German Data Preview (Nov 28): Services Inflation Persists?

November 20, 2024 3:58 PM UTC

As we have repeatedly underlined, Germany’s disinflation process continues but unevenly.  After July saw the headline HICP rate rise and unexpected 0.1 ppt to 2.6%, unwinding a third of fall seen in June, it plummeted to a 41-month low of 2.0% in August, and then down to 1.8% last month, below th

Eurozone: ECB Stability Review Broadens the Case for Easier Policy

November 20, 2024 11:30 AM UTC

It seems that worries about weaker growth are reverberating more discernibly and more broadly within the ECB.  Indeed, the worries may now be at least twofold. Clearly, weaker growth risks possible (added) downside risks to inflation, with BoI Governor Panetta yesterday warning that restrictive mon

U.S. Equities: Exceptionalism v Valuations

November 20, 2024 10:05 AM UTC

Bottom Line: Momentum towards further deregulation, tech optimism, and the prospect of aggressive tax cuts could help the U.S. equity market in H1 2025 before the fear of higher yields and Fed Funds hurts in H2.  6100 could be seen H1 2025, before a softening to 5850 for end 2025 S&P500.   We see

UK CPI Review: Inflation Back Above Target & Core Pressures Higher

November 20, 2024 7:42 AM UTC

Coming in higher than expected and a notch above BoE thinking, CPI inflation jumped to 2.3% in October. Helped by a fall in fuel prices and airfares, amplified by base effects, alongside some belated broader softening in services costs, UK inflation had dropped to 1.7% in the September CPI (from 2.2

U.S.-Gilt Yields and Fed v BOE policy

November 19, 2024 10:07 AM UTC

We see scope for 10yr UK yields to diverge from the U.S. despite our new forecast of rising U.S. Treasury yields (here).  We feel that the BOE will ease by more than the Fed in 2025 and ease selectively in 2026 before and after our forecast of Fed Funds hikes.  Meanwhile, the UK fiscal stance is l

UK: Weak Growth – Don’t Blame It All on the Budget!

November 18, 2024 12:40 PM UTC

To suggest that the disappointing Q3 GDP data is largely down to apprehension about the Budget presented at the end of October is incomplete at best and misplaced at worst.  After all, monthly GDP data suggest that the economy has not grown since May and by only 0.2% since March.  These numbers ar

U.S.-Germany Yield Decoupling

November 18, 2024 9:25 AM UTC

We see scope for 10yr German Bund yields to remain close to current levels in the next 1-2 years, despite our new forecast of rising U.S. Treasury yields (here[MG(1] ).  A weak economic recovery; fiscal consolidation rather than easing in the U.S. and less underlying inflation pressures should all

U.S. Yield Curve Steepens Then Flattening on 2026 Fed Tightening?

November 15, 2024 10:14 AM UTC

We see 10-2yr U.S. Treasury yield curve steepening in 2025, as the Fed keeps easing to 3.75% but the long-end is worried about medium-term issuance and the budget deficit trajectory being excessive.  A moderate Fed tightening cycle in 2026 to curtail inflation from fiscal stimulus/tariffs should th

UK GDP Review: Momentum Dissipated?

November 15, 2024 7:58 AM UTC

The latest data, including that for the Q3, very much questions the UK’s economy’s apparent solidity, if not strength, as apparently seen in sizeable q/q gains in the first two quarters of the year of 0.7% and 0.5% respectively.  Indeed, GDP growth has been positive in only two of the last six

China Data: Mixed Data Backs More Stimulus

November 15, 2024 7:42 AM UTC

China October data is mixed with a bounce in retail sales helped by government trade ins and a holiday, but industrial production and housing construction disappointing.  This all argues for further fiscal stimulus.  However, given our view that some tariff increases against China by the U.S will

U.S. Fed's Powell - Economy not sending signals that we need to hurry to lower rates

November 14, 2024 8:20 PM UTC

The latest remarks from Fed Chairman Powell suggests easing in December is far from assured.

ECB October Meeting Account: It’s the (Real) Economy Stupid!

November 14, 2024 1:42 PM UTC

It is clear but hardly surprising that the ECB rate cut last month was driven as much, if not more by real economy consideration than prices or possible fiscal tightening.  The Oct account 16-17 suggested that the downside risks to the growth outlook in the September baseline, with the associated w

U.S. Fed's Kugler - Mindful of risks on both sides

November 14, 2024 1:02 PM UTC

Kugler's cautious comments suggest a December easing is still data-dependent.

UK CPI Preview (Nov 20): Inflation Back Above Target But Core Pressures Lower

November 13, 2024 11:51 AM UTC

Helped by a fall in fuel prices and airfares, amplified by base effects, alongside some belated broader softening in services costs, UK inflation dropped to 1.7% in the September CPI (from 2.2%), thus falling below target for the first time since April 2021.  This drop was greater than expected and

U.S. Tariffs on China: How and When?

