German Data Review: Lower Headline Amid Clearer Drop in Services Inflation

March 31, 2025 12:14 PM UTC

Germany’s disinflation process continues, but there had been signs that the downtrend was flattening out but this changed somewhat in February and again in the March preliminary numbers. Indeed, HICP inflation fell back from January’s 2.8% to a 3-mth low of 2.6% last month and then to 2.3% in Ma

U.S. Trade Surplus Countries: No Special Treatment?

March 31, 2025 9:04 AM UTC

Quick dilutions of tariffs or exemption will likely be slow in coming for countries that the U.S. has trade surpluses with, as the Trump administration are currently more focused on tariffs for tax revenue and trying to switch production back to the U.S. than trade deals.  Trade policy uncertainty

Continuum Economics Calendar April 2025

March 28, 2025 11:41 AM UTC

Data and Events Calendar April 2025.

March Outlook: Navigating the Turbulence

March 27, 2025 10:30 AM UTC

All chapters of the March Outlook are now available and simply click the link below. 

Car Tariffs Then Lenient Reciprocal Tariffs?

March 27, 2025 8:59 AM UTC

   The 25% tariffs on cars underlines that tariffs are not just about getting better trade deals, but in Trump’s view raising (tax) revenue and trying to shift production back to the U.S. Combined with other tariffs being implemented, plus policy uncertainty, we see a moderate overall hit from t

Outlook Overview: Navigating the Turbulence

March 26, 2025 9:30 AM UTC

·       More tariffs will arrive from the U.S. from April with product (car, pharma, semiconductors and lumber) and reciprocal tariffs. President Trump has a 3-part approach to tariffs to raise (tax) revenue; bring production back to the U.S. and get fairer trade deals.  This means some of t

Equities Outlook: Turbulence Ahead

March 26, 2025 9:05 AM UTC

·       U.S. trade wars will likely hurt U.S. growth and raise inflation, with only small to modest Fed easing and a 10yr budget bill that will likely be neutral to negative for the economy.  With valuations still very high (Figure 1), we see scope for a correction to extend into mid-year th

German & EZ HICP Preview (Mar 31/Apr 1): Headline Edges Lower Again With Friendlier Services Messages?

March 25, 2025 1:43 PM UTC

February HICP inflation numbers did deliver better news and broadly and less marginally so after revisions with the headline dropping 0.2 ppt to an as-expected 2.3%.  This ended a run of three successive rises and came about despite a rise in food inflation.  Regardless, the core also eased 0.1 pp

DM Rates Outlook: Policy Divergence

March 25, 2025 9:30 AM UTC

 •    2yr U.S. Treasury yields can step down with cautious  Fed easing on a modest/moderate growth slowdown and also if the Fed keeps an easing bias. 10yr U.S. Treasury yields can be helped by this easing and see a move down through 2025.  However, the budget deficit will likely be 6.5-7.0%

DM FX Outlook: USD under pressure as Trump policies disappoint

March 25, 2025 8:51 AM UTC

·       Bottom Line: The market had expected the Trump presidency to see further fiscal expansion and consequent tight Fed policy and high US yields. But the combination of less tax cuts than previously expected and more aggressive tariff increases have led to reduced expectations for US grow

Eurozone Outlook: At A Crossroads?

March 24, 2025 10:45 AM UTC

·       For once in a long while, we have upgraded the EZ activity forecast and for 2026 actually to a notch above consensus thinking. However, the current backdrop still suggests that while the economy has been growing afresh it is doing so timidly, with downside risks persisting more clearl

Trump Product and Reciprocal Tariffs

March 21, 2025 9:00 AM UTC

It appears that we will get bad news from April 2 on extra tariffs before any good news.  Firstly, the announcement effect of tariffs for many countries and extra products will hurt U.S. business and consumer sentiment.  Secondly, part of the reason for tariffs is extra tax revenue and to try to s

Uncertainty Over Pace and Scale of Extra European Defense Spending

March 18, 2025 9:05 AM UTC

·       The crucial date for more clarity is the June 24-26 NATO summit.  Donald Trump might attend but will ask for more spending.  NATO head Rutte’s desire is for above 3% of GDP for NATO countries, but the politics and budget suggest that a 2.5% minimum may only be agreed with Germany

Germany: Breakthrough in Attempt to Unlock Debt Brake?

