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December 20, 2024
U.S. November Core PCE Prices significantly softer than Core CPI
December 20, 2024 1:59 PM UTC
November PCE prices at 0.1% overall and core has sharply underperformed gains of 0.3% in both overall and core CPI, easing some of the inflationary concerns generated by two straight gains of 0.3% in September and October core PCE prices. Gains of 0.3% in personal income and 0.4% in spending are als
Bank Indonesia Holds Rate to Support IDR
December 20, 2024 12:06 PM UTC
Bank Indonesia held its key interest rate at 6% in its December meeting. The decision to hold rates steady is primarily influenced by the need to stabilize the Indonesian rupiah. Inflation remains within target, and GDP growth forecasts are steady. Future rate cuts depend on US Federal Reserve actio
EMFX Outlook: Hit From Tariffs, Before Divergence
December 20, 2024 10:00 AM UTC
· EM currencies on a spot basis will remain on the defensive in H1 2025, as we see the U.S. threatening and then introducing tariffs on China imports – 30% against the current average of 20%. China’s response will likely include a Yuan (CNY) depreciation to the 7.65 area on USD/CN
DM FX Outlook: USD to edge lower despite high yields
December 20, 2024 8:28 AM UTC
· Bottom Line: Recent strong US data has bolstered the USD, with the Trump election victory also supportive due to expectations of tax cuts and tariffs which are seen leading to less Fed easing than previously expected. While we still see the USD weakening through 2025 as Fed easing red
December 19, 2024
Preview: Due December 20 - U.S. November Personal Income and Spending - Core PCE Prices to underperform Core CPI
December 19, 2024 2:30 PM UTC
We expect November to see a 0.2% increase in the core PCE price index, underperforming a 0.3% core CPI as is usually the case but was not so in September and October. We expect 0.5% increases in personal income and spending.
DM Rates Outlook: Policy and Spread Divergence
December 19, 2024 12:07 PM UTC
• 2yr U.S. Treasury yields can decline initially as the Fed finishes easing (Figure 1), but as the sense grows that the rate cut cycle is stopping, we see the 2yr swinging to a small premium versus the Fed Funds rate – as the market debates the risks of a future tightening cycle. For 10y
Outlook Overview: The Trump Effect- Tariffs, Fiscal Shifts and Geopolitics
December 19, 2024 9:25 AM UTC
· The U.S. economy momentum remains reasonable before President elect Trump’s policies impact in 2025 and 2026. While high uncertainty exists on the scale and timing of policies, the strategic bias is clear – sizeable tax cuts that will boost the budget deficit; tariffs (threats
U.S. Outlook: Healthy Economy Facing Policy Risks
December 19, 2024 8:01 AM UTC
• The U.S. economy, consumer spending in particular, has continued to show surprising resilience, and is growing at a pace probably in excess of long-run potential near 2.0%. Inflation has fallen significantly from its highs, with core PCE inflation now running slightly below 3.0%, but rema
December 18, 2024
Fed: Policy Easing Slowing
December 18, 2024 8:35 PM UTC
The FOMC statement, FOMC medians and Powell during the Q/A left the impression that Fed easing will slow down into H1 2025. We now see two 25bps cuts in March and June 2025 driven by a Fed’s desire to avoid too much labor market slack occurring, but then pausing for the remainder of 2025 at a 3.75
Equities Outlook: U.S. Exceptionalism v Valuations
December 18, 2024 10:05 AM UTC
· The glory days of exceptionalism for U.S. equities will likely extend in Q1 2025 to bring the S&P500 to 6200-6300. The problem is that valuations have now become stretched with S&P500 ex magnificent 7 on a forward P/E of 19 and valuations out of line with real bond yields (Figure 1)
December 17, 2024
Preview: Due December 20 - U.S. November Personal Income and Spending - Core PCE Prices to underperform Core CPI
December 17, 2024 4:27 PM UTC
We expect November to see a 0.2% increase in the core PCE price index, underperforming a 0.3% core CPI as is usually the case but was not so in September and October. We expect 0.5% increases in personal income and spending.
