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

Mexico: Mixed Signs for Banxico

July 25, 2024 1:52 PM UTC

The Mexican economy shows mixed signals for Banxico. Economic activity indicates a slowdown, with weaker industrial activity and decelerating formal employment. However, inflation is rising, particularly in non-core components like energy and agricultural goods, influenced by climate conditions. The

US Q2 GDP exceeds expectations, business investment the main upside suprise

July 25, 2024 1:06 PM UTC

Q2 GDP has come in significantly stronger than expected with a 2.8% increase while core PCE prices are also above consensus at 2.9%, which suggests despite yesterday’s call from former New York Fed President Dudley, a July Fed easing remains very unlikely. 

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

Preview: Due July 25 - U.S. Q2 GDP - A second straight subdued quarter, with slower Core PCE Prices

July 24, 2024 5:27 PM UTC

We look for a 1.8% annualized increase in Q2 GDP, slightly stronger than the 1.4% seen in Q1 but still leaving a significant slowing from the strong second half of 2023. The first two quarters of 2024 are set to be the weakest since the first two quarters of 2022 recorded modest declines.

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

South Africa’s Inflation Slightly Eased to %5.1 YoY in June

July 24, 2024 11:25 AM UTC

Bottom Line: According to the inflation figures announced by Department of Statistics of South Africa (Stats SA) on July 24, CPI marginally decreased to 5.1% YoY in June due to slowdown in costs for food, fuel and transportation coupled with suspended power cuts (load shedding) in June. The inflatio

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

Brazil: An Eye on the Lower Bound of the Fiscal Target

July 23, 2024 4:07 PM UTC

The Brazilian government will implement BRL 15 billion in contingency expenditures to meet fiscal targets, aiming for a 0.25% GDP primary deficit in 2024. This move, though addressing fiscal issues, pursues the lower target band and may undermine fiscal credibility. The contingency is due to revenue

CBRT Continued to Keep Key Rate Stable at 50%

July 23, 2024 1:48 PM UTC

Bottom Line: As predictions were centred around no change, Central Bank of Turkiye (CBRT) kept the policy rate stable at 50% on July 23. CBRT said in a statement that tight monetary stance will be maintained until a significant and sustained decline in the underlying trend of monthly inflation is ob

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

China: The Squeezed Middle and Bottom 50%

July 23, 2024 8:15 AM UTC

Uncertainty over income and employment, adverse wealth effects from lower house prices, plus growing risk aversion, will likely mean that consumption continues to struggle. This is one of the key reasons why we forecast slower H2 GDP growth and look for 4% in 2025.

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

Preview: Due August 2 - U.S. July Employment (Non-Farm Payrolls) - Slightly slower, in part on weather

July 22, 2024 2:24 PM UTC

We expect July’s non-farm payroll to rise by 175k, 130k in the private sector, both slightly slower than in May and June but stronger than in April, suggesting only a moderate loss of momentum in the labor market. We expect an unchanged unemployment rate of 4.1% and a second straight 0.3% increase

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

China: Surprise 7 Day Reverse Repo Rate Cut

July 22, 2024 8:41 AM UTC

China 10bps cut in the 7 day reverse repo rate and 1 and 5yr Loan Prime Rate (LPR) was sooner than expected, as a move had not been anticipated until the Fed cuts rates.  However, this is not the start of a new aggressive policy phase, but rather a tactical move given the targeted nature of easing.

Biden Drops Out, But Yield Curve Still to Steepen

July 22, 2024 8:10 AM UTC

President Joe Biden dropping out will create more uncertainty about the U.S. presidential race, but also crucially mean that the House of representative race is a close call.  This could stall some Trump trades, though we still see a swing to a positive 10-2yr U.S. Treasury yield curve – given Fe

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

Argentina: Agriculture Drives Growth in May

July 19, 2024 1:10 PM UTC

The Argentine economy showed a 1.3% growth in May, driven mainly by the recovering agricultural sector, which is 100% higher than last year. However, other sectors like manufacturing and construction continue to lag. Despite the growth, economic recovery is uncertain due to fiscal adjustments, excha

Preview: Due July 25 - U.S. Q2 GDP - A second straight subdued quarter, with slower Core PCE Prices

July 18, 2024 3:30 PM UTC

We look for a 1.8% annualized increase in Q2 GDP, slightly stronger than the 1.4% seen in Q1 but still leaving a significant slowing from the strong second half of 2023. The first two quarters of 2024 are set to be the weakest since the first two quarters of 2022 recorded modest declines.

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

UK Labor Market: Far Less Resilient Wage Pressures As Labor Market Loosens Further

July 18, 2024 7:15 AM UTC

As we have underscored repeatedly, the BoE has come to regard the official ONS average earnings data with some suspicion given response rates to the surveys that have fallen towards just 10%.   But the BoE will not be able to dismiss the latest earnings data given that alternative (and more author

Brazil and Mexico: Supply and Demand Factors Affecting Inflation

July 17, 2024 6:52 PM UTC

We decomposed inflation in Brazil and Mexico using a Vector Autoregressive (VAR) Model, focusing on Imported Inflation, Demand, Supply, and Monetary Policy. Our analysis from 2003 to 2024 for Brazil and 2005 to 2024 for Mexico shows Brazil's inflation was primarily driven by supply and imported infl

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

U.S. June Retail Sales show surprising underlying resilience

July 16, 2024 12:52 PM UTC

June retail sales show the consumer still resilient even if unchanged overall on a dip in autos and weaker gasoline prices which restrained the ex auto data to a 0.4% increase. Ex autos and gasoline sales rose by a strong 0.8% while the control group which contributes to GDP was stronger still at 0.

