Global Research

Global Economic Outlook and Strategy

Data and surveys continue to suggest that most major economies have returned to positive growth in Q2 or Q3 this year. After the initial widespread inventorydriven rebound, the recovery will be uneven across regions. We expect the strongest upturn to be in Asia (ex-Japan), with the US outpacing most other industrial countries – while Japan, the Euro area and UK recover most slowly.
Rate hikes have begun or are imminent in a few countries (e.g. Israel, Australia, Norway), and strengthening growth will probably prompt several emerging markets to hike in early 2010. However, the major central banks will not be quick to tighten monetary policy. Our base case is that the US and China are likely to hike rates in Q2-2010, the ECB around end-2010 and the BoJ even later.
With improving growth and low policy rates, Citi strategists generally continue to favour risk assets. Citi rate strategists continue to look for further moderate rises in US bond yields in coming months and argue that relative policy rate risks favour Euro out-performance against the US.
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