UK CPI Preview (Feb 19): Inflation Drop to Target Deferred

February 12, 2025 10:27 AM UTC

After the surprisingly soft December data, we think January’s CPI numbers will show some bounce back up, albeit the 0.2 ppt rise we envisage to 2.7% being notch below BoE thinking.  This will largely reflect more ‘noise’ in volatile services and higher energy inflation both due to fuel price

Europe’s Gas Problem Again?

February 11, 2025 8:30 AM UTC

The ECB staff forecasts on March 6 will be revised upwards for 2025 and 2026, due to the surge in wholesale gas prices.  However, the ECB will likely take the view that 2 round effects from higher gas prices on balance are unlikely to boost core inflation (especially given wage tracker softness) an

Markets and Trump’s Early Days

February 10, 2025 7:55 AM UTC

  The early days of the new Trump administration has seen lots of volatility around the on-off tariffs with Canada and Mexico, but the more stable U.S. Treasury market has helped provide an anchor.  U.S. Treasuries have shift towards the view that the 10yr budget bill will be delayed until H2 and

Eurozone: The Neutral Rate – Probably Little Changed Recently Unlike Central Banks

February 7, 2025 1:14 PM UTC

A well-advertised research paper from the ECB suggests that the real neutral rate of interest for the EZ has not changed very much in the last few years but with a likely range of between -0.5% and +0.5%, but still well below estimates for what is so-called r* prior to the pandemic (Figure 1).  The

Fixing The U.S. Trade Deficit

February 6, 2025 2:30 PM UTC

  New U.S. trade deals will likely make slow progress in reducing bilateral trade deficits as the underlying drivers behind the U.S. trade deficit are macro forces.  While the U.S. economy outperforms other major trading partners; the value of the USD remains overvalued and as long as tariffs are

Eurozone: Trump Taking Aim at the EU?

February 5, 2025 9:06 AM UTC

President Trump has made it clear that the EU is going to face US tariffs in the not too distant future.  Admittedly, tariff threats have been used as the basis for negotiation elsewhere, this may be the case for the EU too – as was the case during Trump’s first term.  As for the EU, it does h

UK GDP Preview (Feb 13): Weakness Continues, if not Deepens?

February 4, 2025 4:26 PM UTC

Recent data add to already-growing 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.  And those questions may be accentuated by the looming December GDP data where we see a flat m/m reading but, combined w

EZ HICP Review: Headline Rises Amid Still Friendly Core Messages?

February 3, 2025 10:38 AM UTC

There were mixed messages in the higher-than-expected January flash HICP numbers.  For a third successive month, the headline but this time by ‘only’ 0.1ppt, to a six-month high of 2.5%, but where the core (again) stayed at 2.7%, partly due to what is seemingly relatively stable services inflat

ECB Review: Policy Still Restrictive

January 30, 2025 2:34 PM UTC

It was always likely that the ECB verdict at this month’s Council meeting would be less resounding than that seen in December.  A fifth 25 bp discount rate cut did occur, to 2.75%, but may not have seen any demand to at least consider a larger move as was the case last month.  But the door is le

Eurozone Flash GDP Review: Momentum Missing as Divergence Continues?

January 30, 2025 10:31 AM UTC

After a series of upside surprises, EZ GDP both weakened and undershot both consensus and ECB expectations in Q4 (Figure 1). There is a certain irony that for an ECB Council that has evidently shifted its main concern away from broadly falling inflation to real economy weakness, the soft Q4 GDP outc

Continuum Economics Calendar February 2025

January 29, 2025 4:50 PM UTC

Data and Events Calendar February 2025.

EZ Monetary Insight: Politics Making Banks More Risk Averse Accentuating EZ Divergences

January 29, 2025 11:01 AM UTC

Ahead of what seems to be a routine decision tomorrow, recent monetary data complicate the policy outlook for the ECB in the months ahead.  Positively, ECB compiled money data show discernible signs of as revival in bank lending, even for companies, although still hardly any growth in real terms. 

EZ HICP Preview (Feb 3): Headline to Slip Amid Friendlier Core Messages?