March 14, 2025 12:08 PM UTC

It does seem as if effective German Chancellor-elect Merz now has enough parliamentary support to amend the so-called debt brake and unlock more spending and borrowing to be directed toward added defense and infrastructure.  Thus, it does seem as if Germany and its economy are undergoing a sea-chan

Trump and Dollar Policies

March 10, 2025 6:04 AM UTC

   The Trump administration could decide to more broadly talk the USD down or less likely try to reach a cooperative Mar A Lago accord with big DM and EM countries. A more cohesive alternative is a forced currency deal for countries to appreciate their currencies to avoid more tariffs and withdraw

ECB Review: Disinflation Still On Track But Policy now ‘Work in Progress’

March 6, 2025 3:01 PM UTC

Unsurprisingly, the ECB verdict was less important that the rhetoric. A sixth 25 bp discount rate was widely expected – and delivered - to 2.5%, but how wide the door is left open for further cuts may be more opaque.  This both reflects gauging the extent of any lingering degree of policy restric

EZ Bilateral Trade Nuances with the U.S. – Its Imports Not Exports

March 5, 2025 12:56 PM UTC

As the EU/EZ prepares for an almost certain trade spat if not trade war with the U.S. as the latter levies well-flagged and probably significant tariffs, we consider what is actually behind President Trump’s ferocity regarding bilateral trade.  As has been suggested widely, the EZ does not actual

Germany Attempts to Unlock Debt Brake

March 5, 2025 7:42 AM UTC

Germany’s likely new Chancellor Friedrich Merz has (and as has been flagged since his election win last week) announced plans to amend the country’s constitutional fiscal restraints, the so-called debt brake and within the confines of the current parliament.  Merz said Tuesday evening the motto

EZ HICP Review (Mar 3): Headline Edges Lower With Friendlier Services Messages?

March 3, 2025 4:17 PM UTC

February HICP inflation numbers may did deliver better news and broadly but only marginally so (Figure 1) with the headline dropping 0.1 ppt to a higher-than-expected 2.4%.  This ended a run of three successive rises and came about despite a rise in food inflation.  Instead, the core also eased’

German Data Review: Stable Headline but Belated Drop in Services Inflation

February 28, 2025 1:26 PM UTC

As Germany faces possibly deeper and more prolonged political deadlock, its disinflation process continues, but there are signs that the downtrend is flattening out and this may be the message into the rest of 2025. Indeed, as was the case in January, HICP inflation stayed at 2.8% in February, a not

ECB Preview (Mar 6): Gauging Restrictiveness as Policy to be Eased Further

February 27, 2025 1:55 PM UTC

As has been the case at most recent Council meetings, the ECB verdict is less important that the rhetoric. A sixth 25 bp discount rate is widely expected, to 2.5%, but how wide the door is left open for further cuts may be gleaned from any clear change in regard to how near(er) neutral policy the Co

Continuum Economics Calendar March 2025

February 27, 2025 9:52 AM UTC

Data and Events Calendar March 2025.

Eurozone: Gauging ECB Neutral Amid a Wandering R-Star

February 26, 2025 12:14 PM UTC

It is clear that, especially with another official rate cut due at the looming ECB Council meeting (Mar 6), the existing debate about how restrictive policy will be may only intensify.  Indeed, the debate is already quite vocal, led by the hawks who are trying to argue for policy pause at least. 

Equities: Growth, Rates and Tariffs

February 26, 2025 8:30 AM UTC

·        EZ equities still have further scope to outperform U.S. equities in the remainder of 2025 helped by further ECB easing/hopes of a Ukraine peace deal and U.S. equity market overvaluation restraining the U.S.  However, this can be volatile with uncertainty over the scale of U.S. tari

Eurozone: Wages – Good News Comes in Threes?

February 25, 2025 11:40 AM UTC

They say that good things often come in threes.  For the ECB, Q4 data on negotiated wages just released adds to both INDEED compiled wage indicator and the central bank’s own wage tracker data in suggesting softening if not very muted cost pressures, something we attribute to the rising EZ labor

EZ HICP Preview (Mar 3): Headline Back Down With Friendlier Core Messages?

