EZ HICP Preview (Apr 30): Core Disinflation Signs to Flatten Out Further?

April 23, 2024 9:43 AM UTC

Very much having affected ECB thinking, there has been repeated positive EZ news in the form of falling EZ HICP inflation and somewhat broadly so. This continued in the March HICP numbers, with the 0.2 ppt drops in both headline and core being a notch more sizeable than most anticipated. Regardless,

Short-end European Government Bonds Following U.S. But June Decoupling

April 22, 2024 1:15 PM UTC

The Fed’s shift to higher for longer has spilled over to drag European government bond yields higher through April.  This now looks overdone as a June ECB rate cut is not fully discounted and ECB officials/data clearly point towards a 25bps cut.  UK money markets are more out of line, with a Jun

German Data Preview (Apr 29): Inflation Drop to Continue Amid Less Resilient Services?

April 22, 2024 12:58 PM UTC

As we have repeatedly underlined, base effects continue to distort the German HICP/CPI readings, but the March data came in a notch below expectations for a third successive month.  Indeed, it fell from 2.7% to a 33-month low of 2.3% in the March HICP data, dominated by a clear fall in food inflati

Markets: Fed Rather Than Middle East Worries

April 17, 2024 12:34 PM UTC

Global markets are being driven by a scale back in Fed easing expectations and we see a 5-10% U.S. equity market correction being underway.  However, with the market now only discounting one 25bps Fed cut in 2024, any downside surprises on U.S. growth or better controlled monthly inflation numbers

ECB Review: ECB Hums Easing Tune for June

April 11, 2024 1:58 PM UTC

Surprising hardly anyone, the ECB is preparing to cut official rates, after what are now five successive stable policy decisions. It explicitly suggested that it could be appropriate to reduce the current level of monetary policy restriction, a policy hint backed up by dropping its previous rhetoric

Eurozone Banks See Company Loan Demand Slump as ECB Unconventional Tightening Bites Further

April 9, 2024 9:22 AM UTC

While there may be few positive straws in the wind in the latest (April) 2024 bank lending survey (BLS), the ECB should fund the balance of results still troubling.  Company credit demand slumped afresh amid rising interest rates and deferred capex plans.  Admittedly, credit supply to firms tighte

ECB Preview (Apr 11): Still the Focus on Words Not Deeds – For Now!

April 4, 2024 12:22 PM UTC

As has been the case for several times now, the ECB meeting verdict due next Thursday (Apr 11) will be notable not for what the Council does but rather what is said just as at the March meeting whose minutes were released today.  A fifth successive stable policy decision is very much expected, albe

EZ HICP Review: Core Disinflation Flattening Out?

April 3, 2024 9:34 AM UTC

Very much having affected ECB thinking, there has been repeated positive EZ news in the form of falling inflation and somewhat broadly so. This continued in the March HICP numbers, with the 0.2 ppt drops in both headline and core being a notch more sizeable than most anticipated. Regardless, the hea

German Data Review: Inflation Drop Continues But Amid Still Resilient Services

April 2, 2024 12:19 PM UTC

As we have repeatedly underlined, base effects continue to distort the German HICP/CPI readings, but the March data came in a notch below expectations for a third successive month.  Indeed, it fell from 2.7% to a 33-month low of 2.3% in the March HICP data, dominated by a clear fall in food inflati

EZ: Labour Costs in Retreat Amid Hoarding and Workforce Jump

April 2, 2024 9:46 AM UTC

It is ever clearer how the labour market (and particularly labour costs) are the dominant theme for the ECB is assessing the policy backdrop and outlook.  While HICP inflation continues to subside amid an economy backdrop which is flat at best, the labor market still looks apparently unmoved, with

Asset Allocation: Pausing for Breath

April 2, 2024 9:00 AM UTC

Into Q2, data and policy (actual and perceived) will dominate DM markets. The ECB will likely take the spotlight with a 25bps cut on June 7, as the Fed face a better growth/more fiscal policy expansion and a tighter labor market than the EZ but also with a better productivity backdrop and outlook to

EZ HICP Preview (Apr 3): Core Disinflation Signs Start to Flatten Out?

