UK GDP Preview (Jan 16): Continued Weakness?

January 10, 2025 3:20 PM UTC

The last set of GDP data add to questions about the UK’s economy’s apparent solidity, if not strength, as seen in sizeable q/q gains in the first two quarters of the year of 0.7% and 0.5% respectively.  As we envisaged, October saw a second successive m/m drop of 0.1%, well below expectations,

UK CPI Preview (Jan 15): More Mixed Inflation Signals

January 10, 2025 11:55 AM UTC

Amid current bond market ructions, which some are suggesting reflects stagflation worries, we think that looming December UK CPI data may help dispel some of the inflation aspect of those concerns.  Admittedly, markets are looking for the headline rate to nudge up a notch, although we look for a st

U.S. Treasuries versus Bunds and Gilts

January 10, 2025 8:10 AM UTC

·        UK Gilts have been dragged higher by rising Treasuries and market concerns that BOE rate cuts will be limited (here), while 10yr Bund yields have also been dragged higher by Treasuries concerns on Fed rate cuts/budget deficit and tariffs.  Multi quarter we see this as overdone. We

Gilt Yields Rise on U.S. and Fiscal Slippage Concerns

January 9, 2025 9:40 AM UTC

·       10yr Gilts yields are rising on concerns of UK fiscal slippage, but also higher U.S. yields and funding pressures as GBP100bln of BOE QT adds to the budget deficit targeted at 4.5% of GDP in 2024/25.  Chancellor Reeves will likely recommit to the fiscal rules (ie further small correc

Yuan Decline: Waiting to Offset Trump Tariffs?

January 7, 2025 8:35 AM UTC

China’s authorities are reluctant to see too quick a decline in the Yuan, as it could accelerate capital outflows and cause political unrest for the communist party.  Thus the preference remains for controlled declines in the Yuan with declines followed by periods of forced stabilization.  We do

BoJ: New Year, Old Trick?

January 7, 2025 12:00 AM UTC

USD/JPY is once again close to historical high. But are we seeing an imminent intervention?

Markets 2025: A Tale of Two Halves

January 6, 2025 8:10 AM UTC

·  For financial markets, 2025 will likely be a game of two halves.  US exceptionalism will likely drive US equities to extend outperformance in H1, while the USD rises further as tariffs (threats and actual) escalate.  However, 10yr U.S. Treasury yields will likely push higher in H2, which can

Waiting for China Fiscal Stimulus

January 3, 2025 9:31 AM UTC

It is not clear why China’s authorities are slow in announcing fiscal policy measures, but it could be either acceptance of 5% GDP trajectory or just below or alternatively a desire to see the timing and scale of extra U.S. trade tariffs on China from the incoming Trump adminstration.  We see a t

EZ HICP Preview (Jan 7): Headline Higher Again, But Core Still Clearly Friendly?

December 31, 2024 10:48 AM UTC

There were mixed messages in the November HICP numbers.  After a downward revision, and thus below consensus thinking, the headline rose 0.2 ppt to 2.2%, but where the core stayed at 2.7%, partly due to what is seemingly stable services inflation.  Higher energy costs, mainly base effects, were th

German Data Preview (Jan 6): Services Inflation Slips?

December 31, 2024 9:53 AM UTC

Germany’s disinflation process continues, with the y/y HICP headline stable at 2.4% in the November estimate, lower than widely expected, albeit where the CPI counterpart rose 0.2 ppt to 2.2%.  This was again in spite of apparently stable or resilient services inflation.  Even so, the core HICP

U.S. 10yr Yields Fiscal Worries

December 31, 2024 8:15 AM UTC

•    As 2025 progresses the budget bill is likely to cement prospects of an 8-9% budget deficit in the U.S. for years to come.  This will likely hurt Treasuries most just before the budget deficit expands quarterly Treasury issuance in Q4 2025/Q1 2026.  Worse we have a non-consensus call of

December Outlook: The Trump Effect- Tariffs, Fiscal Shifts and Geopolitics

December 30, 2024 8:05 AM UTC

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

December Outlook Webinar on Jan 7: The Trump Effect- Tariffs, Fiscal Shifts and Geopolitics

December 24, 2024 8:30 AM UTC

    The U.S. economy’s momentum remains reasonable before the impact of President-elect Trump’s policies in 2025 and 2026.  While high uncertainty exists on the scale and timing of policy, the strategic bias is clear – sizeable tax cuts that will boost the budget deficit; tariffs (threats

December Outlook: The Trump Effect- Tariffs, Fiscal Shifts and Geopolitics

December 20, 2024 12:15 PM UTC

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

Japan Outlook: Lukewarm Japan and BoJ

December 20, 2024 12:00 AM UTC

·        Due to the slow recovery in consumption, 2024 GDP has been revised lower to -0.5%. Private consumption will continue to grow throughout 2025/26 gradually as business price/wage setting behavior gently shift and Japanese consumers adapting to higher inflation. Wage growth in 2025 wil

Western Europe Outlook: Divergent Policy Thinking

December 19, 2024 2:12 PM UTC

·       In the UK, perhaps the main story in our outlook is that we retain our below-consensus GDP picture for next year, with growth of 1.0% and with downside risks. The BoE will likely ease further through 2025 by at least 100 bp and maybe faster and beyond. 
·       As for Sweden, d

BoE Review: A Dovish Hold?