February 24, 2025 3:34 PM UTC

February HICP inflation numbers may deliver better news and broadly so (Figure 1) and thus contrast with the mixed messages in the higher-than-expected January flash HICP numbers.  Indeed, for a third successive month in January, the headline rose but by ‘only’ 0.1ppt, to a six-month high of 2.

Germany: A New but Hampered Government

February 24, 2025 8:53 AM UTC

The German election delivered few surprises with the electorate swinging even more clearly away from the political middle ground.  It clearly means that many difficult decisions lie ahead with questions over the effectiveness of the likely new government.  The result is only likely to inflame US c

Ukraine Peace, U.S. Troop Withdrawals and Trump NATO Threats

February 24, 2025 8:27 AM UTC

·       Our baseline remains of a Russia-friendly peace deal in Ukraine, but this need not lead to a weaker European security situation.  This is our baseline (Figure 1), but does require Europe to make concessions to the Trump administration on defence spending increases and trade. However,

Eurozone: More Sobering Economic News

February 21, 2025 10:21 AM UTC

The February composite PMI data may have not fallen (stable at 50.2) and the weaker-than-expected outcome was dominated by sharp addition weakness in France, but the data will be uncomfortable reading for the ECB.   The data very much suggest that the better news regarding EZ consumer spending see

Bunds and ECB Easing/Trump Tariffs

February 20, 2025 8:03 AM UTC

          It is highly likely in April that the U.S. will announce a 25% tariff on EU cars and pharmaceuticals (here) and also reciprocal tariffs against the EU. The majority could be implemented given Trump’s desire to raise revenue/dislike of the EU as well as negotiate trade deals. This

U.S. 25% Tariff for Cars, Pharma and Semiconductors?

February 19, 2025 1:40 PM UTC

·        Tariff reality in the spring and summer will likely be both tariff threats to negotiate trade deals and permanently higher tariffs in certain products and reciprocally to raise revenue for the U.S. government – along Peter Navarro guidance to Trump.  The macro effects of this cou

Europe: Economic Consequences of Likely Defence Build-Up

February 18, 2025 3:29 PM UTC

As Europe is forced to consider a massive and rapid ramp up to its relatively mediocre defence spending (Figure 1) as it contemplates a reduction in military support from the US, key questions emerge as the economic effect(s).  Will it boost or inhibit growth, add to inflation, and how will/should

U.S. Treasuries and the Trump Effect

February 18, 2025 1:20 PM UTC

If the Fed convince the market that it is leaving the door open to easing and sees Fed Funds reduction multi-year, then 2yr could hold onto a small discount in the next two quarters and then swing to a small premium of 2yr to Fed Funds (Figure 1).  10yr yields will likely maintain a small to modest

Reciprocal Tariffs and Reducing Bilateral Trade Imbalances

February 17, 2025 10:28 AM UTC

·       President Trump’s executive order on reciprocal tariffs has not produced much market reaction, both as the proposals will not be delivered to the president until April 1 and the process of Commerce/U.S. Treasury and Homeland Security input is seen reducing the odds of penal tariffs.

Europe’s Ukraine Political Fallout and Market Hopes

February 13, 2025 12:33 PM UTC

European politicians are surprised and angry at the U.S. stance on a peace deal for Ukraine and less military support for Europe, but eventually they will have to accept the new reality.  Europe is too divided to provide security guarantees to Ukraine on its own. A further increase and acceleration

Trump’s Tariffs: Steel Then Reciprocal and Then Cars

February 11, 2025 1:23 PM UTC

 The 25% Steel and Aluminum tariff could have small to modest adverse inflation and GDP growth impacts on the U.S., but the prospect of reciprocal and more product and country tariffs create trade policy uncertainty/supply chain disruption and paperwork problems.  This could amplify the impact of

Europe’s Gas Problem Again?