November 13, 2024 9:55 AM UTC

The U.S. can put pressure on other countries by starting tariffs at a more moderate scale and country and industry specific and then credibly threatening to increase and broaden tariffs as it did in 2018-19 to get trade concessions from other countries.  This also reduce the scale of the adverse in

U.S. Fed's Kashkari - Could pause if prices surpirse to upside

November 12, 2024 7:46 PM UTC

Fed SLOOS on Bank Lending shows weaker demand for C+I loans

November 12, 2024 7:32 PM UTC

After showing an improved tone in Q3, the Fed’s Q4 Senior Loan Officer Opinion Survey of bank lending practices is mixed, with demand for commercial and industrial loans taking a step back. This suggests that strength in business investment, in particular equipment, which supported Q2 and Q3 GDP g

UK Labor Market – Private Payrolls Contract Amid Cost Pressures?

November 12, 2024 12:27 PM UTC

To suggest that the UK labor market is merely getting less tight misses the point entirely.  Amid continued reservations about the accuracy of official labor market data produced by the ONS, alternative and very clearly more authoritative data on payrolls suggest that employment is continuing to co

U.S. Economic Outlook under Trump

November 11, 2024 7:23 PM UTC

Uncertainty over how the U.S. election results will impact the economic outlook remains very high, but the evidence at present suggests that incoming President Donald Trump, assuming Republican control of the House is confirmed, will attempt to implement a substantial part of his campaign promises.

Canada October Employment - Details mostly positive, suggesting economy regaining momentum

November 8, 2024 1:53 PM UTC

While Canada’s 14.5k October rise in employment was not very impressive on the headline, the details are mostly positive and support a view that the Canadian economy is starting to regain momentum now that the Bank of Canada is easing monetary policy.

UK GDP Preview (Nov 15): Momentum Slowing?

November 8, 2024 8:02 AM UTC

Much has been made of the UK’s economy’s apparent solidity, if not strength, so far this year given sizeable q/q gains in the first two quarters of the year of 0.7% and 0.5% respectively.  But this may have been something of a flash in the pan, not least as GDP growth has been positive in only

FOMC Eases by 25bps. We Now Expect 100bps More by Mid-2025 Before Renewed Tightening in 2026

November 7, 2024 8:38 PM UTC

The FOMC eased rates by 25bps as expected with a statement that avoided making any further dovish signals beyond what were given on September 18. In his press conference Chairman Jerome Powell left his options open for December when the decision will be data-dependent. On balance we still lean towar

U.S. Fed's Powell - Leaves options open for December

November 7, 2024 7:47 PM UTC

FOMC eases by 25bps, statement avoids dovish hints

November 7, 2024 7:22 PM UTC

The FOMC has eased by 25bps as expected and the statement looks fairly similar to that released on September 18, when rates were cut by 50bps. However, changes in the statement suggest that the Fed  has not seen any further reasons for dovishness since its September 18 meeting.

BoE Review: Gradualism Still the Order of the Day

November 7, 2024 1:43 PM UTC

In what was something of a more hawkish assessment and outlook, the BoE nevertheless delivered the expected further 25 bp Bank Rate cut to 4.75% with only one (expected dissent against.  But after what had been hints of a possibly more policy activism from Governor Bailey last month, the MPC instea

Norges Bank Review: A Tweak in Policy Guidance

November 7, 2024 9:29 AM UTC

Aided by more downside inflation surprises and the accelerated pace of central bank easing nearby, speculation that the Norges Bank would ease by year –end had grown, but have now largely dissipated.  However, after the widely expected stable policy decision today, the possibility that a cut may

Germany: More Headwinds for an Ailing Economy?

November 7, 2024 9:10 AM UTC

After months of clear internal tensions, the three-party coalition collapsed on Wednesday after Chancellor Olaf Scholz (Social Democrat) sacked Finance Minister Christian Lindner (leader of the Free Democratic Party (FDP).  The two had been seeing repeated rifts on spending and economic reforms, wi

Sweden Riksbank Review: Faster, But Not (Yet) Any Further?

November 7, 2024 8:50 AM UTC

A fourth successive rate cut was widely seen at this Riksbank meeting, but rather than the 25 bp moves seen hitherto, there was the 50 bp move (to 2.75%) that was hinted at as part of the two further cuts advertised at the last (September) meeting.  What seems clear is that inflation worries have s

U.S. Election – Initial Thoughts

November 6, 2024 6:54 AM UTC

A Trump victory is now widely expected with results so far and has prompted knee jerk reaction in markets with U.S. Treasury yields and USD higher.  Policy uncertainty is high over tariffs, though the 2017 tax cuts will likely be renewed with some additional tax cuts elsewhere -- House race is tigh

Bank of Canada Minutes Show Strong Consensus For Larger 50bps Move

November 5, 2024 6:58 PM UTC

The Bank of Canada has released minutes from its meeting on October 23, which accelerated the pace of easing to 50bps, to 3.75%, after three straight meetings in which the rate was eased by 25bps.  While members considered another 25bps move, there was a strong consensus for taking a larger step.

