German Data Preview (Nov 28): Services Inflation Persists?

November 20, 2024 3:58 PM UTC

As we have repeatedly underlined, Germany’s disinflation process continues but unevenly.  After July saw the headline HICP rate rise and unexpected 0.1 ppt to 2.6%, unwinding a third of fall seen in June, it plummeted to a 41-month low of 2.0% in August, and then down to 1.8% last month, below th

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.-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

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

Germany: More Headwinds for an Ailing Economy?

November 7, 2024 9:10 AM UTC

After months of clear internal tensions, the three-party coalition collapsed on Wednesday after Chancellor Olaf Scholz (Social Democrat) sacked Finance Minister Christian Lindner (leader of the Free Democratic Party (FDP).  The two had been seeing repeated rifts on spending and economic reforms, wi

EZ HICP Review: Headline Higher?

October 31, 2024 10:42 AM UTC

Slightly higher energy costs were the main factor behind the rise back in HICP inflation in October to 2.0% having fallen to a well-below target 1.7% in the previous month (Figure 1).  The outcome was a little higher than expected, not least with another apparently resilient services inflation read

German Data Review: Services Inflation Persists?

October 30, 2024 3:35 PM UTC

Germany’s disinflation process continues but unevenly.  After July saw the headline HICP rate rise and unexpected 0.1 ppt to 2.6%, unwinding a third of fall seen in June, it plummeted to a 41-month low of 2.0% in August, and then down to 1.8% last month, below the ECB target and well below expect

Eurozone GDP Review: Consumer Revival, Surveys Gloomier?

October 30, 2024 10:26 AM UTC

Even more clearly, the EZ economy is diverging as Germany stutters while Spain prospers.  However, the risks are that the whole of the EZ is weakening given the possibly gloomier messages from business survey data.  Admittedly, there were some upside surprises in the Q3 numbers, albeit with the un

Continuum Economics Calendar November 2024

October 24, 2024 4:16 PM UTC

Data and Events Calendar November 2024.

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

EZ HICP Preview (Oct 31): Headline Up But Still Below Target and Backed Up By Softer Wages?

October 23, 2024 9:20 AM UTC

Lower energy costs were the main factor behind the sharp fall in HICP inflation, which fell from 2.2% y/y in August to 1.7%, the latter revised down a notch from the flash estimate. This is the first sub-target reading since June 2021.  Services inflation also edged lower, this allowing the core ra

Eurozone Q3 GDP Preview (Oct 30): (Near) Stagnation?

October 22, 2024 12:02 PM UTC

At best, the EZ economy is diverging ever more clearly as Germany falters while Spain prospers.  However, the risks are that the whole of the EZ is weakening.  Indeed, in contrast to ECB and consensus thinking of a second successive quarter of 0.2% q/q GDP growth, we see a clear risk that the EZ e

German Data Preview (Oct 30): Inflation Stays Under Target?

October 21, 2024 1:59 PM UTC

Germany’s disinflation process continues.  After July saw the headline HICP rate rise and unexpected 0.1 ppt to 2.6%, unwinding a third of fall seen in June, it plummeted this month to a 41-month low of 2.0% in August, and then down to 1.8% last month, below the ECB target and well below expectat

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.

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

France Debt: Non-Residents Budget Jitters

October 11, 2024 9:04 AM UTC

The 2025 budget could pass via a sequence of events, but the potential outcome is so uncertain that it is difficult to attach a probability to the various scenarios. Drama will be high for the next 12 months, which will also most likely see a parliamentary election from July 2025.  France has been

ECB Preview (Oct 17): A Change of Tune, A Change of Rates

October 10, 2024 12:56 PM UTC

It now seems very likely that the ECB will cut rates at a successive Council meeting for the first time in this easing cycle dating back to June.  To date the ECB has allowed the impression that it would ease only every other meeting, ie once a quarter, partly to give it access to what it sees as k

Markets: Rate Cuts or Geopolitics?

October 2, 2024 9:36 AM UTC

Israel will likely counteract Iran, which will prompt a further missile attack by Iran.  However, our bias remains that Israel main aim is to have a buffer zone in southern Lebanon up to the Latani river and not fight a prolonged war with Iran.  This limits the economic fallout globally and on oil

ECB October Rate Cut for Insurance

September 30, 2024 2:20 PM UTC

Recent economic data and national CPI numbers have increased the economic case for less restrictive policy.  Combined with softening of guidance from ECB Lagarde and Schnabel, this leaves us inclined to now forecast a 25bps cut at the October 17 ECB meeting.  This will likely be followed by a 25bp

EZ HICP Preview (Oct 1): Headline Back Below Target and Backed Up By Survey Signs?

