August 18, 2025 9:05 AM UTC

The U.S. short average term to maturity is a structural fiscal weakness if higher rates lift U.S. government interest costs close to the nominal GDP trend.  Hence, Trump’s pressure for fiscal dominance of the Fed to deliver lower policy rates and reduce U.S. government interest rate costs. Howeve

U.S. Markets: Soft Versus Hard Landing

August 14, 2025 1:02 PM UTC

      A mild recession would likely trigger the Fed to ease quickly to 2.0-2.5%, which would produce yield curve steepening but would likely drag 10yr yields down to 3.50-3.75%.  The S&P500 would likely fall to 5000 in this scenario, as corporate earnings are axed; buybacks slow and the price/ea

Norges Bank Review (Aug 14): Job Concerns Growing?

August 14, 2025 8:52 AM UTC

After the surprise 25 bp rate cut in June, it was back to humdrum predictability with the widely expected stable policy decision at 4.25%.  Regardless, the Board could be attacked for plagiarism given the manner in which the updated press release mimics that seen in June, save for the fact that bot

UK GDP Review: Fresh Upside Growth Surprise But Partly Inventory Driven?

August 14, 2025 7:02 AM UTC

To what extent better in June GDP, not least it having been the warmest even such month in England, lay behind the fresh upside surprise that saw the economy grow 0.4%, twice generally expected and with the falls of the two previous months pared back so that a clearer uptrend has emerged (Figure 1).

UK CPI Preview (Aug 20): Services Inflation Fall Afresh r as Headline Stabilises?

August 11, 2025 2:24 PM UTC

After the upside (and broad) June CPI surprise, we see CPI inflation steady at 3.6% in July, 0.2 ppt below BoE thinking.  Our relatively lower estimate factors in lower services inflation (Figure 1) and a fall back in that for food, the former allowing the core rate to unwind the increase to 3.7% s

Sweden Preview (Aug 20): Riksbank to Cut for Final Time?

August 11, 2025 12:42 PM UTC

We see the Riksbank delivering a further 25 bp rate cut on Aug 20, taking the policy rate to new cycle low of 1.75%.  This would chime with the hints after the last meeting and cut in July of a further move is possible.  And with both real activity and CPI data having delivered downside news and s

BoE Review: The (Fiscal) Elephant in the Room as the BoE Splits

August 7, 2025 12:48 PM UTC

The widely expected 25 bp Bank Rate cut (to 4% and the fifth in the current cycle) duly arrived although the anticipated three-way split on the MPC was not quite as expected. It is puzzling how policy makers, faced obviously with both the same array of data and the same remit, can think so relativel

UK GDP Preview (Aug 14): Small GDP Rises Hardly Worth Shouting About?

August 6, 2025 2:48 PM UTC

There are some better signs as far as June GDP is concerned, not least it having been the warmest even such month in England.  But we see only a 0.1% m/m rise (Figure 1), even with slightly better property and retail signals for the month.  However, such an outcome, while a contrast to the two suc

U.S. Immigration Slowdown and the Labor Market

August 6, 2025 7:58 AM UTC

Overall, slower illegal and legal immigration will likely slow employment growth and curtail the rise in the unemployment rate from the U.S. economic slowdown.  More older workers or an increase in the percentage of female workers would help, but are not a priority for the Trump administration and

Norges Bank Preview (Aug 14): Amid Very Restrictive Stance, A Policy Pause – Already?

August 5, 2025 1:48 PM UTC

Although surprised, we thought the Norges Bank’s unexpected easing in June was very much warranted, as are the further cuts being flagged in the Monetary Policy Report (MPR) that came alongside – ie two more such moves by end year.  We actually envisage up to three more moves this year and arou

August 5, 2025 9:50 AM UTC

U.S. Treasury spreads versus other DM government bond markets or 10-2yr U.S. Treasuries are not yet showing a risk premium from the Trump administration attacks on the Fed and economic data. Debate over whether the U.S. is seeing a soft or hard landing are reemerging and this will dominate the outlo

Trump Tougher Posture with Russia

August 4, 2025 8:31 AM UTC

      We suspect that Trump will not follow-through with an across the board secondary sanction on importers of Russia oil, as it would freeze U.S./China trade again and could boost U.S. gasoline prices – high inflation is one main reason for Trump’s softer approval rating.  Trump could agre