March 27, 2024 1:25 PM UTC

Enough to have affected ECB thinking, there has been repeated positive EZ news in the form of plunging inflation. This continued in the February numbers, albeit with the 0.2 ppt drops in both headline and core being less that most anticipated. Regardless, the headline, at 2.6%, continued its recent

Outlook Forecasts to download in Excel

March 27, 2024 11:06 AM UTC

Below is an Excel file that contains our headline forecasts for GDP, Inflation, Monetary Policy, and Exchange Rates.

German Data Preview (Apr 2): Inflation Drop to Continue Amid Less Resilient Services?

March 26, 2024 10:58 AM UTC

As we have repeatedly underlined, base effects continue to distort the German HICP/CPI readings, but the January data came in a notch below expectations, and reversed half of the surge in the y/y rate seen in December.  And February data continued the downtrend, as the HICP rate fell from 3.1% to 2

Equities Outlook: Cyclical Recovery Versus Structural Headwinds

March 25, 2024 9:00 AM UTC

 ·        In the U.S., a tug of war between momentum and U.S. exceptionalism on the one side versus valuations and any deviations from the U.S. goldilocks scenario now means volatility and a risk of a correction.  We feel that the U.S. equity market recovery can push onto 5250 for the S&P5

Continuum Economics Calendar April 2024

March 22, 2024 4:19 PM UTC

Data and Events Calendar April2024.

DM Rates Outlook: Rate Cuts Arriving and Positive Yield Curves

March 22, 2024 2:00 PM UTC

Eurozone Outlook: ECB Finger on Easing Trigger?

March 22, 2024 10:42 AM UTC

·        Our GDP outlook remains somewhat less below consensus and ECB thinking than envisaged three months ago, as other forecasters have reduced projections! Regardless, ECB policy has caused an increase in the cost of credit, alongside a fall in supply of credit. The result is that the ec

ECB Review: ECB Bowing to Markets?

March 7, 2024 3:36 PM UTC

With the ECB staff updated forecasts pointing to headline inflation below target somewhat earlier, now in H2 2025 and then through 2026, and the core rate at target on the basis of market rate pricing of future official rates two years hence some 150 bp below current levels, this implies a tacit Cou

ECB Preview (Mar 7): Caution Still the Council Watchword

March 4, 2024 10:45 AM UTC

Once again the ECB meeting verdict due next Thursday (Mar 7) will be notable not for what the Council does (save for downward tweaks to its projections (Figure 1)) but rather what is said.  A fourth successive stable policy decision is unambiguously expected.  This will come alongside a reaffirmat

EZ HICP Review: Core Disinflation Signs Start to Flatten Out?

March 1, 2024 10:41 AM UTC

There has been repeated positive EZ news in the form of plunging inflation. This continued in the February numbers, albeit with the 0.2 ppt drops in both headline and core being less that most anticipated and with some hints that core disinflation may be marked. Regardless, the headline, at 2.6%, co

German Data Review: Inflation Drop Continues But Still Resilient Services?

February 29, 2024 1:13 PM UTC

Base effects continue to distort the German HICP/CPI readings, but the January data came in a notch below expectations, and reversed half of the surge in the y/y rate seen in December.  And February data continued the downtrend, as the HICP rate fell from 3.1% to 2.7%, but with no further drop in t

Russia Frozen Assets, Ukraine Reconstruction and G7-BRICS

February 29, 2024 10:55 AM UTC

Bottom Line: A number of proposals to seize or use Russia frozen assets for Ukraine reconstruction are not getting overwhelming support within the G7 and a decision could be delayed until the G7 summit in Italy June 13-15.  Concerns over the legal standing and reputational risk (China has been shif

Eurozone: Retailers’ Margins – the Profits of Gloom?