U.S. Debt Divergence

November 5, 2024 1:47 PM UTC

Household debt/GDP has fallen noticeably since the GFC to largely counterbalance the rise in government debt/GDP.  However, a surge in household borrowing for consumption with Fed easing is unlikely, as the overall resilience on consumption hides buoyance among wealthy households and a struggle/low

BoE Preview (Nov 7): Activism vs Gradualism Debate Ferments MPC Divisions?

November 4, 2024 12:07 PM UTC

As with several recent BoE verdicts, the Nov 7 policy decision will be more important for what is said, than done, especially as it seems that even a further projected undershoot of the inflation target may not placate the MPC hawks!  A 25 bp cut to 4,7% seems highly likely but the question is whet

FOMC Preview for November 7: A 25bps Easing, Outlook Unclear

November 1, 2024 3:33 PM UTC

We expect a 25bps FOMC easing on November 7 to a 4.5% to 4.75% range. With the dots from the September 18 meeting relatively evenly split between one and two more 25bps easings this year and data since September 18 on balance being relatively firm the debate is likely to be between no change and a 2

Canada August GDP - Flat but September seen stronger

October 31, 2024 1:41 PM UTC

August Canadian GDP was unchanged with July revised down to 0.1% from 0.2%, but the preliminary estimate for September is for a stronger rise of 90.3%. This would leave Q3 up by around 1.0% annualized, below a recent 1.5% Bank of Canada estimate, though would suggest a stronger base to start Q4.

EZ HICP Review: Headline Higher?

October 31, 2024 10:42 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

Election and U.S. Equities

October 31, 2024 10:30 AM UTC

The multi week reaction will likely swing on the narrow equity market focus of winners and losers and an assessment that a Trump win would be better than Harris for the U.S. equity market.  However, multi quarter the actual implementation of policies can spillover to impact the corporate earnings o

BoJ Review: Little guidance ahead

October 31, 2024 5:24 AM UTC

The BoJ keep rate unchanged in the Oct 31 meeting at 0.25% with little forward guidance
Quarterly report remains hawkish in policy stance and mixed revision on CPI

German Data Review: Services Inflation Persists?

October 30, 2024 3:35 PM UTC

Germany’s disinflation process continues but unevenly.  After July saw the headline HICP rate rise and unexpected 0.1 ppt to 2.6%, unwinding a third of fall seen in June, it plummeted to a 41-month low of 2.0% in August, and then down to 1.8% last month, below the ECB target and well below expect

UK Budget Review: Higher Taxes But Still a Marked Fiscal Boost

October 30, 2024 3:24 PM UTC

Despite a focus on hefty tax rises of some 1% of GDP, the Budget also sees borrowing rise by a similar amount so that a sizeable surge in government spending mean this is one of the largest fiscal loosenings in recent decades.  But the boost to GDP growth is temporary and modest and where any impro

Eurozone GDP Review: Consumer Revival, Surveys Gloomier?

October 30, 2024 10:26 AM UTC

Even more clearly, the EZ economy is diverging as Germany stutters while Spain prospers.  However, the risks are that the whole of the EZ is weakening given the possibly gloomier messages from business survey data.  Admittedly, there were some upside surprises in the Q3 numbers, albeit with the un

U.S. Election Scenarios and Post-Election Policy Risks

October 30, 2024 8:14 AM UTC

The U.S. election remains very close though a win for former President Donald Trump appears slightly more likely than one for Vice President Kamala Harris. The race for control of the House is also close, though here a Democrat majority looks marginally more likely. For the Senate, a Republican majo

Sweden Riksbank Preview (Nov 7): Rate Cuts Driven Increasingly by Weak Economy

October 29, 2024 10:09 AM UTC

A fourth successive 25 bp rate cut (to 3.0%) is widely seen at the looming Riksbank meeting (Nov 7), with the risk that it may even be the 50 bp move that was hinted at as part of the two further cuts advertised at the last (September) meeting.  What seems clear is that inflation worries have subsi

Norges Bank Preview (Nov 7): Options A Little More Open?

October 28, 2024 1:14 PM UTC

Aided by more downside inflation surprises and the accelerated pace of central bank easing nearby, speculation that the Norges Bank would ease by year –end had grown, but now largely dissipated.  The Bank has two policy meeting left this year – Nov 7 and Dec 19- but has offered no encouragement

UK Budget and Gilts

October 28, 2024 9:35 AM UTC

The UK government is leaking parts of the October 30 budget to allow markets to adjust before the full announcement.  While the new fiscal rule for debt/GDP could raise some modest concerns over increased supply for the gilt market initially, attention will quickly switch to the BOE November 7 and

U.S. Government Debt and Deficit – How Much Does it Matter?

October 25, 2024 9:55 AM UTC

Post-election U.S. fiscal policy can still cause stress in the U.S. Treasury market given the unsustainable U.S. budget deficit and the high risk of a rating agency downgrade in H1 2025.  However, 10yr U.S. Treasury yields above 4% now have a buffer and the prospect for Fed policy is also important

U.S. Fed's Hammack - Inflation improved, not saying mission accomplished

October 24, 2024 1:39 PM UTC

The incoming Cleveland Fed President, Beth Hammack like her predecessor Lorretta Mester, does not appear to be a dove.