EZ HICP and Jobs Review: Headline at Target as Services Inflation at Fresh Cycle-low

August 4, 2025 8:25 AM UTC

HICP, inflation – still at target – is very much a side issue for the ECB at present, albeit with the likes of oil prices and tariff retaliation and a low but far from authoritative jobless rate (Figure 3) possibly accentuating existing and looming Council divides.  Regardless, despite adverse

Reciprocal Tariffs: Some Hikes, Deals and Delays

August 1, 2025 8:40 AM UTC

 Though high reciprocal tariffs with some countries catches the headline, five of the top 10 countries with large bilateral deficits have reached framework trade deals, two have delays and three have higher tariffs imposed.  With exemptions on some USMCA Canada/Mexico goods, plus phones/ semicondu

German Data Review: Services Inflation Slows Further?

July 31, 2025 12:39 PM UTC

Germany’s disinflation process continues, with the lower-than-expected July preliminary HICP numbers reinforcing this pattern, with a 0.2 ppt drop to 1.8%, a 10-mth low (Figure 1)!  This occurred in spite of adverse energy base effects. Regardless, there was some reversal of June’s surprise and

BoE Preview (Aug 7): Labour Market Softness to Trigger Further Cut, But Fiscal Risks Loom

July 31, 2025 7:14 AM UTC

After what was widely considered to be a dovish hold at the last (June) MPC meeting (Bank Rate staying at 4.25%) which saw three dissents in favor of easing at that juncture, a 25 bp reduction is very much on the cards for the August decision.  Likely to discuss its two alternative scenarios still,

BoJ Review: As expected

July 31, 2025 5:20 AM UTC

The BoJ kept rates unchanged at 0.5% in the July 31st meeting with inflation forecast revised higher

DM Household Sluggish Borrowing

July 30, 2025 10:45 AM UTC

·        Overall, restrained credit supply from banks; abundant employment/income or wealth for most households but restrained financial conditions for low income households could have restrained household lending growth to GDP.  However, the surge in government debt and ensuing fear of fut

Eurozone Flash GDP Review: Resilience or Irrelevance?

July 30, 2025 9:52 AM UTC

As we highlighted in our preview, for an economy that has seen repeated upside surprises and above trend growth, now some 1.4% in the year to Q2, GDP data do not seem to have had much impact is shaping, let alone dominating, ECB policy thinking. We think this will continue to be the case even after

EZ Real Economy – Diverging Sentiment Indictors Complicate Outlook

July 29, 2025 9:26 AM UTC

The ECB contends that the EZ economy has shown resilience of late.  Maybe so, albeit where GDP data (likely to average a satisfactory 0.3% q/q performance so far this year) are probably offering a misleading picture of underlying trends in real activity.  Indeed, recent GDP data gains have been pr

BoJ Preview: Inflation forecast higher

July 29, 2025 6:08 AM UTC

The BoJ will keep rates unchanged at 0.5% in the July 31st meeting 

U.S.-EU Trade Agreement: More a Framework Than a full Deal

July 28, 2025 9:08 AM UTC

In what seems to have been a fully-fledged political capitulation to the U.S. the EU, it seems, is accepting an agreement that would see an almost-blanket reciprocal 15% tariff on its exports to the U.S.  But there still some imponderables, not least the range of sectoral concessions, whether EU me

ECB Review: Policy ‘On Hold’ Leaves Easing Door Open

July 24, 2025 1:48 PM UTC

Given the uncertainty overhanging policy makers worldwide, let alone in the EZ, the ECB was always likely to revert to stable policy after seven consecutive cuts which have taken the discount rate to its current 2%.  In a much shortened statement, but which was more willing to highlight disinflatio

EZ HICP Preview (Aug 1): Headline at Target as Services Inflation at Fresh Cycle-low?

