Westpac

Analysts at Westpac suggest that US financial conditions are very accommodative as steady gains in equity and credit over the last year, a weaker USD and lower fixed income yields have all conspired to a produce a material net easing in US financial conditions.

Key Quotes

“Taken at face value the easing in financial conditions this year points to a noticeable acceleration in US growth in the year ahead.”

“Eurozone financial conditions are relatively accommodative too.”

“But the signal for the US is comparatively that much more positive. US financial conditions suggest that US growth could comfortably accelerate from the low “2s” to 3%+.”

“Against that Eurozone financial conditions flag a steadier growth outcome around 2.0% to 2.5%. Eurozone equities have not risen nearly as much as their US counterparts - year to date the BE500 index is up ~7% while the S&P500 is up more than 16%. But the more important factor is the EUR’s appreciation, the trade weighted index having appreciated +7.5% year to date.”

“On top of European political pressures, with US growth likely to outpace the Eurozone in the year ahead EUR/USD is likely to be pressured lower in 2018.”

 

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