September 27, 2024 9:38 AM UTC

Lower fuel prices will be a key factor in September’s HICP numbers, and enough of a factor to pull the y/y rate to 1.9%, which would be the lowest in over three years and this despite still little material change in services inflation.  Indeed, the risk is of an even lower outcome. This may be sh

September Outlook: Rate Cuts But How Far?

September 27, 2024 7:44 AM UTC

The 15 chapters of our September Outlook have now been published.  See the headlines and weblinks enclosed for links to the articles on economic, policy and markets for the 23 countries that we cover.

Continuum Economics Calendar October 2024

September 25, 2024 1:45 PM UTC

Data and Events Calendar October 2024.

German Data Preview (Sep 30): Inflation Under Target?

September 25, 2024 11:15 AM UTC

Germany’s disinflation process continues.  After July saw the headline HICP rate rise and unexpected 0.1 ppt to 2.6%, unwinding a third of fall seen in June, it plummeted this month to a 41-month low of 2.0% in August, ie consistent with the ECB target and well below expectations.  Indeed, the C

Outlook Overview: Rate Cuts But How Far?

September 25, 2024 7:30 AM UTC

·        The U.S. economy is slowing, with the critical question being whether this is a soft or harder landing.  Our broad analysis leaves us inclined to the soft landing view into 2025, though we shall watch real sector data closely over the next 3-6 months to check the trajectory.  Else

DM FX Outlook: USD Set for 2025 Decline

September 25, 2024 7:11 AM UTC

·       Bottom Line: The USD has reached the end of year targets of 1.12 for EUR/USD and 140 for USD/JPY that we forecast in June, when it was trading at 1.07 and 159 respectively. From here, we still favour the USD downside through both the rest of the year and 2025, as the Fed continues to

DM Rates Outlook: Rate Cuts Arrive Except Japan

September 24, 2024 9:00 AM UTC

•    For U.S. Treasuries, we see 2yr yields coming down further on our baseline soft landing view, as the Fed moves consistently to a 3.00-3.25% Fed Funds rate. However, with considerable Fed easing already discounted, 2yr yield decline should be modest and 2yr yields should bottom mid-2025. 1

Equities Outlook: Choppy U.S. and Outperformance Elsewhere

September 24, 2024 8:30 AM UTC

 •     We now forecast 5450 for the S&P500 for end 2024, but could see a move to 5200/5000 in the next 3-6 months as volatile data keeps the soft v hard landing debate alive.  On our baseline of a U.S. soft landing, we would see the S&P500 at 5600 by end 2025. The tech sector is still really i

Eurozone Outlook: Downside Risks or Downside Reality?

September 23, 2024 9:17 AM UTC

 ·       It does seem as if EZ activity expectations are being pared back in line with our below consensus thinking, most notably for next year. The result is that while the economy has been growing afresh it is doing so timidly, with downside risks persisting through 2024 and 2025 and where

Sep 27 Outlook Webinar: Rate Cuts But How Far?

September 15, 2024 10:30 AM UTC

    Uncertainty about whether the U.S. economy will have a soft or hard landing is growing as the market approaches Q4.  This is shaping the debate regarding the scale of easing through the remainder of 2024 and 2025 by the Fed.  European easing is underway, but how much further will central ba

ECB Review: Under-Estimating Downside Risks?

September 12, 2024 2:16 PM UTC

That the ECB cut the discount rate again by another 25 bp (to 3.5%) was no surprise.  Neither was an unchanged tone at the press conference, with no clearer acknowledgment of downside risks even given ECB GDP projections (Figure 1) which moved down more toward our long-standing below-consensus thin

Eurozone: Sobering Services and Domestic Demand News is Food for ECB Doves

September 6, 2024 10:53 AM UTC

The fact that EZ growth was revised down a notch to 0.2% in Q2 is of little importance – it partly reflects a small recovery in imports that we have been flagging for some time would be a likely break on recorded activity.  Over and beyond more signs of slowing wage pressures in Q2 data, more not

ECB Preview: Growth Risks Debate Clearer?

September 5, 2024 11:18 AM UTC

That the ECB will cuts official rates again when it gives its next policy verdict on Sep 12 is now almost a given.  Even the hawks on the Council are willing to concede that the discount rate can (and maybe even should) fall another 25 bp (to 3.5%).  This will come alongside larger reductions to t

Eurozone: Labor Market Faltering

September 4, 2024 10:36 AM UTC

There are suggestions that worries about weaker growth are now reverberating within the ECB, albeit with the hawks still more mindful of service price resilience.  But the former worries chime with our long-standing concern of downside risk to what we still see is a below-consensus growth outlook,

EZ HICP Review: Disinflation Resumes Amid Services Resilience?

August 30, 2024 9:40 AM UTC

Prior to these latest HICP numbers, it could be argued that the EZ disinflation process has stalled given that no further drop beyond that to 2.4% in April had occurred.  Indeed, somewhat unexpectedly, headline HICP inflation rose a notch to 2.6% in July, reversing the slide seen in June.  This is

Fed Faster Than ECB and BOE?

