Eurozone
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May 13, 2025 9:38 AM UTC
Though we had expected a U.S./China trade truce, the terms are more favorable to U.S. growth than we anticipated. Combined with the UK framework deal, we have revised down the probability of a U.S. recession from 35% to 20%. In turn we have revised up the end 2025 and end 2026 S&P500 forecasts t
May 12, 2025 2:32 PM UTC
The UK and the rest of the DM world are about to decouple, at least in terms of inflation, where the UK faces a surge, (largely home-grown) just as W European sees their respective inflation fall back to, if not below, targets. Although relegated by current market ructions and tariff threats, the
May 12, 2025 8:02 AM UTC
The U.S./China have announced major reductions in reciprocal tariffs to 10% with other measures postponed for 90 days. Though the U.S. is still imposing an extra 20% due to fentanyl, China will likely make some moves that could also help to reduce this. This is in line with our previous thinki
May 9, 2025 10:55 AM UTC
Overall, the shock faced by the U.S. from tariffs is a negative supply shock, which can then be followed by job losses and restrained income and consumption growth. This 2 round can be amplified if a hard landing is seen and quickens job losses, which would really hurt low income households. Howev
May 9, 2025 9:32 AM UTC
We see the surprise and sizeable February GDP jump consolidating in the March GDP release with a flat m/m reading, this coming after that 0.5% jump (Figure 1). But there are downside risks given the possible (marked) correction back that may occur after what seems to be a very erratic February jum
May 7, 2025 9:34 AM UTC
With the EZ jobless rate nestling at record lows, it would support the ECB assessment that the EZ labor market is strong, the central bank seeing only a small rise in the jobless rate this year and on to be reversed from early next year onwards. However, that glosses over the fact that the labor m
May 7, 2025 6:31 AM UTC
• China has announced a 10bps cut in the 7 day reverse repo rate to 1.4%; large than expected 50bps cut in the RRR rate and credit easing via Yuan1.1trn balance sheet quota expansion to counter the slowdown in growth. Combined with the extra equity capital for state banks this will help c
May 6, 2025 8:45 AM UTC
With the U.S. equity market having rebounded, President Donald Trump instinct on tariffs have seen threats of pharma tariffs and a 100% tariff on non U.S. films. Slow progress is also reported on bilateral deals, despite White House PR spin. However, Trump will see pressure rising from three so
May 5, 2025 8:05 AM UTC
The direction of travel is towards a U.S./China truce followed by postponing/cancelling most reciprocal tariffs and then trade negotiations. While the markets could cheer this as good news, incoming economic data in May and June is the most critical issue. We still see the U.S. imposing an average
May 1, 2025 10:25 AM UTC
We are concerned that valuations remain high and inconsistent with nominal and real government bond yields going into a growth slowdown as tariffs hit the U.S. economy. Our baseline is for the S&P500 to fall to 5000-5200 mid-year before recovering to 5500 by end 2025. The 10yr budget bill is lik
April 30, 2025 10:30 AM UTC
We see recent China activity as part of the normal grey warfare for long-term influence in the South China sea. It has involved the use of China coastguard and militia fishing boats rather than China PLA Navy, though the risk of escalation between the Philippines and China remains. China likely wa
April 28, 2025 8:05 AM UTC
Overall, the U.S. attempt to reshape global trade is unlikely to significantly improve its trade position, but the size and influence of the U.S. may mean it does not get hit in net exports volumes like the UK. Even so, U.S. business investment could be restrained by ongoing uncertainty from the T
April 24, 2025 8:30 AM UTC
Some portfolios rotations towards EM assets will likely be evident, as we see the USD decline is now extending and broadening. However, flows will likely be selective, both given underwhelming EM performance in the last 5-10 years and the uncertainty over how much Trump will reduce reciprocal tari
April 23, 2025 7:15 AM UTC
A deteriorating economic; volatile financial markets and weakening approval ratings are all putting pressure on the Trump administration to do trade deals. However, Trump instincts means he still likes tariffs, while negotiations will not be quick with China restraints and non-tariffs list desired
April 22, 2025 7:30 AM UTC
Official holdings of U.S. Treasuries show a mixed picture with China, Brazil and Saudi Arabia well off peak holdings. Two drivers of some of these country flows are the peak in global central bank FX reserve holdings in 2021 and an increased holdings of other currencies in the last decade. Neverth
April 17, 2025 1:48 PM UTC
A seventh and widely expected 25 bp deposit rate cut was overshadowed by the ECB’s communication shift about the outlook hereafter, no longer talking about how restrictive policy may be. This shift is entirely appropriate not least given the manner in which financial conditions are now tightenin
