UK August CPI Preview (Sep 18): Inflation Slips Back and Services Resilience Diminishes Further?

September 9, 2024 10:49 AM UTC

The July CPI was notable for the clear and larger-than-expected fall in services inflation, one driven by a fall in restaurant/hotel inflation, this often seen as a bellwether indicator of price persistence.  Indeed, services inflation fell 0.5 ppt to 5.2%, a two-year low and well below the BoE pro

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,

UK GDP Preview (Sep 11): More Mixed Messages Ahead as Fiscal Updates Looms

September 3, 2024 9:23 AM UTC

It does seem as if the economy is going to show more positive signs with the July GDP data.  Indeed, we see a 0.2% m/m rise, albeit with the data still showing volatility.  Indeed, GDP growth has been positive in only one of the three months of the last quarter, having been flat in June.  Regardl

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

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

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

Israel/Hezbollah War Risks

August 26, 2024 8:02 AM UTC

The probability of an Israel/Hezbollah war in the next 12 months has move up from low to modest probability, but would be a high impact event geopolitically and for global markets.  For global markets, a distinction would be drawn between an Israel/Hezbollah war that did not involve Iran/U.S. and o

Powell Jackson Hole Guidance

August 23, 2024 2:38 PM UTC

  Fed Powell clearly signaled a Sep 18 FOMC cut, but his analysis on the economy is softer than harder landing.  Though the option of 50bps was not ruled out, the comments from Powell and other Fed officials are more consistent with 25bps than 50bps.  Nevertheless, the Fed is now more focused on

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

Riksbank Deliver 25bps and More to Come

August 20, 2024 7:58 AM UTC

Riksbank appear more concerned about a weak economy, which is causing forward guidance of a faster pace of easing after today’s 25bps cut to 3.50%.  We look for 25bps cuts at the September and December meeting and a further 25bps is possible at the November meeting if inflation remains under cont

Fed Decision Making/H1 2025 Fiscal Tensions and Yield Curve Steepening

August 19, 2024 8:15 AM UTC

2yr U.S. Treasury yields can fall gradually by end 2025 to 3.25%, as a more neutral Fed Funds era is discounted.  10yr yields ability to decline on a soft landing is more difficult, given high net supply facing the market.  We also remain concerned that the U.S. will see some temporary fiscal stre

Norges Bank Review: Head in the Sand?

August 15, 2024 9:44 AM UTC

Surprising few, and with no mention of recent stock market gyrations, the Norges Bank is kept its policy rate at 4.5% for a fifth successive meeting this month, the last hike to the current 4.5% policy rate occurring last December.  But amid what have been softer than (Norges Bank) expectations for

UK GDP Review: Mixed Messages with Little to Sway the BoE

August 15, 2024 7:00 AM UTC

After the mild recession in H2 last year, the ‘recovery’ now evident is much clearer than any expected with GDP growth notably positive but in only one of the three months of the last quarter.  Indeed, amid weaker retail sales, property transactions and car production data, GDP failed to grow i

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

Sweden Riksbank Preview (Aug 20): Still Trying to be Gradual?

August 14, 2024 8:15 AM UTC

Recent data have justified the Riksbank’s increased confidence in the current disinflation process and is highly likely to exercise its easing bias with a second (in three months) 25 bp rate cut (to 3.5%) at the Sep 20 policy verdict.  As for future policy, in a Board meeting with no fresh projec

UK CPI Review: Inflation Up on Energy But Services Resilience Diminishes

August 14, 2024 6:47 AM UTC

The July CPI is notable for a clear fall in services inflation, one driven by a fall in restaurant/hotel inflation, this often seen as a bellwether indicator of price persistence.  Indeed, services inflation fell 0.5 ppt to 5.2%, a two-year low and well below the BoE projection.  Even so, due to e

UK Jobs Data: A Tale of Two Markets

August 13, 2024 2:14 PM UTC

Amid distortions in much of the labor market data, the BoE is focusing on private sector numbers, especially given the added distortion of recent and looming high public sector ay awards.  In that regard it will get some solace from today’s average earnings data which show private regular pay at

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

U.S. Election Update: Heading for the Least Risky Outcome?

August 12, 2024 3:06 PM UTC

Since President Joe Biden dropped out of the race, his Vice President Kamala Harris has moved into a marginal lead in the polls against former president Donald Trump and must now be seen, albeit marginally, as the more likely winner. Democrats are looking increasingly likely to gain control of the H

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

Norges Bank Preview (Aug 15): Less Hawkish?

August 9, 2024 10:00 AM UTC

Given its recent rhetoric and currency concerns, and in spite of current stock market gyrations, the Norges Bank is very likely to leave its policy rate at 4.5% for a fifth successive meeting next Thursday, the last hike to the current 4.5% policy rate occurring last December.  But amid what have b

UK GDP Preview (Aug 15): Small Correction After Run of Upside Surprises

August 7, 2024 10:28 AM UTC

After the mild recession in H2 last year, the ‘recovery’ now evident is much clearer than any expected with GDP growth notably positive in all but one of the five months to May.  But amid weaker retail sales, property transactions and car production data, we see a 0.1% m/m correction in June GD

UK CPI Preview (Aug 14): Inflation to Rise on Energy But Services Less Resilient?

