DM Central Banks
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May 13, 2025 9:57 AM UTC
Even the BoE has acknowledged that the UK economy is developing slack and the continued trend rise in activity rates will only serve to reinforce the impression of a labor market that is not so much less tight but decidedly getting looser. As a result, pay pressures seem to be receding (Figure 1) an
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 12:48 PM UTC
Canada’s April employment gain is modest at 7.4k, and whole full time employment was up by 31.5k there was also a 37.1k increase in public administration. This makes the report on balance weak, particularly with unemployment rising to 6.9% from 6.7%.
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 8, 2025 6:11 PM UTC
The BoC is getting less pessimistic about the tariff scenario, though we are not yet in the better of two scenarios outlined in April's MPR, just closer. Earlier today the BoC's Financial Stability Report saw resilience in the financial system with reduced consumer debt relative for income, while no
May 8, 2025 1:24 PM UTC
The widely expected 25 bp Bank Rate cut (to a 2-year low of 4.25%) came amid a less dovish rather than a more hawkish assessment than was envisaged beforehand. While the new Monetary Policy Report MPR) now sees inflation fall below target almost a year earlier than seen three months ago (Figure 1)
May 8, 2025 8:49 AM UTC
It was hardly a surprise that the Norges Bank again kept policy on hold when it gave its latest verdict as was the fact that it failed to be any more explicit about when the rate cut cycle may begin. Instead, while still suggesting rate cuts later this year, it cautions about premature easing. Thi
May 8, 2025 8:03 AM UTC
The very much expected stable policy decision at this Riksbank verdict was the second in succession but where the Board veered away from its previous assertion that that, with the policy rate now at 2.25%, this may be the end of the easing path. Instead, and amid the stronger currency and softer C
May 7, 2025 7:43 PM UTC
Fed’s Powell made clear that with high uncertainty the Fed is in no position to move rates at this point, though how long that will persist is unclear. We see no reason to adjust our existing Fed call of only one easing in 2025, by 25bps in December, and two more in 2026. This would take the Fed F
May 7, 2025 6:15 PM UTC
The FOMC has left rates unchanged at 4.25-4.5% as expected. The main change in the statement is to note that the risks of higher unemployment and higher inflation have both risen, which gives little insight on any policy bias though suggests that the Fed could be responsive to data going forward.
May 7, 2025 1:30 PM UTC
A further 25 bp cut (to zero) in the SNB policy rate on June 19 now looks almost certain. Weak(er) business surveys suggest that the tariff threat is both tangible and growing. Meanwhile, there is the strong currency where FX intervention on aby major scale could provoke US retaliation against a
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 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 2, 2025 3:47 PM UTC
In the current exceptionally uncertain environment, the FOMC looks set to keep rates unchanged at 4.25-4.5% at its May 7 meeting, and give little away on future policy. This meeting will not see the dots updated. Chairman Powell however at the press conference is likely to signal that future meeting
May 2, 2025 9:46 AM UTC
EZ HICP inflation failed to fall back toward the 2% target in flash April data, instead staying at 2.2%. More notably, services inflation jumped 0.4 ppt, very probably due to the impact of the timing of Easter affecting airfares and holiday costs. As was the case when this Easter effect last happe
May 1, 2025 2:52 PM UTC
It has been relatively clear that MPC divisions have been enough for the BoE to have altered its rhetoric as far back as February to stress the need for policy to be framed carefully as well as gradually. Indeed, this shift very much pointed to the MPC majority envisaging rate cuts no faster than
May 1, 2025 11:04 AM UTC
It does seem very likely that the Norges Bank will again keep policy on hold when it gives it next verdict on May 8, albeit with a risk that if it has access to what may be much friendlier CPI data officially due the day after, it could ease, or at least be more explicit about when the rate cut cycl
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 29, 2025 1:17 PM UTC
A very likely stable policy decision next month would be the second in succession and where the Riksbank has now underscored that, with the policy rate now at 2.25%, this may be the end of the easing path. But amid the stronger currency, with real activity signs having largely disappointed even be
April 29, 2025 8:32 AM UTC
We have not revised down our baseline for 10yr yields (Figure 1) in 2025 and have pushed forecasts up 10bps in 2026. We are concerned that foreign investors will be less willing to buy extra U.S. Treasuries. Nevertheless, the economic slowdown, plus expectations that the CPI boost will be a temp
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 25, 2025 7:09 AM UTC
On balance, our baseline still remains a U.S./China trade deal (55-60%) being reached, given Trump deal instincts; China desire for a deal and the economic disadvantage of an economic cold war to the U.S. when it is trying to reset trade with all countries. Timeline is Q4 2025 or H1 2026. An al
April 24, 2025 8:39 AM UTC
EZ HICP inflation is likely to fall back to the 2% target in flash April data, this six-month low would largely reflect a fall in fuel prices, but with services largely consolidating the clear fall seen last time around (Figure 1). All of which would mean a stable core reading of 2.4% but where th
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 9:56 AM UTC
Amid what are now an ever broader array if indicators suggesting that the economy is stagnating, if not contracting the BoE has the opportunity to address this risks with three separate MPC speeches due later today. Chief Economist Pill, Governor Bailey and Deputy Breeden can address the extent to
April 23, 2025 9:18 AM UTC
Continuing a series of upside surprises, EZ GDP overshot both consensus and ECB expectations in Q4), albeit only after what was a cumulative 0.2 ppt upward revisions compared to the flash. We see a further rise in Q1 data (Figure 1), partly reflecting recent m/m increases in both manufacturing and s
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 1:16 PM UTC
Germany’s disinflation process continues, but there had been signs that the downtrend was flattening out but this changed somewhat in February and again in the March. Indeed, HICP inflation fell back from 2.6% to 2.3% in March, this despite a pick-up in food inflation in both months. Notably the
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 4:28 PM UTC
The Bank of Canada left rates unchanged at 2.75% as expected. The statement concluded that the BoC will proceed carefully, noting that monetary policy cannot resolve trade uncertainty or offset the impacts of a trade war, but it can and must maintain price stability in Canada. While this shows cauti
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 12:54 PM UTC
March Canadian CPI in falling to 2.3% yr/yr from 2.6% is significantly weaker than expected. Lower prices for gasoline and travel tours were cited as negative influences, the latter surely impacted by the unwillingness of Canadians to travel to the USA. The BoC core rates are on balance slightly s
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