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

Brazil and Mexico Labour Productivity: A Headwind for Growth

November 19, 2024 12:03 PM UTC

Brazil and Mexico labour productivity has been stagnant in the last years, with both countries registering lower labour productivity levels than they were 12 years ago, with the gap with U.S. only widening. With both countries approaching full-employment, measures will need to be taken to foster gro

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

SARB MPC Preview: Easing Cycle to Continue on November 21

November 15, 2024 4:04 PM UTC

Bottom line: After South African Reserve Bank (SARB) cut the key rate to 8.0% on September 19 following seven consecutive meetings at a 15-year peak of 8.25% given that September inflation hit below the midpoint of target band of 3% - 6%, power cuts (loadshedding) are suspended and inflation expecta

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

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

Preview: Due November 15 - U.S. October Retail Sales - Trend still solid

November 14, 2024 2:47 PM UTC

We expect US retail sales to maintain momentum in October, with a 0.4% increase overall matching that of September. However gains of 0.2% ex autos and 0.3% ex autos and gasoline would see some loss of momentum from surprisingly strong respective gains of 0.5% and 0.7% in September.

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

Elevated Inflation in Russia Remains Persistent and Sticky in October

November 13, 2024 5:21 PM UTC

Bottom Line: According to Russian Federal Statistics Service (Rosstat) data released on November 13, inflation slightly cooled off to 8.5% YoY in October after hitting 8.6% in September but remained well above the Central Bank of Russia’s (CBR) midterm target of 4%, due to surges in services and

Argentina CPI Review: Monthly Inflation Drops to 2.7%

November 13, 2024 3:09 PM UTC

Argentina's October CPI rose by 2.7%, hitting a three-year low and reducing the Y/Y inflation to 192%. Milei’s fiscal shock plan aims to curb inflation, with anticipated tariff adjustments potentially keeping inflation near 3% monthly in the next month. With inflation dropping Argentine government

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

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

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

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

Preview: Due November 13 - U.S. October CPI - Similar to August and September

November 12, 2024 1:38 PM UTC

We expect October’s CPI to increase by 0.3% overall for a fourth straight month with a third straight 0.3% increase ex food and energy. Before rounding we expect a 0.20% rise overall, slightly stronger than the three preceding outcomes, with a 0.28% rise ex food and energy. The latter will be soft

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

Brazil CPI Review: Food and Energy Drive Inflation Up

November 11, 2024 9:13 PM UTC

Brazil’s October CPI rose 0.56%, pushing the year-over-year rate to 4.7%, above the Brazilian Central Bank’s (BCB) 4.5% target. The increase was driven by food and housing costs, especially due to rising electricity tariffs impacted by low hydroelectric reservoir levels. Although core CPI remain

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

Mexico CPI Review: Agricultural Goods Drive Inflation Up

November 8, 2024 2:58 PM UTC

Mexico's CPI rose 0.54% month-over-month in October, with a year-over-year increase to 4.8%, slightly above expectations. Agricultural goods and energy prices were key contributors. Core CPI, showing positive recent trends, rose 0.3% month-over-month and dropped to 3.8% year-over-year. Banxico is ex

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

CBR’s October MPC Summary Signals Another Rate Hike in December

November 7, 2024 7:22 PM UTC

Bottom Line: Central Bank of Russia (CBR) published the summary of October MPC meeting on November 6, and signaled another rate hike in December by noting that “While a rate hike at the next meeting is not predetermined, the probability is very high,” which can be associated with elevated inflat

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.

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

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

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.

Preview: Due November 15 - U.S. October Retail Sales - Trend still solid

November 5, 2024 2:55 PM UTC

We expect US retail sales to maintain momentum in October, with a 0.4% increase overall matching that of September. However gains of 0.2% ex autos and 0.3% ex autos and gasoline would see some loss of momentum from surprisingly strong respective gains of 0.5% and 0.7% in September.

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

BCB Preview: 50bps Hike and More to Come

November 4, 2024 8:05 PM UTC

The Brazilian Central Bank (BCB) is expected to raise rates by 50bps in November to curb rising inflation, which could exceed the 4.5% upper limit if inflationary shocks persist. Market concerns focus on food prices, a strong labor market, and external exchange rate pressures. The new BCB President,

Marginal Fall in October: Turkiye’s CPI Cooled off to 48.1% YoY

November 4, 2024 3:30 PM UTC

Bottom line: After CPI plummeted to 49.4% y/y in September backed by the lagged impacts of the tightening cycle, relative slowdown in credit growth, and tighter fiscal stance, inflation hit 48.6% in October as food, education and rental pricing pressures continued to build while the deceleration p

Preview: Due November 13 - U.S. October CPI - Similar to August and September

November 4, 2024 2:26 PM UTC

We expect October’s CPI to increase by 0.3% overall for a fourth straight month with a third straight 0.3% increase ex food and energy. Before rounding we expect a 0.20% rise overall, slightly stronger than the three preceding outcomes, with a 0.28% rise ex food and energy. The latter will be soft

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

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

Brazil: Credit is Resilient, but Some Deceleration is Expected

November 1, 2024 8:58 PM UTC

In early 2024, Brazil's credit market saw an 8.2% growth, supported by easing inflation and favorable monetary policy. Both earmarked and non-earmarked credit contributed, with household credit outpacing enterprise lending. Delinquency rates remain manageable at 3.8%. However, deceleration is expect

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.

Preview: Due November 1 - U.S. October Employment (Non-Farm Payrolls) - Hurricanes and strike to deliver below trend month

October 31, 2024 2:24 PM UTC

We expect a below trend 75k non-farm payroll increase in October, with only 40k in the private sector. This would follow above trend gains of 254k and 223k respectively in September, depressed by a strike at Boeing and Hurricanes Helene and Milton. While payrolls will be below trend, we expect unemp