BoE Preview (Aug 1): Time to Get Less Restrictive

July 25, 2024 3:20 PM UTC

We still think that the BoE will cut Bank Rate by 25 bp at the Aug 1 MPC verdict and that that two further such cuts may arrive by end-year.  We accept that stubborn services inflation may harden the hawks, despite softer wage pressures.  But while the recent Bernanke Report recommended phasing ou

Eurozone Data Preview (Jul 30): Fading Momentum?

July 25, 2024 9:19 AM UTC

According to revised official national accounts data, the EZ economy actually avoided what was previously suggested to have been a modest recession in H2 last year. Moreover, the economy sparked back in Q1, albeit against a backdrop of marked, if not increasing, national growth divergences but where

Bank of Canada Eases Again Given Increased Confidence in Inflation

July 24, 2024 4:17 PM UTC

The Bank of Canada has delivered a second straight 25bps easing to 4.50% and Governor Tiff Macklem stated there was a clear consensus behind the decision. The BoC’s tone was generally dovish despite looking for stronger GDP growth going forward. We now expect 25bps easings at each of the remaining

Canada: BoC's Macklem - Increasingly confident ingredients to bring inflation back to target in place

July 24, 2024 2:35 PM UTC

Short-End Gilts To Discount More Easing?

July 24, 2024 9:15 AM UTC

2yr Gilt yields will likely start declining further after the 1 BOE rate cut (we expect Aug 1), both as BOE communications guide to further cuts in the medium-term and as incoming wage and service inflation provides more comfort to reduce the scale of restrictive policy.  We see 2yr Gilt yields at

EZ HICP Preview (Jul 31): Disinflation Continues - Below-Target Rate Looming?

July 23, 2024 10:09 AM UTC

The clear disinflation trend was still evident even after higher and higher-than-expected May numbers, where the headline moved up from 2.4% to a three-month high of 2.6%.  That disinflation trend looks more discernible after the partial drop back to 2.5% seen in the June HICP, albeit with some far

The Aussie Chapter 5: Kiwi, a tale of two cities

July 23, 2024 12:00 AM UTC

In "The Aussie", we will look into the "well-known "correlation among the Aussie and well-known benchmark to give our readers a closer look towards factors that have been affecting the movement of the Australian Dollar. In Chapter 4, we will look into the performance of the Aussie relative to the Ki

German Data Preview (Jul 30): Inflation Stable Ahead of Fresh Fall in Coming Months?

July 22, 2024 3:10 PM UTC

Base effects have caused the German disinflation process not to be smooth and this was even more clearly the case in recent numbers where after a second successive and slightly larger rise in the headline HICP rate occurred rising 0.4 ppt to 2.8% in May was followed by a drop back to 2.5% in June, 0

UK Household Wealth and the Pension Predicament

July 22, 2024 12:44 PM UTC

Unlike some other parts of the DM world, UK households have seen a serious dent put into their stock of wealth in the last two years.  Indeed, household net worth fell in both 2022 and 2023, both in absolute terms and also as a % GDP (Figure 1).  The 2022 drop was very much a slump in pension fund

Bank of Canada Preview for July 24: A Pause Between Easings

July 19, 2024 4:30 PM UTC

The Bank of Canada meets on July 24 and the decision will be close call between a second straight 25bps easing to follow the move seen on June 5 or leaving rates unchanged at 4.75%. We lean towards the latter option due to caution over inflation, though forecasts in the accompanying Monetary Policy

ECB Review: Policy Window Stays Very Open

July 18, 2024 1:56 PM UTC

Maybe the ECB is now thinking that it was too clear at its April Council meeting that rate cut would occur subsequently in June, basically then suggesting that something would have to occur to prevent such a move.  This time, with policy rates held as very much expected, the policy window was merel

Trump 2.0: Markets Guessing Policy Priorities

July 18, 2024 9:10 AM UTC

 If Trump is elected president we still feel that the top priorities for implementation will likely be reducing immigration and making permanent tax cuts that are due to lapse in 2025. Trump would likely jawbone on all issues, but actual policy changes are more important for persistent moves in mar

U.S. Household Wealth: Bottom 50% Need Income

July 17, 2024 9:00 AM UTC

Beneath the surface Federal Reserve data shows that the bottom 50% of households have little net wealth and they depend on employment income and government handouts.  With excess post COVID government handouts having been largely exhausted, lower income households are starting to suffer from slowin

UK CPI Review: Inflation Stays at Target and Services Stay Resilient?

