Markets: Less U.S. Recession Risk, But Trade Headwinds

May 13, 2025 9:38 AM UTC

Though we had expected a U.S./China trade truce, the terms are more favorable to U.S. growth than we anticipated.  Combined with the UK framework deal, we have revised down the probability of a U.S. recession from 35% to 20%.  In turn we have revised up the end 2025 and end 2026 S&P500 forecasts t

Trump Tariffs: China and UK Precedents

May 12, 2025 8:02 AM UTC

 The U.S./China have announced major reductions in reciprocal tariffs to 10% with other measures postponed for 90 days.  Though the U.S. is still imposing an extra 20% due to fentanyl, China will likely make some moves that could also help to reduce this.  This is in line with our previous thinki

Household Divergence Into the Downturn?

May 9, 2025 10:55 AM UTC

Overall, the shock faced by the U.S. from tariffs is a negative supply shock, which can then be followed by job losses and restrained income and consumption growth.  This 2 round can be amplified if a hard landing is seen and quickens job losses, which would really hurt low income households. Howev

Eurozone Labor Market: Rising Supply Adding to Lower Wage Pressures

May 7, 2025 9:34 AM UTC

With the EZ jobless rate nestling at record lows, it would support the ECB assessment that the EZ labor market is strong, the central bank seeing only a small rise in the jobless rate this year and on to be reversed from early next year onwards.  However, that glosses over the fact that the labor m

Tariff Man

May 6, 2025 8:45 AM UTC

  With the U.S. equity market having rebounded, President Donald Trump instinct on tariffs have seen threats of pharma tariffs and a 100% tariff on non U.S. films. Slow progress is also reported on bilateral deals, despite White House PR spin.  However, Trump will see pressure rising from three so

Markets: China Truce Hopes and More Data

May 5, 2025 8:05 AM UTC

The direction of travel is towards a U.S./China truce followed by postponing/cancelling most reciprocal tariffs and then trade negotiations. While the markets could cheer this as good news, incoming economic data in May and June is the most critical issue.  We still see the U.S. imposing an average

EZ HICP Review: Headline Fails to Fall as Services Inflation Rises on Easter Effect?

May 2, 2025 9:46 AM UTC

EZ HICP inflation failed to fall back toward the 2% target in flash April data, instead staying at 2.2%.  More notably, services inflation jumped 0.4 ppt, very probably due to the impact of the timing of Easter affecting airfares and holiday costs. As was the case when this Easter effect last happe

U.S. Equities: Vulnerabilities Remain

May 1, 2025 10:25 AM UTC

 We are concerned that valuations remain high and inconsistent with nominal and real government bond yields going into a growth slowdown as tariffs hit the U.S. economy.  Our baseline is for the S&P500 to fall to 5000-5200 mid-year before recovering to 5500 by end 2025. The 10yr budget bill is lik

Continuum Economics Calendar May 2025

April 28, 2025 10:03 AM UTC

Data and Events Calendar May 2025.

EZ HICP Preview (May 2): Headline Lower Again But Mainly Energy?

April 24, 2025 8:39 AM UTC

EZ HICP inflation is likely to fall back to the 2% target in flash April data, this six-month low would largely reflect a fall in fuel prices, but with services largely consolidating the clear fall seen last time around (Figure 1).  All of which would mean a stable core reading of 2.4% but where th

Eurozone Flash GDP Preview (Apr 30): The Calm Before the Storm that Surveys May Be Flagging?

April 23, 2025 9:18 AM UTC

Continuing a series of upside surprises, EZ GDP overshot both consensus and ECB expectations in Q4), albeit only after what was a cumulative 0.2 ppt upward revisions compared to the flash. We see a further rise in Q1 data (Figure 1), partly reflecting recent m/m increases in both manufacturing and s

Trump Under Pressure

April 23, 2025 7:15 AM UTC

A deteriorating economic; volatile financial markets and weakening approval ratings are all putting pressure on the Trump administration to do trade deals.  However, Trump instincts means he still likes tariffs, while negotiations will not be quick with China restraints and non-tariffs list desired

German Data Preview (Apr 30): Lower Headline Amid Stable Services Inflation?