February 28, 2024 2:03 PM UTC

For all the ECB focus on the wage picture as the key factor shaping how HICP inflation may fare, the ECB has admitted to ‘significant uncertainty surrounding the link between wages and price-setting’. Productivity is one obvious other important consideration albeit probably the main alternative

Eurozone: Credit Weakness Deepens Afresh

February 27, 2024 10:47 AM UTC

The ECB faces an important few weeks, not least with the looming policy assessment and projection update due on Mar 7.  Some downgrade to the real economy and inflation outlook (at least for the next 1-2 years) seems to be on the cards, albeit where the ECB hawks may regard the extent of any downwa

Continuum Economics Calendar March 2024

February 26, 2024 11:23 AM UTC

Data and Events Calendar March 2024.

24 Rate Easing Reduced and 2025 the Same

February 26, 2024 11:00 AM UTC

Bottom Line: 2024 official interest rate easing expectations in financial markets now look better aligned to baseline prospects from leading DM central banks due to good big picture progress towards inflation targets.   The start of ECB/BOE easing in Q2 and Fed easing in Q3 will likely see markets

EZ HICP Preview (Mar 1): More Core Disinflation Signs As Services Inflation Slows?

February 23, 2024 9:50 AM UTC

There has been repeated positive EZ news in the form of plunging inflation. This continued in the January numbers, albeit with the 0.1 ppt drops in both headline and core being less that most anticipated. As a result, the headline, at 2.8%, resumed its recent decline having risen to 2.9% in December

ECB January Council Meeting Account Review: Clearer Need to Assess Market Rates Thinking

February 22, 2024 1:37 PM UTC

Unsurprisingly, the account of the January 24-25 ECB Council meeting was interesting is anticipating some downward revision to growth and inflation projections at the looming Mar 7 meeting.  Moreover, it was noted that market rate thinking was in part an endogenous reaction and thus needed to be ca

Eurozone: PMIs Offer Positive Gimmers - Too Good to be True?

February 22, 2024 9:51 AM UTC

The latest PMI data suggest that the economic contraction it has previously pointed to and which has been largely validated by official data eased somewhat further into 2024.  Indeed, EZ real activity fell at the slowest rate for eight months in February, according to provisional PMI survey data, w

German Data Preview (Feb 29): Inflation Drop Broadens Out to Services?

February 21, 2024 11:18 AM UTC

Base effects continue to distort the German HICP/CPI readings, but the January data came in a notch below expectations, and reversed half of the surge in the y/y rate seen in December.  Indeed, the HICP rate fell 0.7 ppt to 3.1% and the CPI core down a notch to 3.1% as the headline CPI rate dropped

ECB – What is it Actually Targeting as it Assesses Price Persistence?

February 20, 2024 10:24 AM UTC

The ECB remit is targeting an inflation rate of 2% over the medium term.  Implicit in this is that this is measured on a moving y/y basis.  However, there is nothing sacrosanct in this as the ECB is starting to be more open about using shorter-term measures, albeit more as indicators of price mome

Eurozone: The Last Mile, Price Persistence and the Supplies Surprise

February 6, 2024 11:34 AM UTC

That the EZ economy is bordering on recession has obviously been a factor in the ever clearer and broad disinflation process seen of late.  But we would argue (and many DM central banks would empathize) that it has been easing supply problems that has been the main factor.  This better supply back

EZ HICP Review: More Core Disinflation Signs But Services Inflation More Stubborn?

February 1, 2024 10:26 AM UTC

There has been repeated positive EZ news in the form of plunging inflation. This continued in the January numbers, albeit with the 0.1 ppt drops in both headline and core being less that most anticipated. As a result, the headline, at 2.8%, resumed its recent decline having risen to 2.9% in December

German Data Review: Inflation Drop Resumes

January 31, 2024 1:28 PM UTC

Base effects continue to distort the German HICP/CPI readings, but the January data came in a notch below expectations, and reversed half of the surge in the y/y rate seen in December.  Indeed, the HICP rate fell 0.7 ppt to 3.1% and the CPI core down a notch to 3.1% as the headline CPI rate dropped

Eurozone GDP Review: GDP – Divergent Weakness?

January 30, 2024 10:27 AM UTC

According to official national accounts data, the EZ economy has avoided recession, at least formally albeit against a backdrop of marked, if not increasing national divergence.  Overall the flat q/q EZ GDP 4 reading was a notch below ECB thinking but a notch above consensus but this reflected mark

Continuum Economics Calendar February 2024

January 30, 2024 9:35 AM UTC

Data and Events Calendar February 2024.