July 17, 2024 6:35 AM UTC

As has been made clear by policy-makers, labor market and particularly CPI data are crucial to BoE thinking about the timing and even the existence of any start to an easing cycle.  In this regard the fact that headline CPI inflation dropped back to the 2% target in May is important but far from de

France in the Fiscal Firing Line

July 16, 2024 7:31 AM UTC

EU finance ministers gather in Brussels today in a regular meeting but this time will discuss excessive fiscal deficits in various member countries, in particular, Belgium, France, Italy, Hungary and Poland.  It is unclear just how specific any criticisms will be either in pointing out particular c

U.S. Fed's Goolsbee - Greater confidence in falling inflation

July 15, 2024 1:12 PM UTC

EZ and UK Government Bonds: Decoupling From the U.S.?

July 12, 2024 9:37 AM UTC

Different economic and inflation dynamics, plus no constraint from trade weighted exchange rates, means that the ECB and BOE can cut irrespective of the Fed in the coming quarters.  This can see 2yr yields decline, though less so in Germany where a 2.5% ECB depo rate is already discounted.  10yr y

U.S. Fed's Daly and Musalem welcome CPI

July 11, 2024 5:30 PM UTC

Fed's Musalem and Daly have welcomed the CPI data, without giving any signal for a near-term easing.

UK CPI Preview (Jul 17): Inflation To Stay at Target – An Update on the Policy Outlook?

July 10, 2024 1:51 PM UTC

As has been made clear by policy-makers, labor market and particularly CPI data are crucial to BoE thinking about the timing and even the existence of any start to an easing cycle.  In this regard the fact that headline CPI inflation dropped back to the 2% target in May is important but far from de

U.S. Fed's Powell - More good data would strengthen confidence inflation heading to target

July 9, 2024 2:14 PM UTC

France Gets PPP - Protracted Policy Paralysis?

July 8, 2024 6:46 AM UTC

French politics is getting used to surprises.  After the unexpected snap election that saw the far right poll the most in the first round of parliamentary results last week, Sunday’s second round surprisingly saw President Macron's centrist forces perform more strongly than expected by coming in

UK Election Aftermath: Labour’s Solid Victory

July 5, 2024 5:24 AM UTC

Labour have won a large seat majority, though with a modest vote share.  This should provide political stability in the UK for the next 5 years.  The key question for market remains how the fiscal rule will be meet and how slowly or quickly Labour will take actions to boost long-term growth. 

ECB: Council Policy Reservations Deeper Than Expected?

July 4, 2024 12:23 PM UTC

The account of the June ECB Council meeting confirmed one dissent against the widely flagged 25 bp rate cut but also revealed perhaps clearer reservation among some other members about easing at that juncture.  Indeed, there seemed to be disagreement about interpreting data; what is the basis for a

FOMC Minutes from June 12 - Economy Seen Cooling But Little Discussion of Easing

July 3, 2024 6:52 PM UTC

FOMC minutes from June 12 show that the vast majority assessed that growth in economic activity appeared to be gradually cooling and the views expressed on inflation are cautiously optimistic. However there was agreement that easing would not be appropriate until they had gained greater confidence o

Trump now Front-Runner for President

July 3, 2024 9:00 AM UTC

There is little sign yet that President Joe Biden is willing to step down after his disastrous debate performance though opinion polls will need to be watched for signs that the Democrats could do better with another candidate. The debate has left former President Donald Trump as the more likely, bu

U.S. Fed's Powell - Disinflation showing signs of resuming

July 2, 2024 1:51 PM UTC

German Data Review (Jul 1): Inflation Moves Back Down

July 1, 2024 12:28 PM UTC

Base effects have caused the German disinflation process not to be smooth and this was even more clearly the case in the May numbers where a second successive and slightly larger rise in the headline HICP rate occurred rising 0.4 ppt to 2.8%, albeit a rise half that size seen in the accompanying CPI