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

U.S.-Germany Yield Decoupling

November 18, 2024 9:25 AM UTC

We see scope for 10yr German Bund yields to remain close to current levels in the next 1-2 years, despite our new forecast of rising U.S. Treasury yields (here[MG(1] ).  A weak economic recovery; fiscal consolidation rather than easing in the U.S. and less underlying inflation pressures should all

Preview: Due November 27 - U.S. October Personal Income and Spending - A second straight 0.3% from Core PCE Prices

November 15, 2024 5:09 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.

U.S. October Retail Sales - Trend solid but may start to lose momentum

November 15, 2024 1:53 PM UTC

October retail sales are in line with expectations overall but stronger net of revisions, with September revised up to a 0.8% increase from 0.4%, outweighing a downward revision to August to -0.1% from a 0.1% increase. October gains were subdued ex autos and ex autos and gasoline, both up by 0.1%.

U.S. Yield Curve Steepens Then Flattening on 2026 Fed Tightening?

November 15, 2024 10:14 AM UTC

We see 10-2yr U.S. Treasury yield curve steepening in 2025, as the Fed keeps easing to 3.75% but the long-end is worried about medium-term issuance and the budget deficit trajectory being excessive.  A moderate Fed tightening cycle in 2026 to curtail inflation from fiscal stimulus/tariffs should th

China Data: Mixed Data Backs More Stimulus

November 15, 2024 7:42 AM UTC

China October data is mixed with a bounce in retail sales helped by government trade ins and a holiday, but industrial production and housing construction disappointing.  This all argues for further fiscal stimulus.  However, given our view that some tariff increases against China by the U.S will

ECB October Meeting Account: It’s the (Real) Economy Stupid!

November 14, 2024 1:42 PM UTC

It is clear but hardly surprising that the ECB rate cut last month was driven as much, if not more by real economy consideration than prices or possible fiscal tightening.  The Oct account 16-17 suggested that the downside risks to the growth outlook in the September baseline, with the associated w

U.S. October CPI - A more balanced report

November 13, 2024 2:13 PM UTC

October CPI has seen the fourth straight rise of 0.2% overall and the third straight rise ex food and energy of 0.3%, both on consensus. Before rounding the gains were 0.24% and 0.28% respectively, the latter slower than September’s 0.31% but in line with August’s. The data leaves the December F

India CPI Review: CPI Hits New Heights

November 13, 2024 12:05 PM UTC

Bottom line: The latest CPI figure of 6.2% yr/yr underscores significant inflationary pressures within the Indian economy, primarily driven by food prices but also influenced by housing costs. With inflation now at a 14-month high, the RBI's response will be another rate hold in December. Earliest r

U.S. Tariffs on China: How and When?

November 13, 2024 9:55 AM UTC

The U.S. can put pressure on other countries by starting tariffs at a more moderate scale and country and industry specific and then credibly threatening to increase and broaden tariffs as it did in 2018-19 to get trade concessions from other countries.  This also reduce the scale of the adverse in

BCB Minutes: Hawkish and Indicating Hikes

November 12, 2024 2:49 PM UTC

The Brazilian Central Bank (BCB) remains hawkish, raising rates by 50 bps to 11.25% amid resilient domestic growth and unanchored inflation expectations. Key concerns include rising uncertainty in the fiscal landscape and exchange rate volatility, prompting cautious monetary policy. The BCB signals

U.S. Economic Outlook under Trump

November 11, 2024 7:23 PM UTC

Uncertainty over how the U.S. election results will impact the economic outlook remains very high, but the evidence at present suggests that incoming President Donald Trump, assuming Republican control of the House is confirmed, will attempt to implement a substantial part of his campaign promises.

China Yuan10trn Package: Shifting Debt Not Stimulus

November 11, 2024 10:06 AM UTC

Details of the Yuan10trn fiscal package show that it is all directed at a debt swap for LGFV’s and repackaging hidden local government debt.  This will have little net fiscal stimulus.  True fiscal stimulus will be seen for 2025 GDP growth, but it could be delayed until further details are seen

BCB Review: Unanimous 50bps Hike

November 7, 2024 2:19 PM UTC

The Brazilian Central Bank raised its policy rate by 50 basis points to 11.25%, signaling heightened concerns over inflation risks driven by domestic dynamics and global uncertainties. While noting external volatility and fiscal policy impacts, the BCB emphasized that persistent inflation requires a

U.S. Election – Initial Thoughts

November 6, 2024 6:54 AM UTC

A Trump victory is now widely expected with results so far and has prompted knee jerk reaction in markets with U.S. Treasury yields and USD higher.  Policy uncertainty is high over tariffs, though the 2017 tax cuts will likely be renewed with some additional tax cuts elsewhere -- House race is tigh

U.S. October ISM Services - Healthy, if probably a little overstated

November 5, 2024 3:21 PM UTC

October’s ISM services index at 56.0 from 54.9 is the strongest since August 2022 and while probably a little overstated, particularly a surge in the deliveries index, suggests a healthy underlying economic picture entering Q4.

