Executive summary

  • During the second quarter, the continued rally in global equities markedly improved the state of the business cycle, based on a firming global recovery, lower unemployment, subsiding deflationary pressures and diminished political concerns. We now also see an improved business cycle outlook but a mild contraction phase remains in sight.
  • Despite the easing of inflationary pressures and inflation remaining below central bank targets, we do expect a slow and careful normalization of monetary policy in the years to come. The risks of continuing the very accommodative policies increase, while the risks of normalizing have diminished. Additionally, other factors such as real interest rates and credit risk may also drive the normalization of nominal interest rates.
  • The continued optimism has also improved our positive momentum outlook for the second quarter in a row. This remains accompanied by low short term volatilities, although we do see somewhat higher volatility ahead for the third quarter.
  • During the second quarter, our global interest rate long term trend indicator increased for the first time during a year, picking up on the increased interest rates since the third quarter of 2016, especially so in the US since the Trump election.

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