August 29, 2024 2:05 PM UTC

The Fed will likely ease by more than the ECB and BOE by June 2025, both given pro-activeness from the Fed and also the big gap between the current policy rate and Fed’s assessment of neutral rates.  We see a cumulative 175bps of cuts by end June 2025.  ECB hawks however are unlikely to stop a c

German Data Review: Inflation Back at Target?

August 29, 2024 12:29 PM UTC

Germany’s disinflation process has not been smooth due to swings in base effects and this was again clearly the case in the August data.  After July saw the headline HICP rate rise an unexpected 0.1 ppt to 2.6%, unwinding a third of fall seen in June, it plummeted this month to a 41-month low of

Continuum Economics Calendar September 2024

August 27, 2024 1:02 PM UTC

Data and Events Calendar September 2024.

ECB: Life in the Not So Fast Lane!

August 27, 2024 9:47 AM UTC

A keynote speech by ECB Chief Economist Lane at Jackson Hole over the week-end suggested that further monetary easing is on the way but in a path that has to steer between the risks of moving too fast against those from moving too slowly.  Very clearly he implied that policy will still have to rema

ECB Policy Clues: July Accounts and Lane

August 22, 2024 12:24 PM UTC

Elements of the July accounts help build confidence in more easing we expect ECB Lane Jackson Hole speech on Saturday to also provide comfort in near-term rate expectations.  However, it is clear that key ECB board members do not want to be as clear as the run-up to the June meeting, but this could

EZ HICP Preview (Aug 30): Disinflation Resumes?

August 14, 2024 2:02 PM UTC

It could be argued that the EZ disinflation process has stalled given that no further drop beyond that to 2.4% in April has occurred.  Indeed, somewhat unexpectedly, headline HICP inflation rose a notch to 2.6% in July, reversing the slide seen in June.  This is even the case regarding the core ra

German Data Preview (Aug 29): Inflation Edges Back Down?

August 14, 2024 1:30 PM UTC

Base effects have caused the German disinflation process not to be smooth and this was even more clearly the case in the July data.  This saw the headline HICP rate rise and unexpected 0.1 ppt to 2.6%, unwinding a third of fall seen in June.  Details show stable services and core inflation but wit

Market Turbulence and What has Changed?

August 13, 2024 12:22 PM UTC

 •   We see the recent market turbulence as being partially a reduction in risky positions.  However, the U.S. economy is slowing and triggering a debate about a soft or harder landing (we see slowing rather than recession in our baseline), while EZ data shows the recovery is not gaining moment

EZ Growth Risks Increasing?

August 12, 2024 9:52 AM UTC

The EZ economy has been seeing downside risks but ones that may now be materializing.  The fact that growth rates among the EZ main economies have diverged of late (Spain robust, Germany contracting afresh) actually reflects a marked disparity in growth rates between strong services and persisting

ECB: Between a Rock and a Hard Place?

August 5, 2024 11:57 AM UTC

Amid waning momentum in business surveys of late, most notably in services, the ECB was starting to see some of the downside growth risks it has flagged actually start to materialise.  But the equity market slump now unfolding provides an added and significant downside risk.  It has direct adverse

EZ HICP Review: Disinflation Stalls?

July 31, 2024 9:32 AM UTC

It could be argued that the EZ disinflation process has stalled given that no further drop beyond that to 2.4% in April has occurred.  Indeed, somewhat unexpected, headline HICP inflation rose a notch to 2.6% in the July flash, reversing the slide seen in June.  This is even the case regarding the

German Data Review: Inflation Edges Higher Ahead of Fresh Fall in Coming Months?

July 30, 2024 12:18 PM UTC

Base effects have caused the German disinflation process not to be smooth and this was even more clearly the case in the preliminary July data.  This saw the headline HICP rate rise and unexpected 0.1 ppt to 2.6, unwinding a third of fall seen in June.  Details from similarly sized rise in the CPI

Eurozone GDP Review: Conflicting Signals?

July 30, 2024 9:31 AM UTC

At best, the EZ economy is diverging ever more clearly as Germany falters while Spain prospers more discernibly.  But while EZ GDP may have shown a sub-trend type result of 0.3%, thereby matching the Q1 outcome, there are questions about momentum, with survey data suggesting it is both feeble and p

Eurozone Data Preview (Jul 30): Fading Momentum?

July 25, 2024 9:19 AM UTC

According to revised official national accounts data, the EZ economy actually avoided what was previously suggested to have been a modest recession in H2 last year. Moreover, the economy sparked back in Q1, albeit against a backdrop of marked, if not increasing, national growth divergences but where

Continuum Economics Calendar August 2024

July 24, 2024 9:15 AM UTC

Data and Events Calendar August 2024.