U.S. Debt Divergence

November 5, 2024 1:47 PM UTC

Household debt/GDP has fallen noticeably since the GFC to largely counterbalance the rise in government debt/GDP.  However, a surge in household borrowing for consumption with Fed easing is unlikely, as the overall resilience on consumption hides buoyance among wealthy households and a struggle/low

RBA Review: Waiting to ease

November 5, 2024 6:10 AM UTC

The RBA meeting on November 5th kept rates on hold 

Hawks or Doves? Decoding the New RBI MPC's Monetary Policy Shift

November 4, 2024 7:18 AM UTC

The Reserve Bank of India's Monetary Policy Committee (MPC) recently maintained the repo rate at 6.50% while shifting its stance from "withdrawal of accommodation" to "neutral," reflecting a cautious approach towards economic growth and inflation management. The meeting, which included three new e

Will China Deflation Depress GDP?

November 4, 2024 7:05 AM UTC

China most likely faces aggressive disinflation rather than Japan style deflation that depress GDP. China is a middle income country with incomplete urbanization/consumption, while China authorities appear more proactive than Japan in the 1990’s.  However, support for households remains light, wh

FOMC Preview for November 7: A 25bps Easing, Outlook Unclear

November 1, 2024 3:33 PM UTC

We expect a 25bps FOMC easing on November 7 to a 4.5% to 4.75% range. With the dots from the September 18 meeting relatively evenly split between one and two more 25bps easings this year and data since September 18 on balance being relatively firm the debate is likely to be between no change and a 2

U.S. October Employment - Special factors add to weakness, but trend looks less strong after revisions

November 1, 2024 1:27 PM UTC

October’s non-farm payroll is well below consensus with a 12k increase with weakness impacted by a strike at Boeing and hurricanes, though probably also in part due to a correction from an above trend September, and negative revisions make the trend going into this report less strong than it was.

U.S. September Personal Income, Spending and Core PCE Prices, Q3 Employment Cost Index, Weekly Initial Claims - Mostly solid

October 31, 2024 1:18 PM UTC

September’s personal income and spending data is largely old news with Q3 totals having been seen in the GDP report.  As in Q3, growth in spending, of 0.5%, exceeds a 0.3% rise in income while core PCE prices are on the firm side of trend at 0.3%, though only 0.254% before rounding. The Employmen

Election and U.S. Equities

October 31, 2024 10:30 AM UTC

The multi week reaction will likely swing on the narrow equity market focus of winners and losers and an assessment that a Trump win would be better than Harris for the U.S. equity market.  However, multi quarter the actual implementation of policies can spillover to impact the corporate earnings o

BoJ Review: Little guidance ahead

October 31, 2024 5:24 AM UTC

The BoJ keep rate unchanged in the Oct 31 meeting at 0.25% with little forward guidance
Quarterly report remains hawkish in policy stance and mixed revision on CPI

Preview: Due October 31 - U.S. September Personal Income and Spending - Core PCE prices may match Core CPI this month

October 30, 2024 2:29 PM UTC

September personal income and spending data will confirm Q3 totals seen with the GDP release, with the only uncertainty being the mix of monthly changes and back month revisions. We look for a stronger 0.3% increase in core PCE prices, and a moderate 0.3% rise in personal income which we expect will

U.S. Election Scenarios and Post-Election Policy Risks

October 30, 2024 8:14 AM UTC

The U.S. election remains very close though a win for former President Donald Trump appears slightly more likely than one for Vice President Kamala Harris. The race for control of the House is also close, though here a Democrat majority looks marginally more likely. For the Senate, a Republican majo

UK Budget and Gilts

October 28, 2024 9:35 AM UTC

The UK government is leaking parts of the October 30 budget to allow markets to adjust before the full announcement.  While the new fiscal rule for debt/GDP could raise some modest concerns over increased supply for the gilt market initially, attention will quickly switch to the BOE November 7 and

U.S. September Durable Goods Orders - Aircraft slip, but ex transport showing signs of improvement

October 25, 2024 1:01 PM UTC

September durable goods orders fell by 0.8% in line with expectations with August revised down. Also to -0.8% from unchanged. The weakness of the headline however contrasts with a stronger than expected 0.5% rise ex transport, with August revised up to a 0.6% increase from 0.5%, hinting at underlyin

U.S. Government Debt and Deficit – How Much Does it Matter?

October 25, 2024 9:55 AM UTC

Post-election U.S. fiscal policy can still cause stress in the U.S. Treasury market given the unsustainable U.S. budget deficit and the high risk of a rating agency downgrade in H1 2025.  However, 10yr U.S. Treasury yields above 4% now have a buffer and the prospect for Fed policy is also important

China Big Banking System: Lessons from Japan/GFC

October 24, 2024 10:50 AM UTC

The proposed Yuan1trn capital injection for the six largest banks would be pre-emptive, while China is also quick to merge weaker/failing small to mid-sized banks. However, rising NPL’s; plus, low net interest margins with low policy rates; low nominal GDP and pressure to rollover LGFV/SOE debt wi

Eurozone Services Risks Clearer?