U.S. November Retail Sales - Mixed detail but trend still strong
December 17, 2024 1:47 PM UTC
November retail sales with a 0.7% increase are stronger than expected overall but the 0.2% gains in the core rates both ex autos and ex autos and gasoline are weaker than expected, though an as expected 0.4% rise in the control group suggests a healthy contribution to GDP. Revisions are marginally
China Outlook: Construction and Trade Headwinds v Policy Stimulus
December 17, 2024 11:00 AM UTC
We do see a package of stimulative fiscal policy measures for 2025 including Yuan1-3trn infrastructure spending; Yuan1trn funds to buy completed homes for affordable housing and Yuan1trn capital injection to the big six state banks. Some modest measures for low-income households and to boost soci
December 16, 2024
China Data: Retail Sales Disappoints
December 16, 2024 7:34 AM UTC
China November Retail sales disappointed with a low +3.0% Yr/Yr rise, due to broad based weakness outside of autos and home appliances – the latter boosted by trade in programs, which will likely be extended into 2025. The data underlines the imbalance between demand and supply, which argues for
December 12, 2024
ECB Review: Clearly Flagging An End to Policy Restriction
December 12, 2024 3:02 PM UTC
A fourth 25 bp discount rate cut at this latest Council meeting, to 3%, was also the third in a row. But this meeting was important for the (as we expected) change in forward guidance in which the ECB accepts that on-target inflation is likely to be durable enough so that it no longer has to pursue
BCB Review: Shock 100bps Hike
December 12, 2024 10:12 AM UTC
The Brazilian Central Bank raised the policy rate by 100bps to 12.25%, with plans for two more 100bps hikes, reaching 14.25% by early 2025—the highest in 18 years. The decision reflects fiscal concerns, inflation risks, and a 10% depreciation of the Real. The BCB aims to curb inflation and protect
December 11, 2024
FOMC Preview for December 18: A Cautious 25bps Easing
December 11, 2024 7:47 PM UTC
The FOMC meets on December 18 and we expect a 25bps easing to a 4.25-4.5% range. Fed commentary has generally suggested that rates are moving lower while cautioning against assuming easing at any meeting is a done deal. Absence of major surprises in recent employment and CPI data probably clears the
U.S. November CPI - A little higher than the Fed would like, but a cautious December easing still expected
December 11, 2024 1:56 PM UTC
November CPI is in line with expectations at +0.3% both overall and ex food and energy, with both up by 0.31% before rounding. Core CPI with four straight 0.3% gains is still a little high for comfort but the data is probably subdued enough to allow the FOMC to deliver a 25bps easing next week, thou
China Response to Trump Tariffs: Yuan Depreciation and Fiscal Policy Easing
December 11, 2024 8:03 AM UTC
A U.S./China trade war looks highly likely in H1 2025. We would feel that Trump will threaten and then introduce across the board tariff of around 30% on all China imports versus an average of around 20% currently. China will likely respond with targeted tariffs and more restriction on rare eart
December 10, 2024
December 09, 2024
China Politburo and CPI Argue For More Easing
December 9, 2024 9:01 AM UTC
China December Politburo statement has signalled a step up in easing, with monetary policy to become “moderately loose” for the 1st time since the GFC. We now look for 40bps of 7-day reverse repo rate cuts across H1 2025, though a surprise move cannot be ruled out for December – we see a 50bps
December 06, 2024
U.S. November Employment - Solid report but not a game changer
December 6, 2024 2:01 PM UTC
November’s non-farm payroll is near consensus with a rise of 227k with moderate upward revisions to both September and October totaling 56k. Average hourly earnings rose by a slightly stronger than expected 0.4% and the workweek rose (though only because October was revised down) but the unemploym
December 05, 2024
France: A Political Crisis But Not (Yet) a Fiscal One
December 5, 2024 8:56 AM UTC
With a parliamentary no-confidence vote having toppled the Barnier administration convincingly, France has no government. This far from unexpected development is a political crisis and one that even without the fiscal cuts that the failed Budget envisaged is likely to mean that the country also fa
December 04, 2024
ECB Preview (Dec 12): Flagging An End to Policy Restriction
December 4, 2024 3:53 PM UTC
While a larger move is possible, we think that the ECB will instead opt for a fourth 25 bp discount rate cut at this month’s Council meeting, to 3%. But this meeting may be as important for what may be a change in forward guidance in which the ECB accepts that on-target inflation is likely to be d
December 02, 2024
France: The Beleaguered Consumer Hit Further by Fiscal Impasse
December 2, 2024 5:07 PM UTC
As France’s political deadlock intensifies amid a likely toppling of the fledgling government, markets are worried about the fiscal fall-out of what may at best be emergency legislation, a so-called Special Law that would keep the country running, but with funding approved month by month. To som
Eurozone: What Services Inflation?
December 2, 2024 1:28 PM UTC
While real economy considerations seem to have taken over as the policy focus for the ECB majority, there are still some mutterings about apparent resilient services inflation. The latter is certainly the case when such inflation is measured on the conventional but possibly untimely y/y basis. How
Top Trump Tariff Threats
December 2, 2024 10:08 AM UTC
Internal dynamics within BRICS argues against a BRICS currency due to divergent economies and structures, though BRICS could one day look to have a payment system. Nevertheless, the threat of tariffs on BRICS if they form a new currency will also likely help the USD against EM currencies in H1 202
November 29, 2024
Banxico Minutes: Evaluating Further Cuts
November 29, 2024 7:31 PM UTC
Banxico’s latest minutes reveal a 25 bps rate cut to 10.25%, with most board members supporting continued easing. They view recent non-core inflation spikes as transitory, expecting headline CPI to decline as shocks dissipate. Core CPI has dropped to 3.8%, reinforcing the case for further cuts, wh
November 28, 2024
France Budget Deal or Crisis?