Eurozone Banks See Consumer Loan Demand Recover

July 16, 2024 8:58 AM UTC

There were more positive straws in the wind in the latest (July 2024) bank lending survey (BLS), providing some reassurance for the ECB ahead of this week’s Council meeting. Most notable was a reported increase in demand for both housing loans and consumer credit for the first time since 2022 and

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

UK Productivity: Starting to Recover - Maybe?

July 15, 2024 2:12 PM UTC

Amid the new government’s economic priority to boost the trend or potential growth rate, any hint that this could be occurring would be welcome and important.  With this in mind, it is notable that after the mild recession in H2 last year, the ‘recovery’ through this year is much clearer than

Argentina: June CPI and Cleaning the Central Bank Balance

July 15, 2024 1:24 PM UTC

Argentina's CPI rose by 4.6% in June, up from 4.1% in May, missing market expectations of 5.1%. The Y/Y CPI fell to 271%. Housing items saw the highest increase at 14.2%, while core CPI growth slowed to 3.0%. Inflation may stabilize around 4.0% monthly. The Central Bank of Argentina's policies are m

Preview: Due July 16 - U.S. June Retail Sales - Trend losing momentum

July 15, 2024 11:40 AM UTC

We expect a weak end to Q2 from US retail sales, with a 0.6% decline in June, and a 0.3% decline ex autos. While a weak month for autos and lower gasoline prices will lead the dip, we also expect a marginal 0.1% decline ex autos and gasoline.

China: Retail Sales Drags Q2 GDP

July 15, 2024 7:33 AM UTC

We are revising down our 2024 GDP forecast from 4.9% to 4.7%, both due to the weaker than expected Q2 GDP figure but also the weak underlying momentum of consumption.  Some further targeted policy measures are likely in the coming months, but will struggle to lift economic momentum.

Banxico Minutes: More Slack Could Give Room for Rate Cuts

July 12, 2024 2:43 PM UTC

Banxico kept the policy rate unchanged at 11.0% but showed a slightly dovish tone, hinting at possible cuts in August. June's CPI figures revealed a widening gap between core and non-core inflation. Despite recent economic slowdowns and the MXN Peso's depreciation, Banxico expects economic slack to

Turkiye’s Current Account Deficit: Services Surplus and Decreasing Trade Deficit Succour

July 12, 2024 1:28 PM UTC

Bottom Line: Turkiye’s annualized current account deficit (CAD) stood at $25.2 billion as of May 2024, marking its lowest level since June 2022, down from $31.7 billion a month earlier driven by strong services income and improving foreign trade balance, supported by accelerated capital inflows. W

Latin America: Country Risk Ratings

July 12, 2024 10:05 AM UTC

We provide country risk reviews for select Latin America countries including Argentina, Brazil, Chile, Colombia and Mexico. 

U.S. Republican National Convention Approaching

July 11, 2024 4:51 PM UTC

US political focus may currently be on whether President Joe Biden will remain in the contest for president, though the Republican National Convention which runs from August 15 through August 18 is rapidly approaching. This will give useful insight on what a second term for former president Donald T

U.S. June CPI - Very soft, even if a few components look erratic

July 11, 2024 1:04 PM UTC

June CPI is even weaker than expected, down by 0.1% overall and up by only 0.1% ex food and energy, with the core increase before rounding only 0.065%, a sign that inflationary pressures have faded significantly since the bounce at the start of the year. Initial claims at 222k from 239k suggest the

Asia: Select Country Risk Ratings

July 11, 2024 10:00 AM UTC

We provide country risk reviews for Asia countries including India, Indonesia, Malaysia and Vietnam. 

Country Risk in Lebanon and Turkey

July 11, 2024 8:05 AM UTC

Country risk reviews of Lebanon and Turkey.      

Russia’s Inflation Continued Its Rally in June: 8.6% YoY

July 10, 2024 6:51 PM UTC

Bottom Line: According to Russian Federal Statistics Service data released on July 10, inflation jumped to 8.6% YoY in June after hitting 8.3% YoY in May, the highest reading since February 2023, due to strong military spending, tight labour market, and fiscal policy igniting domestic demand. The ne

Brazil CPI Review: Inflation Below Expectations in June

July 10, 2024 5:11 PM UTC

The IBGE's June CPI figures show a 0.21% monthly increase, below market expectations. The Y/Y index rose to 4.2%, driven by increases in potatoes, milk, and coffee. The floods in the South had a minimal impact. Health and Housing saw modest rises, while core CPI remained stable. Despite potential ri

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