April 17, 2025 8:30 AM UTC
The USD and U.S. Treasuries are currently not acting like safe havens, as the crisis is U.S. centric with the tariff debacle. 10yr Treasuries can regain safe haven status if a U.S. recession occurs, but U.S. equities are still clearly overvalued versus equity and equity-bond metrics. We prefer Ind
April 16, 2025 6:28 AM UTC
Although relegated by current market ructions and tariff threats, the main near-term inflation story was (and remains) what happens in the April data when a series of energy, utility, post office and some other regulated and service price rises are due, albeit now possibly offset somewhat by a fall
April 15, 2025 11:14 AM UTC
The ECB can draw comfort from signs that credit demand and supply for EZ households continues to improve. But the ECB’s latest bank lending survey (BLS) also offers worrying signs in regard to firms as well as questioning the alleged neutrality of the QT program. It shows a further (admittedly
April 15, 2025 9:45 AM UTC
Policy-making is fraught with difficult decision making at the best of times. But at present in the UK, such decisions are made all the more problematic given inconsistencies, if not conflicts, in the data backdrop, thereby making any reading of the economy all the more subjective. Is employment
April 15, 2025 8:30 AM UTC
Overall, foreign equity investors can no longer count on U.S. exceptionalism and could face lower long-term corporate earnings growth, which at a minimum will likely slow net inflows. Bond investors also face ongoing policy volatility, which likely means a need for an extra risk premium – t
April 14, 2025 7:30 AM UTC
The economic hit from a hard stop in U.S. imports/exports is too damaging for both sides and our baseline is still for a truce and de-escalation, in the coming weeks. This could be negotiations on a new trade deal with a more moderate reciprocal tariff on both sides and the extra reciprocal tariffs
April 11, 2025 6:40 AM UTC
UK data can be erratic, but the hugely unexpected surge in February GDP numbers (Figure 1) looks hard to fathom. A 0.5% m/m jump suggests the economy grew by an annualized 6%-plus in the month. This is hard to square against the message from surveys and other data such as that for the labor mark
April 10, 2025 7:17 AM UTC
Pressures to do trade deals include the weaker U.S. economy and higher inflation when it arrives/foreigners becoming nervous of their USD30trn plus holdings of U.S. securities and more crucially risks to Trump and GOP approval ratings from Republican voters. Obstacles to quick trade deals include Tr
April 9, 2025 9:00 AM UTC
The prospect of a trade deal between the U.S. and China are less and likely delayed into 2026, due to the hardline stance of Trump 2.0 due to the extra focus on tariff tax revenue and shifting production back to the U.S. It is still our baseline that a deal will be agreed though we would now see a d
April 9, 2025 8:03 AM UTC
It is surely not a question of whether the ECB cuts rates again at its Apr 17 decision, but what it communicates about policy thereafter. Not least given the manner in which financial conditions have tightened, the then-notable change in rhetoric last month to suggest the policy stance had become
April 8, 2025 2:03 PM UTC
Not surprisingly, February’s CPI data provided mixed signals, albeit reversing some of the upside surprises seen in January data. The numbers may have undershot expectations, but actually tallied with our and BoE thinking, at least in terms of a 0.2 ppt drop for both the headline to 2.8% and for
April 8, 2025 9:30 AM UTC
Overall, we are still assessing the effects on non U.S. countries from the tariffs being imposed by the U.S. via direct trade/business investment/currency and financial & monetary conditions swings. The impact will be adverse to GDP, but for some major countries could be less than the U.S. How
April 7, 2025 9:08 AM UTC
• The U.S. equity market still remains under pressure from the announcement effect of large reciprocal tariffs, though hopes of trade deals could start to soon produce a stabilization of the market later this week. Multi month the U.S. equity market outlook depends on whether a recession
April 4, 2025 9:13 AM UTC
UK GDP Preview: Resilience in Spite of Soft(er) Surveys
Despite a fresh downside surprise for January numbers, the odds are increasing that current quarter GDP will be decidedly positive as opposed to the weak(ish) picture we perceive. This is all the more likely given the 0.1% m/m ‘recovery’ w
April 3, 2025 4:12 PM UTC
While surprising the market in their intensity, Trump’s “reciprocal” tariffs were in line with previous threats on most countries, and with Canada and Mexico being treated less harshly that feared, the net surprise is modest to us. However we do feel that inflationary risks have increased furt
April 3, 2025 2:22 PM UTC
The Account of the Governing Council meeting on 5-6 March 2025 seemingly dwelt more on the downside risks posted by trade uncertainties than the upside risks posed by fiscal expansion plans across much of the EU. It noted that not all members supported the proposal to lower the three key ECB inter