October 24, 2024 10:13 AM UTC

It is clear that PMI data are a key component of the data analysis of the ECB. We are somewhat sceptical of the data, at least in its ability to track GDP growth coincidently and accurately.  But the data does offer a wide-ranging insight into private sector economic momentum.  With this in mind t

BoJ Preview: Forward Guiding Another Hike Imminent

October 24, 2024 5:15 AM UTC

The BoJ will keep rate unchanged in the Oct 31 meeting at 0.25% with forward guidance suggesting an imminent hike

Mexico: Economy Contracts in August, Slowdown Continues

October 23, 2024 6:25 PM UTC

Mexico’s economy contracted by 0.3% in August, with agriculture down 9% and the industrial sector shrinking by 0.5%. Construction dropped 3.6%, and employment growth slowed. Weaker internal demand and stabilizing U.S. demand signal more challenges ahead. Banxico may cut rates further, but subpar g

2yr Treasury Yields and A Mature Fed Easing Cycle

October 22, 2024 1:17 PM UTC

The outlook for 2yr yields is still dominated by the scale of expected Fed cuts and this remains fluid and most influenced by whether data continues to show momentum or whether the soft v hard landing debate reignites.  However, other financial markets should also watch how expectations of the matu

EM Europe and CIS: Select Country Risk Ratings

October 22, 2024 10:00 AM UTC

We provide country risk reviews for EM Europe/CIS countries including Russia/Ukraine and Turikye. 

China Corporate Debt Deleveraging

October 21, 2024 10:45 AM UTC

Private companies ex property developers have seen a small pay down of debt, but the largest remaining portion of non-financial debt ex LGFV is central and local SOE’s.  They have low profitability and have shown few signs of increased leverage.  This leaves the onus on fiscal policy.  

Country Risk in MENA

October 21, 2024 10:00 AM UTC

We provide reviews of Saudi Arabia, UAE and Algeria this quarter.      

Mexico: More Institutional Reforms on the Pipeline

October 20, 2024 3:09 PM UTC

Morena's political dominance has strengthened with Claudia Sheinbaum's election and judicial reforms, allowing them to shape the Supreme Court. This boosts their ability to push controversial policies, like state control of Mexico’s energy sector. However, economic slowdown and potential U.S. poli

Sub Sahara Africa: Country Risk Ratings

October 18, 2024 10:00 AM UTC

We provide country risk reviews for Sub Sahara Africa countries including Nigeria/South Africa.  

China September Data Rotates Higher, But

October 18, 2024 7:30 AM UTC

Q3 GDP and September monthly figures were slightly better than expected. Combined with a speed up of local government spending in Q4 and more completion of uncompleted homes, we change our 2024 GDP forecast to 4.8% v 4.6%.  However, despite a further Yuan1.5-2.0trn of fiscal stimulus to come, we st

Brazil: Demand and Imported Prices Lead Inflation Rise

October 17, 2024 6:33 PM UTC

Our updated model shows that stronger-than-expected demand and BRL depreciation are driving Brazil’s inflation higher, while supply remains stable. Despite recent rate hikes, inflation expectations have risen, loosening monetary policy. We expect the BCB to implement two more 50 bps hikes before p

Preview: Due October 31 - U.S. September Personal Income and Spending - Core PCE prices may match Core CPI this month

October 17, 2024 6:28 PM UTC

September personal income and spending data will be largely old news at the time of the release, with Q3 totals due with the GDP release the day before. Ahead of the GDP release we look for a stronger 0.3% increase in core PCE prices, and a moderate 0.3% rise in personal income which we expect will

ECB Review: Inflation Outlook Lowered?

October 17, 2024 1:45 PM UTC

The latest 25 bp rate cut from the ECB was obviously not anticipated at the previous meeting, although perhaps the Council was more open to such a move than the press conference then suggested.  But it is clear a reassessment is occurring, not just of the inflation outlook but the real economy too.

U.S. September Retail Sales continue to show resilience, Initial Claims correct lower

October 17, 2024 1:04 PM UTC

September retail sales show the consumer sustaining solid momentum through Q3 with a stronger than expected rise of 0.4% overall, 0.5% ex autos and impressive gains of 0.7% both ex autos and gasoline and in the control group that contributes to GDP. Initial claims in the survey week for October’s

ECB to Note Better Signs in Bank Lending Survey?

October 16, 2024 2:17 PM UTC

All and sundry wait as much for the what the ECB says tomorrow (Oct 17) than what it does (ie cut by another 25 bp).  The consensus is that the Council will have to sound much more cautious about downside risks to both (its somewhat optimistic) growth outlook and its too pessimistic inflation pictu

U.S. House Race Becoming Closer

October 16, 2024 10:00 AM UTC

The probability of a Republican clean sweep has jumped to a 25% probability, which could see a future President Trump go beyond renewing 2017 lapsing tax cuts.  It could also increase the odds of tariffs being increased to fund extra tax cuts!  This would likely curtail the Fed easing cycle and pu

Asia Country Risk Ratings

October 16, 2024 9:54 AM UTC

We provide country risk reviews for Asia countries including Hong Kong, Thailand, Pakistan and Singapore.