April 22, 2025 1:16 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. Indeed, HICP inflation fell back from 2.6% to 2.3% in March, this despite a pick-up in food inflation in both months.  Notably the

Foreign Official U.S. Treasury Holders: The Kindness of Strangers

April 22, 2025 7:30 AM UTC

Official holdings of U.S. Treasuries show a mixed picture with China, Brazil and Saudi Arabia well off peak holdings. Two drivers of some of these country flows are the peak in global central bank FX reserve holdings in 2021 and an increased holdings of other currencies in the last decade.  Neverth

ECB Review: Discussing Policy Restriction No Longer Appropriate

April 17, 2025 1:48 PM UTC

A seventh and widely expected 25 bp deposit rate cut was overshadowed by the ECB’s communication shift about the outlook hereafter, no longer talking about how restrictive policy may be.  This shift is entirely appropriate not least given the manner in which financial conditions are now tightenin

Safe Havens Other Than the USD

April 17, 2025 8:30 AM UTC

The USD and U.S. Treasuries are currently not acting like safe havens, as the crisis is U.S. centric with the tariff debacle. 10yr Treasuries can regain safe haven status if a U.S. recession occurs, but U.S. equities are still clearly overvalued versus equity and equity-bond metrics.  We prefer Ind

Eurozone Banks Offer ECB More Cause for Concern

April 15, 2025 11:14 AM UTC

The ECB can draw comfort from signs that credit demand and supply for EZ households continues to improve.  But the ECB’s latest bank lending survey (BLS) also offers worrying signs in regard to firms as well as questioning the alleged neutrality of the QT program.  It shows a further (admittedly

Nervous U.S. Long Term Asset Holders

April 15, 2025 8:30 AM UTC

   Overall, foreign equity investors can no longer count on U.S. exceptionalism and could face lower long-term corporate earnings growth, which at a minimum will likely slow net inflows.  Bond investors also face ongoing policy volatility, which likely means a need for an extra risk premium – t

U.S./China High Stakes Poker

April 14, 2025 7:30 AM UTC

The economic hit from a hard stop in U.S. imports/exports is too damaging for both sides and our baseline is still for a truce and de-escalation, in the coming weeks. This could be negotiations on a new trade deal with a more moderate reciprocal tariff on both sides and the extra reciprocal tariffs

Trade Deals with the U.S.: Pressures and Obstacles

April 10, 2025 7:17 AM UTC

Pressures to do trade deals include the weaker U.S. economy and higher inflation when it arrives/foreigners becoming nervous of their USD30trn plus holdings of U.S. securities and more crucially risks to Trump and GOP approval ratings from Republican voters. Obstacles to quick trade deals include Tr

U.S China Trade War: Deal or No Deal Prospects?

April 9, 2025 9:00 AM UTC

The prospect of a trade deal between the U.S. and China are less and likely delayed into 2026, due to the hardline stance of Trump 2.0 due to the extra focus on tariff tax revenue and shifting production back to the U.S. It is still our baseline that a deal will be agreed though we would now see a d

ECB Preview (Apr 17): Deeper Cuts on Trade Tariffs Broadening Impact

April 9, 2025 8:03 AM UTC

It is surely not a question of whether the ECB cuts rates again at its Apr 17 decision, but what it communicates about policy thereafter.  Not least given the manner in which financial conditions have tightened, the then-notable change in rhetoric last month to suggest the policy stance had become

Reciprocal Tariffs: The Hit To Other Countries

April 8, 2025 9:30 AM UTC

 Overall, we are still assessing the effects on non U.S. countries from the tariffs being imposed by the U.S. via direct trade/business investment/currency and financial & monetary conditions swings.  The impact will be adverse to GDP, but for some major countries could be less than the U.S.  How

Tariffs: Inflation may be the biggest worry for the U.S.

April 3, 2025 4:12 PM UTC

While surprising the market in their intensity, Trump’s “reciprocal” tariffs were in line with previous threats on most countries, and with Canada and Mexico being treated less harshly that feared, the net surprise is modest to us. However we do feel that inflationary risks have increased furt

ECB March Meeting Account – More Focus on Downside Risks than those on the Upside?

April 3, 2025 2:22 PM UTC

The Account of the Governing Council meeting on 5-6 March 2025 seemingly dwelt more on the downside risks posted by trade uncertainties than the upside risks posed by fiscal expansion plans across much of the EU.  It noted that not all members supported the proposal to lower the three key ECB inter

U.S. Tariffs - the EZ/EU Response?

April 3, 2025 10:24 AM UTC

The U.S is imposing a widespread tariff on the EU of 20%, higher and broader than expected, this based on U.S. calculation of an effective tariff rate of in effect 39 per cent, a figure the EU puts at about 1 per cent.  Moreover, rather than including factors such as VAT, and hygiene restrictions o

EZ Data Review: Headline Edges Lower Again With Friendlier Services and Labor Market Messages?

April 1, 2025 9:45 AM UTC

Largely as expected, there was more supportive news in the March flash HICP numbers (Figure 1), with the headline down a notch and core down 0.2 ppt (the former to 2.2% and hence the lowest since last autumn).  Perhaps more notably services inflation slowed more clearly, dropping 0.3 ppt to 3.4%, a

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.