EZ: a positive above consensus outlook - Nomura

Analysts at Nomura explained that we are increasingly confident about our positive above-consensus outlook for the eurozone.

Key Quotes:

"Indeed, we have today lifted our GDP growth forecast for 2017 to 2.1% (from 1.9%). For 2018 we have lifted our forecast to 1.9% (from 1.7%). Consensus forecasts for the record are centred on 1.7% for 2017 and 1.6% for 2018. Our confidence is rooted in a number of factors."

"From a cyclical vantage point these include a) the broadly-based revival in global growth and the more impressive revival in US dollar-denominated nominal growth; b) the improving domestic demand-related roots of the eurozone’s revival; c) a likely increased contribution from capital spending growth as political uncertainty unwinds; and d) the sharp declines in youth unemployment in a number of major eurozone countries in recent months and the likely impact of unleashing pent-up demand on consumer durables."

"Beyond these short-term considerations we would additionally underscore a) that debt-related imbalances are now much less acute than they were on the eve of the eurozone crisis years and that b) this is helping to foster more growth-friendly fiscal policies; c) that anti-establishment parties are far less popular today than they were during most of last year which could be helpful for further reforms, and d) that competiveness levels in Spain, France and even Italy have improved over the last several years partly because of a modest improvement in their productivity growth."

Rate Markets:

"A few weeks back we outlined reasons for expecting the 10yr UST-Bund spread to tighten. Our rationale for the trade was based on the macro backdrop and on the more technical and flow-driven dynamics. On the macro front, our economists expect growth and inflation data (to include core) to surprise the consensus on the upside in the weeks ahead, paving the way for an ECB taper. On the technical side, we expect the flows on the back of the ‘hunt for duration’ in early 2015 to work in reverse, leading to an amplified move higher in Bunds. We continue to wait for better levels to enter into a 10yr UST-Bund tightener."