July 23, 2025 10:35 AM UTC

HICP, inflation – now at target – is very much a side issue for the ECB at present, albeit with the likes of oil prices and tariff retaliation possibly accentuating Council divides.  Despite adverse energy base effects, we see the flash July HICP staying at June’s 2.0% but up from May’s eig

Trump Deals: Japan, Philippines and Indonesia

July 23, 2025 8:26 AM UTC

•    Other countries cannot be guaranteed to get a Japan style deal, both as Japan is the key geopolitical ally in the Asia pivot against China and as Trump is keen to agree deals by August 1.  India and Taiwan are trying to finalize deals, but the EU is more difficult.  China 90 day deadlin

Japan: Mission Accomplished?

July 23, 2025 8:01 AM UTC

U.S.-Japan reached a trade deal with 15% reciprocal tariff

DM Rates: QT adds to Budget Deficits Pressures

July 22, 2025 10:05 AM UTC

·        Heavy issuance due to the U.S. budget deficit, plus Fed rate cuts will help further yield curve steepening in H2 2025.  In EZ and UK, ECB and BOE QT is large and amplifies the amount of debt that the rest of the market has to absorb, which will also drives yield curve steepening al

Eurozone Flash GDP Preview (Jul 30): A Pause that Does Not Refresh?

July 22, 2025 9:13 AM UTC

For an economy that has seen repeated upside surprises and above trend growth of 1.5% in the year to Q1, GDP data do not seem to have had much impact is shaping, let alone dominating, ECB policy thinking. We think this will continue to be the case even where the looming Q2 data may show a modest con

German Data Preview (Jul 30): Services Inflation to Slow Further?

July 21, 2025 12:49 PM UTC

Germany’s disinflation process continues, with the lower-than-expected June preliminary numbers refreshing and reinforcing this pattern, with a 0.1 ppt drop to 2.0%, a 10-mth low (Figure 1)!  But we see no further drop in the July preliminary numbers largely due to adverse energy base effects - 

2yr Germany and ECB Expectations

July 21, 2025 10:07 AM UTC

·       Money markets are putting too much weight on ECB communications and we feel that a softening labour market/financial conditions and more tariffs from the U.S. will be enough to shift the ECB to deliver two final 25bps cuts in H2 2025.  Though the 2yr Germany to ECB depo rate spread w

LDP Likely Lose Control of the Japan Upper House

July 21, 2025 2:00 AM UTC

Early exit pools suggest the ruling LDP coalition will likely lose majority

Trump’s and Fed Easing

July 18, 2025 9:34 AM UTC

•    Trump goal of substantially lower short-term rates could be achieved with a recession, but otherwise is unlikely even when Fed chair Powell is replaced.  The majority of voting FOMC members will make decisions based on economics not politics.  However, Trump fixation with lower rates an

Trump’s Tariffs and Markets

July 17, 2025 12:00 PM UTC

The assumption in financial markets is that some trade framework deals will be done by August 1; some countries will make enough progress to be given an extra 30 days and some countries could have higher tariffs implemented. This would be broadly consistent with the average 15% tariff that is widely

UK Labor Market – No Lack of Slack

July 17, 2025 6:58 AM UTC

Even the BoE has acknowledged that the UK economy is developing slack in its labor market that we suggest is now not so much less tight but decidedly loose. Indeed, just days after BoE Governor Bailey suggested that signs of increasing labor market slack might prompt faster rate cuts, more such evid

ECB Preview (Jul 24, Part Two): Policy Pause Despite Tighter Financial Conditions

July 16, 2025 1:07 PM UTC

The next ECB Council meeting decision on Jul 24 looms but (as we noted in the part one preview) markets (understandably) sees no further cut, at least at that juncture.  However, we think that the ECB will ultimately still have to ease further - two more 25 bp cuts in H2 - and would not even rule o

UK CPI Review: Services Inflation Fails to Fall Further as Headline Surprises on Upside?