November 28, 2024 12:54 PM UTC
Concerns about the 2025 French budget failing have caused new spread widening for 10yr France v Germany. What are the prospects?If the new and still very much minority government reaches agreement with National Rally and passes the 2025 budget, then it will produce some relief in markets but will
November 27, 2024
U.S. October Personal Income stronger, Spending and Core PCE Prices as expected
November 27, 2024 3:15 PM UTC
October PCE prices at 0.2% overall, 0.3% core, with yr/yr rates slightly firmer at 2.3% and 2.8% respectively are as expected and predicted by Fed’s Powell on November 14. The core rate at 0.27% before rounding is not quite as strong as the core CPI. The pace is a little higher than desirable, but
2024 Q3 Country Insights Scores to Download in Excel
November 27, 2024 1:00 PM UTC
The Country Insights Model is a comprehensive quantitative tool for assessing country and sovereign risk by measuring a country’s risk of external and domestic financial shocks and its ability to grow. The access to our full range of scores across 174 countries corresponding to the third quarter o
China Slowing LT Growth: Labor Force and Productivity Problems
November 27, 2024 11:05 AM UTC
China labor force will likely not grow in the remainder of the decade, due to falling population; reluctance to consider large-scale inward immigration; a female participation rate that is high by EM standards and limited growth in employment among those over 55. Meanwhile, education and rural to
Eurozone: Measuring Monthly GDP Highlights Growing Weakness
November 27, 2024 11:01 AM UTC
Getting a reliable coincident assessment of the EZ real economy, let alone any insight into the likely near-term outlook, is difficult. EZ GDP data are prone to rapid revision, arrive only quarterly and only with a long lag offer detail from either the spending or output side that would allow a be
November 26, 2024
Preview: Due November 27 - U.S. October Personal Income and Spending - A second straight 0.3% from Core PCE Prices
November 26, 2024 2:34 PM UTC
We expect October’s personal income and spending data to look similar to September’s, with gains of 0.3% in personal income, 0.5% in personal spending and a 0.3% rise in core PCE prices. A second straight 0.3% rise in core PCE prices would be a little high for comfort.
Trump Deregulation and U.S. Financial Stability
November 26, 2024 10:05 AM UTC
Regional banks will be the main beneficiaries from a further watering down or postponement (that is likely under the Trump administration) of the proposed capital increase under the Basel endgame. Combined with laxer M&A rules for bank takeover, this could help lending and credit growth for the U.
November 22, 2024
Mexico: Budget Aims at Resuming Fiscal Discipline
November 22, 2024 11:21 PM UTC
Claudia Sheinbaum’s administration has introduced the 2025 budget, reaffirming Mexico's commitment to fiscal discipline with a projected fiscal consolidation of 2.0% of GDP, reducing the fiscal deficit from 5.9% in 2024 to 3.9% in 2025. Although there is likely an overestimation on GDP growth we b
Trump International: EM Countries
November 22, 2024 9:08 AM UTC
Trade and geopolitics will be the key drivers for the Trump administration relationship with key EM countries. While uncertainty on policy tactics are high, China and Vietnam will be among the first to see trade threats and actual tariffs. Mexico will see threats over the 2026 USMCA review and i
November 21, 2024
Bank Indonesia Retains Rate Prioritises Rupiah
November 21, 2024 7:20 AM UTC
Bank Indonesia held its key interest rate at 6% to stabilise the rupiah and attract FX inflows, while maintaining interventions in the FX and bond markets. Inflation remains within target, and GDP growth forecasts are steady. Future rate cuts depend on US Federal Reserve actions. A 25bps cut is expe
Trump International: DM Countries
November 21, 2024 7:06 AM UTC
Much uncertainty still exists on policy but in 2025 the EU will likely be under pressure from targeted new tariffs by the Trump administration, while also being asked to spend more on defense spending. Purchasing extra LNG and military hardware from the U.S. is one way towards a potential trade de
November 20, 2024
Eurozone: ECB Stability Review Broadens the Case for Easier Policy
November 20, 2024 11:30 AM UTC
It seems that worries about weaker growth are reverberating more discernibly and more broadly within the ECB. Indeed, the worries may now be at least twofold. Clearly, weaker growth risks possible (added) downside risks to inflation, with BoI Governor Panetta yesterday warning that restrictive mon
U.S. Equities: Exceptionalism v Valuations
November 20, 2024 10:05 AM UTC
Bottom Line: Momentum towards further deregulation, tech optimism, and the prospect of aggressive tax cuts could help the U.S. equity market in H1 2025 before the fear of higher yields and Fed Funds hurts in H2. 6100 could be seen H1 2025, before a softening to 5850 for end 2025 S&P500. We see
November 19, 2024
U.S.-Gilt Yields and Fed v BOE policy
November 19, 2024 10:07 AM UTC
We see scope for 10yr UK yields to diverge from the U.S. despite our new forecast of rising U.S. Treasury yields (here). We feel that the BOE will ease by more than the Fed in 2025 and ease selectively in 2026 before and after our forecast of Fed Funds hikes. Meanwhile, the UK fiscal stance is l