Banxico Minutes: Evaluating Further Cuts

November 29, 2024 7:31 PM UTC

Banxico’s latest minutes reveal a 25 bps rate cut to 10.25%, with most board members supporting continued easing. They view recent non-core inflation spikes as transitory, expecting headline CPI to decline as shocks dissipate. Core CPI has dropped to 3.8%, reinforcing the case for further cuts, wh

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

U.S. October Personal Income stronger, Spending and Core PCE Prices as expected

November 27, 2024 3:15 PM UTC

October PCE prices at 0.2% overall, 0.3% core, with yr/yr rates slightly firmer at 2.3% and 2.8% respectively are as expected and predicted by Fed’s Powell on November 14. The core rate at 0.27% before rounding is not quite as strong as the core CPI. The pace is a little higher than desirable, but

2024 Q3 Country Insights Scores to Download in Excel

November 27, 2024 1:00 PM UTC

The Country Insights Model is a comprehensive quantitative tool for assessing country and sovereign risk by measuring a country’s risk of external and domestic financial shocks and its ability to grow. The access to our full range of scores across 174 countries corresponding to the third quarter o

China Slowing LT Growth: Labor Force and Productivity Problems

November 27, 2024 11:05 AM UTC

China labor force will likely not grow in the remainder of the decade, due to falling population; reluctance to consider large-scale inward immigration; a female participation rate that is high by EM standards and limited growth in employment among those over 55.  Meanwhile, education and rural to

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

Preview: Due November 27 - U.S. October Personal Income and Spending - A second straight 0.3% from Core PCE Prices

November 26, 2024 2:34 PM UTC

We expect October’s personal income and spending data to look similar to September’s, with gains of 0.3% in personal income, 0.5% in personal spending and a 0.3% rise in core PCE prices. A second straight 0.3% rise in core PCE prices would be a little high for comfort.

Trump Deregulation and U.S. Financial Stability

November 26, 2024 10:05 AM UTC

Regional banks will be the main beneficiaries from a further watering down or postponement (that is likely under the Trump administration) of the proposed capital increase under the Basel endgame.  Combined with laxer M&A rules for bank takeover, this could help lending and credit growth for the U.

Mexico: Budget Aims at Resuming Fiscal Discipline

November 22, 2024 11:21 PM UTC

Claudia Sheinbaum’s administration has introduced the 2025 budget, reaffirming Mexico's commitment to fiscal discipline with a projected fiscal consolidation of 2.0% of GDP, reducing the fiscal deficit from 5.9% in 2024 to 3.9% in 2025. Although there is likely an overestimation on GDP growth we b

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

Bank Indonesia Retains Rate Prioritises Rupiah

November 21, 2024 7:20 AM UTC

Bank Indonesia held its key interest rate at 6% to stabilise the rupiah and attract FX inflows, while maintaining interventions in the FX and bond markets. Inflation remains within target, and GDP growth forecasts are steady. Future rate cuts depend on US Federal Reserve actions. A 25bps cut is expe

Trump International: DM Countries

November 21, 2024 7:06 AM UTC

Much uncertainty still exists on policy but in 2025 the EU will likely be under pressure from targeted new tariffs by the Trump administration, while also being asked to spend more on defense spending.  Purchasing extra LNG and military hardware from the U.S. is one way towards a potential trade de

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

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

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

Preview: Due November 27 - U.S. October Personal Income and Spending - A second straight 0.3% from Core PCE Prices

November 15, 2024 5:09 PM UTC

We expect October’s personal income and spending data to look similar to September’s, with gains of 0.3% in personal income, 0.5% in personal spending and a 0.3% rise in core PCE prices. A second straight 0.3% rise in core PCE prices would be a little high for comfort.

U.S. October Retail Sales - Trend solid but may start to lose momentum

November 15, 2024 1:53 PM UTC

October retail sales are in line with expectations overall but stronger net of revisions, with September revised up to a 0.8% increase from 0.4%, outweighing a downward revision to August to -0.1% from a 0.1% increase. October gains were subdued ex autos and ex autos and gasoline, both up by 0.1%.

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

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

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. October CPI - A more balanced report

November 13, 2024 2:13 PM UTC

October CPI has seen the fourth straight rise of 0.2% overall and the third straight rise ex food and energy of 0.3%, both on consensus. Before rounding the gains were 0.24% and 0.28% respectively, the latter slower than September’s 0.31% but in line with August’s. The data leaves the December F

India CPI Review: CPI Hits New Heights

November 13, 2024 12:05 PM UTC

Bottom line: The latest CPI figure of 6.2% yr/yr underscores significant inflationary pressures within the Indian economy, primarily driven by food prices but also influenced by housing costs. With inflation now at a 14-month high, the RBI's response will be another rate hold in December. Earliest r

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

BCB Minutes: Hawkish and Indicating Hikes

November 12, 2024 2:49 PM UTC

The Brazilian Central Bank (BCB) remains hawkish, raising rates by 50 bps to 11.25% amid resilient domestic growth and unanchored inflation expectations. Key concerns include rising uncertainty in the fiscal landscape and exchange rate volatility, prompting cautious monetary policy. The BCB signals

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.