April 3, 2025 10:24 AM UTC
The U.S is imposing a widespread tariff on the EU of 20%, higher and broader than expected, this based on U.S. calculation of an effective tariff rate of in effect 39 per cent, a figure the EU puts at about 1 per cent. Moreover, rather than including factors such as VAT, and hygiene restrictions o
April 2, 2025 7:05 AM UTC
China grey warfare against Taiwan will continue, but we would only see a 5% probability of China invading Taiwan in 2025 and 2026. The U.S. is pivoting towards Asia and China, while President Trump is not China friendly. A war with the U.S. over Taiwan would be very costly in military and eco
March 31, 2025 9:04 AM UTC
Quick dilutions of tariffs or exemption will likely be slow in coming for countries that the U.S. has trade surpluses with, as the Trump administration are currently more focused on tariffs for tax revenue and trying to switch production back to the U.S. than trade deals. Trade policy uncertainty
March 27, 2025 8:59 AM UTC
The 25% tariffs on cars underlines that tariffs are not just about getting better trade deals, but in Trump’s view raising (tax) revenue and trying to shift production back to the U.S. Combined with other tariffs being implemented, plus policy uncertainty, we see a moderate overall hit from t
March 26, 2025 9:05 AM UTC
· U.S. trade wars will likely hurt U.S. growth and raise inflation, with only small to modest Fed easing and a 10yr budget bill that will likely be neutral to negative for the economy. With valuations still very high (Figure 1), we see scope for a correction to extend into mid-year th
March 26, 2025 7:48 AM UTC
Not surprisingly, February’s CPI data provided mixed signals. They may have undershot expectations, but actually tallied with our and BoE thinking, at least in terms of a 0.2 ppt drop for both the headline to 2.8% and for the core to 3.5%. This came in spite of higher alcohol duties and no dro
March 25, 2025 9:30 AM UTC
• 2yr U.S. Treasury yields can step down with cautious Fed easing on a modest/moderate growth slowdown and also if the Fed keeps an easing bias. 10yr U.S. Treasury yields can be helped by this easing and see a move down through 2025. However, the budget deficit will likely be 6.5-7.0%
March 25, 2025 8:51 AM UTC
· Bottom Line: The market had expected the Trump presidency to see further fiscal expansion and consequent tight Fed policy and high US yields. But the combination of less tax cuts than previously expected and more aggressive tariff increases have led to reduced expectations for US grow
March 24, 2025 10:45 AM UTC
· For once in a long while, we have upgraded the EZ activity forecast and for 2026 actually to a notch above consensus thinking. However, the current backdrop still suggests that while the economy has been growing afresh it is doing so timidly, with downside risks persisting more clearl
March 21, 2025 9:00 AM UTC
It appears that we will get bad news from April 2 on extra tariffs before any good news. Firstly, the announcement effect of tariffs for many countries and extra products will hurt U.S. business and consumer sentiment. Secondly, part of the reason for tariffs is extra tax revenue and to try to s
March 20, 2025 7:57 AM UTC
To suggest that the UK labor market is merely getting less tight misses the point entirely even given more signs of higher participation. Amid continued reservations about the accuracy of official labor market data produced by the ONS, alternative and very clearly more authoritative data on payrol
March 19, 2025 7:31 AM UTC
January’s CPI numbers showed a marked bounce back up, and with the 0.5 ppt rise taking it to a 10-month high of 3.0%, this being above consensus and BoE thinking. Notably services jumped from 4.4% to 5.0%, actually below expectations, having been driven higher by a swing in airfares and the rise
March 18, 2025 9:05 AM UTC
· The crucial date for more clarity is the June 24-26 NATO summit. Donald Trump might attend but will ask for more spending. NATO head Rutte’s desire is for above 3% of GDP for NATO countries, but the politics and budget suggest that a 2.5% minimum may only be agreed with Germany
March 14, 2025 12:08 PM UTC
It does seem as if effective German Chancellor-elect Merz now has enough parliamentary support to amend the so-called debt brake and unlock more spending and borrowing to be directed toward added defense and infrastructure. Thus, it does seem as if Germany and its economy are undergoing a sea-chan
March 14, 2025 7:39 AM UTC
Despite a fresh downside surprise for January numbers, the odds are increasing that current quarter GDP will be decidedly positive as opposed to the weak(ish) picture we perceive. The upside surprises in December contrasts with a much softer impression from surveys (Figure 1), the latter now showi
March 13, 2025 8:35 AM UTC
Models would suggest that the current and prospective direct tariff impact should slow GDP growth to a 1.5% pace, which should see slow Fed easing in 2025 given the boost to inflation. However, the policy uncertainty means that business and consumer behaviour could see a large adverse hit that keeps