July 16, 2025 6:42 AM UTC

Calendar effects have been accentuating swings in UK CPI data of late and these may have reoccurred in the June numbers partly explaining June numbers which surprised on the upside. Indeed, June saw the headline and core rise a further 0.2 ppt – the former to an 18-mth high of 3.6%.  Moreover, se

ECB Preview (Jul 24, Part One): Labor Market Looking Softer than Council Thinking

July 15, 2025 8:45 AM UTC

The next ECB Council meeting decision on Jul 24 looms but where market (understandably) sees no further cut, at least at that juncture.  Indeed, the ECB may signal signs of economic resilience albeit noting that the added uncertainty emanating from the latest U.S. tariff threat warrants more circum

Tariffs: Seeking a Trigger for the TACO Trade

July 14, 2025 4:28 PM UTC

It has been fairly clear for some time that 10% represented a likely floor for the eventual Trump tariff regime. However, expectations that Trump would not be willing to go dramatically above that are being tested. A rate in the mid-teens still looks the most likely outcome, as the economic damage t

UK BoE Hints of Faster Easing Backed up by Survey Data?

July 14, 2025 8:38 AM UTC

Somewhat ironically, just as BoE Governor Bailey suggested that signs of increasing labor market slack might prompt faster rate cuts, more such evidence accumulates.  In fact, as monthly survey compiled by Markit pointed to not only weaker pay pressures, falling job rolls (Figure 1) and a steep ris

EU Blindsided by Latest Tariff Threat

July 14, 2025 6:56 AM UTC

Having announced over the weekend a 30% “reciprocal” tariff from August 1 on EU exports to the U.S., the EU seems to be a state of somewhat shock, wary that months of negotiations have failed, let alone succeeded in reducing the tariff threat from the original 20%.  In response, European Commis

UK GDP Review: Another Downside Surprise

July 11, 2025 6:28 AM UTC

After two successive upside surprises, a correction back in monthly GDP was not entirely a wholesale surprise for April GDP.  But that 0.3% m/m drop was almost repeated in the May numbers (Figure 1), where a further albeit smaller (ie 0.1%) fall occurred, but very much below consensus.  Admittedly

UK CPI Preview (Jul 16): Services Inflation to Fall Further?

July 9, 2025 2:05 PM UTC

Calendar effects have been accentuating swings in UK CPI data of late. Indeed, the timing of Easter may have been a partial factor in the May CPI, where a distinct drop back in services and core rates failed to make the headline drop, which instead stayed at 3.4% in line with BoE thinking due to hig

UK: Risk Picture Rising and Broadening

July 9, 2025 12:35 PM UTC

The BoE’s latest message from its Financial Policy Committee notes that UK household and corporate borrowers remain resilient in aggregate while the UK banking system remains in a strong position even if economic, financial and business conditions became substantially worse than expected.  But th

Eurozone: Damage Limitations on Tariffs, Uncertainty to add to Banks' Caution??

July 9, 2025 9:37 AM UTC

It remains unclear just how much of a movable feast the new U.S. tariff deadline of Aug 1 actually is.  Trade deals with the US were supposed to be agreed by today, or face the reciprocal tariffs as outlined in April. But that has now been deferred to, with US Treasury Secretary Bessent, hinting ac

June ECB Council Meeting Account Review: Divides Continue if Not Widen

July 3, 2025 12:24 PM UTC

The account of the June 3-5 Council meeting just about left the door  open for a move at the July 24 policy verdict given the array of news (probably negative particularly regarding tariffs but also bank lending) due beforehand.  But the account adds to the impression we has initially that a pause

UK GDP Preview (Jul 11): Another Large Downside Surprise?

July 3, 2025 9:12 AM UTC

After two successive upside surprises, a correction back in monthly GDP was not entirely a wholesale surprise for April GDP.  But we see that 0.3% m/m drop being repeated in the looming May numbers (Figure 1), thereby adding to a gloomier economic backdrop most recently highlighted by growing signs

UK: Tax Rises Looming?

July 2, 2025 8:34 AM UTC

The politically damaging climb-down on welfare spending yesterday also saw the government face an additional fiscal hole after the fiscal watchdog (the Office for Budget Responsibility, OBR) hinted it has been repeatedly overestimating growth.  Indeed, in its annual Forecast Evaluation Report, it s

DM Central Banks: Overlooking Lagged 2021-23 Tightening and QT?

July 2, 2025 8:30 AM UTC

We are concerned that DM central banks are underestimating the lagged impact of 2021-23 tightening and ongoing QT, which impacts the transmission mechanism of monetary policy.  Central banks need to consider cyclical and structural issues, but also need a more rounded view of the stance and implica