December 19, 2024 12:54 PM UTC

An expected unchanged decision left Bank Rate at 4.75% but what was not foreseen was three dissents in favor of a cut with a further member advocating a more activist strategy (presumably ahead).  Overall, the BoE adhered to a gradual approach to removing monetary policy restraint remains appropria

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

Norges Bank Review: Caution Prevails

December 19, 2024 10:21 AM UTC

Surprising no-one, another (ie eighth successive) stable policy decision was forthcoming at this latest Board decision so that the policy rate at 4.5% has been in place for a year.  The statement was more open about policy being eased but only after two more meetings, so that the first cut will com

Sweden Riksbank Review: Nearing the End?

December 19, 2024 9:47 AM UTC

As widely expected, a fifth successive rate cut was seen at this December Riksbank meeting, but back to a 25 bp move rather than the 50 bp cut last time around (to 2.5% vs the 4% peak seen up until last May). But it was the updated projections (Figure 1) that was be the main news, not least given da

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

BoJ Review: A nothing burger

December 19, 2024 7:13 AM UTC

The BoJ keep rate unchanged in the Dec 19 meeting at 0.25% with no forward guidance

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

Jan 7 Outlook Webinar: The Trump Effect- Tariffs, Fiscal Shifts and Geopolitics

December 18, 2024 1:23 PM UTC

    The U.S. economy’s momentum remains reasonable before the impact of President-elect Trump’s policies in 2025 and 2026.  While high uncertainty exists on the scale and timing of policy, the strategic bias is clear – sizeable tax cuts that will boost the budget deficit; tariffs (threats

Commodities Outlook: Strategic Caution

December 18, 2024 11:00 AM UTC

The oil supply outlook depends on OPEC+ policies, with the reversal of the voluntary 2.2 million b/d cuts being officially delayed until April 2025. However, we expect the progressive rollover of these barrels into the market to be further postponed at least until the third quarter of 2025, as the c

UK CPI Review (Dec 18-19): Still Mixed Inflation Signals

December 18, 2024 7:51 AM UTC

While exceeding both our and BoE thinking, November CPI inflation jumped 0.3 ppt to 2.6%, actually an eight month high.  Services inflation remain ned at 5.0% while the core rose 0.2 ppt to 3.5%, also exceeding Bank projections (Figure 1).  The data comes after more cost pressure worries were fann

Eurozone Outlook: Trump, Tariffs and the Possible Trade Tremor

December 17, 2024 8:16 AM UTC

 ·       Once again, 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 more clearly into 2

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

UK GDP Review: Friday the 13th Weakness Confirmed?

December 13, 2024 7:41 AM UTC

The latest GDP data add to questions about the UK’s economy’s apparent solidity, if not strength, as seen in sizeable q/q gains in the first two quarters of the year of 0.7% and 0.5% respectively.  As we envisaged, October saw a second successive m/m drop of 0.1%, well below expectations, this

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

SNB Review: Easing Bias Toned Down?

December 12, 2024 9:21 AM UTC

In what seems to be ever-clearer policy front-loading, the SNB cut its policy rate by 50 bp (to 0.5%), thereby accentuating an easing cycle that had delivered three 25 bp moves since March.  Possibly, this larger, but far from unexpected, reduction was driven by a fresh assessment that the inflatio

UK CPI & BoE Preview (Dec 18-19): Benign Inflation Signals But BoE Still Cautious

December 11, 2024 12:27 PM UTC

While they may not affect the overall BoE verdict on Dec 19, which looks very likely to be a pause after last month’s 25 bp cut (to 4.75%), forthcoming data may very well influence the MPC vote and the message in the updated Monetary Policy Summary.  In particular, CPI data (Dec 18) may have some

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

Norges Bank Preview (Dec 19): Still Resistant

December 10, 2024 11:28 AM UTC

Despite what seems to be an accelerated pace of central bank easing nearby, speculation that the Norges Bank would ease by year –end had grown, but have now largely dissipated.  What seems to be the final nail in the coffin of a rate cut has been the November CPI numbers, higher than consensus bu

Sweden Riksbank Preview (Dec 19): Flagging a Little Further Easing?

December 9, 2024 1:12 PM UTC

A fifth successive rate cut is seen at this looming December Riksbank meeting, but rather back to a 25 bp move rather than the 50 bp cut last time around (to 2.75% vs the 4.0% peak seen up until last May). This would fulfil the policy guidance advertised at the September Board meeting. But it will b

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

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

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

UK GDP Preview (Dec 13): Friday the 13th Weakness?

December 4, 2024 11:09 AM UTC

There are increasing questions about the UK’s economy’s apparent solidity, if not strength, as seen in sizeable q/q gains in the first two quarters of the year of 0.7% and 0.5% respectively.  However, GDP growth has been positive in only two of the last six months of data and worth a cumulative

SNB Preview (Dec 12): How Much Further Easing?

December 3, 2024 1:54 PM UTC

Whatever the SNB does this month is likely to be merely a further staging post in an easing cycle that has to date delivered three 25 bp moves since March, ie taking the policy rate to 1.0%.  More likely the SNB will again cut by 25 bp this month, but amid downside real economy risks and inflation

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

EZ HICP Review: Headline Higher, But Core Messages Still Friendly?

November 29, 2024 11:04 AM UTC

There were mixed messages in the November flash HICP.  Matching consensus thinking, the headline rose 0.3 ppt to 2.3%, but where the core stayed at 2.7%, partly due to what is seemingly stable services inflation.  Higher energy costs, mainly base effects, were the main factor behind the rise back

German Data Review: Services Inflation Persists?

November 28, 2024 1:40 PM UTC

Germany’s disinflation process continues, albeit with the y/y HICP headline stable at 2.4% in the preliminary November estimate, lower than widely expected, but where the CPI counterpart rose 0.2 ppt to 2.2%.  This was again in spite of apparently stable or resilient services inflation (Figure 1)

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

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

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.