ECB Doves Coo Louder?

January 29, 2024 11:16 AM UTC

That high-profile ECB Council members are now talking both more clearly and openly about possible near-term rate cuts is of little surprise.  It does fit in with both what was said and that was not said after last week’s Council press conference.  Not least are week-end comments made by BoF Gove

Climate Change: 2025-30 Rather than Long-Term Impacts

January 26, 2024 4:15 PM UTC

Bottom Line: In the 2half of the 2020’s GDP in DM economies will benefit from climate change investment, though the net positive impact will likely be modest on an annual basis. The impact on EM economies will be more mixed, as lack of fiscal space restrains the scale of green investment and some

ECB Review: Half Hearted Defence of Policy?

January 25, 2024 3:21 PM UTC

Unsurprisingly this latest ECB meeting was not notable for what the Council did but rather what is said.  This third successive stable policy decision was unambiguously expected as was the more formal attempt to redirect market thinking that still prices 50 bp rate cutting by mid-year.  Thus, it s

EZ HICP Preview (Feb 1): More Core Disinflation Signs As Headline HICP Fall Resumes?

January 24, 2024 3:24 PM UTC

There has been repeated positive EZ news in the form of plunging inflation. After coming in lower than envisaged for the third successive month, the December HICP inflation instead were in line with consensus thinking.  Having dropped 0.5 ppt to a 28-month low of 2.4% in November, this was exactly

Eurozone GDP Preview (Jan 30): GDP - Actual Recession Continues?

January 24, 2024 10:03 AM UTC

According to official national accounts data, the EZ economy has been in near recession, having seen GDP move sideways in the year to Q3, albeit with a decline of 0.1% q/q in that latter quarter.  We see another such drop occurring in the looming Q4 flash figure (Figure 1).  Such a result, involvi

German Data Preview (Jan 31): More of Them Pesky Base Effects?

January 23, 2024 4:11 PM UTC

More base effects will distort the upcoming January HICP/CPI readings, pulling the headline back down, but the core rate higher, all adding to recent volatility.   Indeed, the headline HICP in November eased 0.7 ppt to 2.3%, a 29-month low, with the core dropping by 0.7 ppt to 3.5%.  However, last

Yield Curve Disinversion To Resume?

January 23, 2024 1:06 PM UTC

For 2024 as a whole, we see a strategic process of yield curve inversion lessening and swing to a positive shaped yield curve by year-end.  For 10-2yr this process will likely be clearer in the U.S. for two reasons.  Firstly, Fed Funds is more divergent from neutral policy rates than in the EZ, bu

ECB Minutes; Rate Cuts Seen But Not Heard?

January 18, 2024 2:22 PM UTC

In the press conference following the Dec 14 ECB Council meeting, President Lagarde was adamant that ‘we did not discuss rate cuts at all. No discussion, no debate on this issue’.  But the just-released account of the meeting suggest that rate cuts may not have been formally spoken about, but t

ECB Meeting Preview: Summertime and the Living is Easing

January 17, 2024 12:22 PM UTC

Once again the looming ECB meeting (January 25) is one where markets are not preoccupied with what the Council will do but rather what is said.  Stable policy is just about nailed on, but the question is whether there will be any more formal attempt to redirect market thinking that still prices in

EZ: Misleading Signals in Record Low Jobless Rates

January 16, 2024 2:16 PM UTC

While HICP inflation continues to subside amid an economy backdrop which is flat at best, and shrinking on a domestic basis, the labor market still looks apparently unmoved. Indeed, the EZ jobless rate has just returned to a record-low of 6.4%, hinting at labor market tightness that will perturb ECB

Eurozone: Does the ECB Have to Adjust its Inflation Thinking?

January 12, 2024 9:36 AM UTC

Figure 1: Headline m/m Price Pressures Running Near Zero
Source: ECB, CE where smoothed equates to 3-mth mov avg 
Confused ECB Inflation Thinking?In a very much unsurprising attempt to wrestle back market speculation about rate cuts starting as early as Q2, the ECB is underscoring that inflation this