August 6, 2024 12:31 PM UTC

CPI inflation’s flirt with the 2% target is likely to be short-lived.  We see the rate rising back up to 2.3% in July from 2.0%, this projection being a notch below BoE thinking, but with the core edging down to 3.4% (Figure 1).  The rise is solely due to energy base effects related to the Ofgem

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

BoE Review: Getting Less Restrictive

August 1, 2024 12:44 PM UTC

Despite market thinking being split on the matter, but as we flagged, the BoE cut Bank Rate by 25 bp to 5.0% this month taking the rate from a 16-year high and ending an above-average policy pause of 11 months. We are a little surprised that the vote (5:4) was so close as the dissent of Chief Econom

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

BoJ Review: Too hawkish, too fast

July 31, 2024 5:39 AM UTC

BoJ hiked rates to 0.25% and announced 3 trillion JPY bond purchases reduction in two years

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

UK Fiscal Update: Bring Out Your Debt

July 29, 2024 3:27 PM UTC

Having stressed that an (urgent) assessment of the fiscal backdrop will be presented to parliament before the summer recess, Chancellor Reeves made her statement today.  In line with much-flagged media reports, she said there is a circa- £22bn ‘black’ hole in the fiscal arithmetic.  Without b

BoJ Preview: Reduction in Bond Purchase

July 29, 2024 4:27 AM UTC

BoJ will likely decrease bond purchase from six trillion JPY to at least five trillion.

BoE Preview (Aug 1): Time to Get Less Restrictive

July 25, 2024 3:20 PM UTC

We still think that the BoE will cut Bank Rate by 25 bp at the Aug 1 MPC verdict and that that two further such cuts may arrive by end-year.  We accept that stubborn services inflation may harden the hawks, despite softer wage pressures.  But while the recent Bernanke Report recommended phasing ou

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

Short-End Gilts To Discount More Easing?

July 24, 2024 9:15 AM UTC

2yr Gilt yields will likely start declining further after the 1 BOE rate cut (we expect Aug 1), both as BOE communications guide to further cuts in the medium-term and as incoming wage and service inflation provides more comfort to reduce the scale of restrictive policy.  We see 2yr Gilt yields at

EZ HICP Preview (Jul 31): Disinflation Continues - Below-Target Rate Looming?

July 23, 2024 10:09 AM UTC

The clear disinflation trend was still evident even after higher and higher-than-expected May numbers, where the headline moved up from 2.4% to a three-month high of 2.6%.  That disinflation trend looks more discernible after the partial drop back to 2.5% seen in the June HICP, albeit with some far

The Aussie Chapter 5: Kiwi, a tale of two cities

July 23, 2024 12:00 AM UTC

In "The Aussie", we will look into the "well-known "correlation among the Aussie and well-known benchmark to give our readers a closer look towards factors that have been affecting the movement of the Australian Dollar. In Chapter 4, we will look into the performance of the Aussie relative to the Ki

German Data Preview (Jul 30): Inflation Stable Ahead of Fresh Fall in Coming Months?

July 22, 2024 3:10 PM UTC

Base effects have caused the German disinflation process not to be smooth and this was even more clearly the case in recent numbers where after a second successive and slightly larger rise in the headline HICP rate occurred rising 0.4 ppt to 2.8% in May was followed by a drop back to 2.5% in June, 0

UK Household Wealth and the Pension Predicament

July 22, 2024 12:44 PM UTC

Unlike some other parts of the DM world, UK households have seen a serious dent put into their stock of wealth in the last two years.  Indeed, household net worth fell in both 2022 and 2023, both in absolute terms and also as a % GDP (Figure 1).  The 2022 drop was very much a slump in pension fund

ECB Review: Policy Window Stays Very Open

July 18, 2024 1:56 PM UTC

Maybe the ECB is now thinking that it was too clear at its April Council meeting that rate cut would occur subsequently in June, basically then suggesting that something would have to occur to prevent such a move.  This time, with policy rates held as very much expected, the policy window was merel

UK Labor Market: Far Less Resilient Wage Pressures As Labor Market Loosens Further

July 18, 2024 7:15 AM UTC

As we have underscored repeatedly, the BoE has come to regard the official ONS average earnings data with some suspicion given response rates to the surveys that have fallen towards just 10%.   But the BoE will not be able to dismiss the latest earnings data given that alternative (and more author

UK CPI Review: Inflation Stays at Target and Services Stay Resilient?

July 17, 2024 6:35 AM UTC

As has been made clear by policy-makers, labor market and particularly CPI data are crucial to BoE thinking about the timing and even the existence of any start to an easing cycle.  In this regard the fact that headline CPI inflation dropped back to the 2% target in May is important but far from de

Eurozone Banks See Consumer Loan Demand Recover

July 16, 2024 8:58 AM UTC

There were more positive straws in the wind in the latest (July 2024) bank lending survey (BLS), providing some reassurance for the ECB ahead of this week’s Council meeting. Most notable was a reported increase in demand for both housing loans and consumer credit for the first time since 2022 and

UK Productivity: Starting to Recover - Maybe?

July 15, 2024 2:12 PM UTC

Amid the new government’s economic priority to boost the trend or potential growth rate, any hint that this could be occurring would be welcome and important.  With this in mind, it is notable that after the mild recession in H2 last year, the ‘recovery’ through this year is much clearer than

EZ and UK Government Bonds: Decoupling From the U.S.?

July 12, 2024 9:37 AM UTC

Different economic and inflation dynamics, plus no constraint from trade weighted exchange rates, means that the ECB and BOE can cut irrespective of the Fed in the coming quarters.  This can see 2yr yields decline, though less so in Germany where a 2.5% ECB depo rate is already discounted.  10yr y