February 11, 2025 8:30 AM UTC

The ECB staff forecasts on March 6 will be revised upwards for 2025 and 2026, due to the surge in wholesale gas prices.  However, the ECB will likely take the view that 2 round effects from higher gas prices on balance are unlikely to boost core inflation (especially given wage tracker softness) an

Eurozone: The Neutral Rate – Probably Little Changed Recently Unlike Central Banks

February 7, 2025 1:14 PM UTC

A well-advertised research paper from the ECB suggests that the real neutral rate of interest for the EZ has not changed very much in the last few years but with a likely range of between -0.5% and +0.5%, but still well below estimates for what is so-called r* prior to the pandemic (Figure 1).  The

Eurozone: Trump Taking Aim at the EU?

February 5, 2025 9:06 AM UTC

President Trump has made it clear that the EU is going to face US tariffs in the not too distant future.  Admittedly, tariff threats have been used as the basis for negotiation elsewhere, this may be the case for the EU too – as was the case during Trump’s first term.  As for the EU, it does h

EZ HICP Review: Headline Rises Amid Still Friendly Core Messages?

February 3, 2025 10:38 AM UTC

There were mixed messages in the higher-than-expected January flash HICP numbers.  For a third successive month, the headline but this time by ‘only’ 0.1ppt, to a six-month high of 2.5%, but where the core (again) stayed at 2.7%, partly due to what is seemingly relatively stable services inflat

German Data Review: Mixed Inflation News but Politics Dominate?

January 31, 2025 1:28 PM UTC

As Germany faces possibly deeper and more prolonged political deadlock, its disinflation process continues, but there are signs that the downtrend is flattening out and this may be the message into the rest of 2025. Indeed, January HICP inflation stayed at 2.8% an outcome largely as expected.   Bu

ECB Review: Policy Still Restrictive

January 30, 2025 2:34 PM UTC

It was always likely that the ECB verdict at this month’s Council meeting would be less resounding than that seen in December.  A fifth 25 bp discount rate cut did occur, to 2.75%, but may not have seen any demand to at least consider a larger move as was the case last month.  But the door is le

Eurozone Flash GDP Review: Momentum Missing as Divergence Continues?

January 30, 2025 10:31 AM UTC

After a series of upside surprises, EZ GDP both weakened and undershot both consensus and ECB expectations in Q4 (Figure 1). There is a certain irony that for an ECB Council that has evidently shifted its main concern away from broadly falling inflation to real economy weakness, the soft Q4 GDP outc

Continuum Economics Calendar February 2025

January 29, 2025 4:50 PM UTC

Data and Events Calendar February 2025.

EZ Monetary Insight: Politics Making Banks More Risk Averse Accentuating EZ Divergences

January 29, 2025 11:01 AM UTC

Ahead of what seems to be a routine decision tomorrow, recent monetary data complicate the policy outlook for the ECB in the months ahead.  Positively, ECB compiled money data show discernible signs of as revival in bank lending, even for companies, although still hardly any growth in real terms. 

EZ HICP Preview (Feb 3): Headline to Slip Amid Friendlier Core Messages?

January 27, 2025 11:42 AM UTC

There were mixed messages in the December HICP numbers.  For a second successive month, the headline rose 0.2 ppt, but to 2.4%, but where the core (again) stayed at 2.7%, partly due to what is seemingly stable services inflation.  Once again, higher energy costs, mainly base effects, were the main

ECB Preview (Jan 30): A Staging Post in Easing Cycle

January 24, 2025 10:32 AM UTC

It is unlikely that the ECB verdict at this month’s Council meeting will be anything like as resounding as that seen in December.  A fifth 25 bp discount rate cut is virtually assured, to 2.75%, but may not see any demand to at least consider a larger move as was the case last month.  Admittedly

German Data Preview (Jan 31): Services Inflation Slows Belatedly?

January 22, 2025 2:09 PM UTC

Germany’s disinflation process continues, but there are signs that the downtrend is flattening out and this may be the message into the rest of 2025.  After a largely energy but a still relatively broad rise to an 11-mth high of 2.8% in December, we see the rate down 0.2 ppt to 2.6% in the prelim

Eurozone Flash GDP Preview (Jan 30): Are Surveys Too Gloomy?

January 22, 2025 11:33 AM UTC

There is certain irony that for an ECB Council that has evidently shifted its main concern away from broadly falling inflation to real economy weakness, its next policy decision arrives on the day of the next GDP release. We see the ECB cutting a further 25 bp but with some Council members again cal