January 27, 2025 11:42 AM UTC

There were mixed messages in the December HICP numbers.  For a second successive month, the headline rose 0.2 ppt, but to 2.4%, but where the core (again) stayed at 2.7%, partly due to what is seemingly stable services inflation.  Once again, higher energy costs, mainly base effects, were the main

ECB Preview (Jan 30): A Staging Post in Easing Cycle

January 24, 2025 10:32 AM UTC

It is unlikely that the ECB verdict at this month’s Council meeting will be anything like as resounding as that seen in December.  A fifth 25 bp discount rate cut is virtually assured, to 2.75%, but may not see any demand to at least consider a larger move as was the case last month.  Admittedly

Trump and Markets

January 23, 2025 2:16 PM UTC

Global markets will be driven by policies and current valuation in 2025, especially new Trump administration policies.  Trump could jawbone markets for a lower value of the USD and lower oil prices, which could have a temporary modest impact (joint US/Japan FX intervention is possible) but the stru

China/U.S. - Trade War or Trade Deal?

January 22, 2025 2:11 PM UTC

·       We see the April 1 review of the phase 1 U.S./China trade deal being adverse and President Trump’s carrot and stick approach leading to a 10% rise in tariffs on China imports by the summer.  We eventually see a phase 2 U.S./China trade deal being reached in Q4. The main alternative

German Data Preview (Jan 31): Services Inflation Slows Belatedly?

January 22, 2025 2:09 PM UTC

Germany’s disinflation process continues, but there are signs that the downtrend is flattening out and this may be the message into the rest of 2025.  After a largely energy but a still relatively broad rise to an 11-mth high of 2.8% in December, we see the rate down 0.2 ppt to 2.6% in the prelim

Eurozone Flash GDP Preview (Jan 30): Are Surveys Too Gloomy?

January 22, 2025 11:33 AM UTC

There is certain irony that for an ECB Council that has evidently shifted its main concern away from broadly falling inflation to real economy weakness, its next policy decision arrives on the day of the next GDP release. We see the ECB cutting a further 25 bp but with some Council members again cal

ECB December Council Meeting Account Review: The ‘Last Mile’ Appears to Have Shortened Somewhat?

January 16, 2025 1:27 PM UTC

As the account of the December 11-12 Council meeting noted, a fourth 25 bp discount rate cut was agreed but there appeared to be a minority wanting a 50 bp move. But this account also shows some confusion as to just what the advertised change in forward guidance (in which the ECB accepts that on-tar

BOE QT: A Heavier Burden than Fed/ECB QT

January 16, 2025 11:05 AM UTC

BOE QT is 3.4% of GDP and means the 2025 total funding is 8% of GDP, which helps explain part of the current pressure on gilt yields (here).  This pace is unlikely to change before the BOE review in September 2025, but the QT is partial monetary tightening and will offset some of 125bps of BOE rate

U.S. Yields Drag Germany and France Higher

January 14, 2025 8:15 AM UTC

The EUR real exchange rate is well above the 2014 low, while ECB officials are guiding that more rate cuts are coming.  2yr German yields are unlikely to rise much further and will likely come back down in Q2 (here).  A January 30 ECB cut will likely build more easing expectations, though more of

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

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

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

Continuum Economics Calendar January 2025

December 20, 2024 2:33 PM UTC

Data and Events Calendar January 2025.

DM FX Outlook: USD to edge lower despite high yields

December 20, 2024 8:28 AM UTC

·       Bottom Line: Recent strong US data has bolstered the USD, with the Trump election victory also supportive due to expectations of tax cuts and tariffs which are seen leading to less Fed easing than previously expected. While we still see the USD weakening through 2025 as Fed easing red

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

Equities Outlook: U.S. Exceptionalism v Valuations

December 18, 2024 10:05 AM UTC

·        The glory days of exceptionalism for U.S. equities will likely extend in Q1 2025 to bring the S&P500 to 6200-6300. The problem is that valuations have now become stretched with S&P500 ex magnificent 7 on a forward P/E of 19 and valuations out of line with real bond yields (Figure 1)

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

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

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

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

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

Continuum Economics Calendar December 2024

November 29, 2024 9:51 AM UTC

Data and Events Calendar December 2024.

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 International: EM Countries

November 22, 2024 9:08 AM UTC

Trade and geopolitics will be the key drivers for the Trump administration relationship with key EM countries.  While uncertainty on policy tactics are high, China and Vietnam will be among the first to see trade threats and actual tariffs.  Mexico will see threats over the 2026 USMCA review and i

EZ HICP Preview (Nov 29): Headline Higher, But Core Messages Still Friendly?

November 21, 2024 9:59 AM UTC

Slightly higher energy costs were the main factor behind the rise back in HICP inflation in October to 2.0% having fallen to a well-below target 1.7% in the previous month (Figure 1).  The outcome was a little higher than expected, not least with another apparently resilient services inflation read