China Yuan10trn Package: Shifting Debt Not Stimulus

November 11, 2024 10:06 AM UTC

Details of the Yuan10trn fiscal package show that it is all directed at a debt swap for LGFV’s and repackaging hidden local government debt.  This will have little net fiscal stimulus.  True fiscal stimulus will be seen for 2025 GDP growth, but it could be delayed until further details are seen

BCB Review: Unanimous 50bps Hike

November 7, 2024 2:19 PM UTC

The Brazilian Central Bank raised its policy rate by 50 basis points to 11.25%, signaling heightened concerns over inflation risks driven by domestic dynamics and global uncertainties. While noting external volatility and fiscal policy impacts, the BCB emphasized that persistent inflation requires a

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

U.S. October ISM Services - Healthy, if probably a little overstated

November 5, 2024 3:21 PM UTC

October’s ISM services index at 56.0 from 54.9 is the strongest since August 2022 and while probably a little overstated, particularly a surge in the deliveries index, suggests a healthy underlying economic picture entering Q4.

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

RBA Review: Waiting to ease

November 5, 2024 6:10 AM UTC

The RBA meeting on November 5th kept rates on hold 

Hawks or Doves? Decoding the New RBI MPC's Monetary Policy Shift

November 4, 2024 7:18 AM UTC

The Reserve Bank of India's Monetary Policy Committee (MPC) recently maintained the repo rate at 6.50% while shifting its stance from "withdrawal of accommodation" to "neutral," reflecting a cautious approach towards economic growth and inflation management. The meeting, which included three new e

Will China Deflation Depress GDP?

November 4, 2024 7:05 AM UTC

China most likely faces aggressive disinflation rather than Japan style deflation that depress GDP. China is a middle income country with incomplete urbanization/consumption, while China authorities appear more proactive than Japan in the 1990’s.  However, support for households remains light, wh

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

U.S. October Employment - Special factors add to weakness, but trend looks less strong after revisions

November 1, 2024 1:27 PM UTC

October’s non-farm payroll is well below consensus with a 12k increase with weakness impacted by a strike at Boeing and hurricanes, though probably also in part due to a correction from an above trend September, and negative revisions make the trend going into this report less strong than it was.

U.S. September Personal Income, Spending and Core PCE Prices, Q3 Employment Cost Index, Weekly Initial Claims - Mostly solid

October 31, 2024 1:18 PM UTC

September’s personal income and spending data is largely old news with Q3 totals having been seen in the GDP report.  As in Q3, growth in spending, of 0.5%, exceeds a 0.3% rise in income while core PCE prices are on the firm side of trend at 0.3%, though only 0.254% before rounding. The Employmen

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

Preview: Due October 31 - U.S. September Personal Income and Spending - Core PCE prices may match Core CPI this month

October 30, 2024 2:29 PM UTC

September personal income and spending data will confirm Q3 totals seen with the GDP release, with the only uncertainty being the mix of monthly changes and back month revisions. We look for a stronger 0.3% increase in core PCE prices, and a moderate 0.3% rise in personal income which we expect will

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

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. September Durable Goods Orders - Aircraft slip, but ex transport showing signs of improvement

October 25, 2024 1:01 PM UTC

September durable goods orders fell by 0.8% in line with expectations with August revised down. Also to -0.8% from unchanged. The weakness of the headline however contrasts with a stronger than expected 0.5% rise ex transport, with August revised up to a 0.6% increase from 0.5%, hinting at underlyin

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

China Big Banking System: Lessons from Japan/GFC

October 24, 2024 10:50 AM UTC

The proposed Yuan1trn capital injection for the six largest banks would be pre-emptive, while China is also quick to merge weaker/failing small to mid-sized banks. However, rising NPL’s; plus, low net interest margins with low policy rates; low nominal GDP and pressure to rollover LGFV/SOE debt wi

Eurozone Services Risks Clearer?

October 24, 2024 10:13 AM UTC

It is clear that PMI data are a key component of the data analysis of the ECB. We are somewhat sceptical of the data, at least in its ability to track GDP growth coincidently and accurately.  But the data does offer a wide-ranging insight into private sector economic momentum.  With this in mind t

BoJ Preview: Forward Guiding Another Hike Imminent

October 24, 2024 5:15 AM UTC

The BoJ will keep rate unchanged in the Oct 31 meeting at 0.25% with forward guidance suggesting an imminent hike