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.

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

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.

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

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

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.

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

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.

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. 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

Preview: Due July 11 - U.S. June CPI - Another subdued month, similar to May

July 10, 2024 12:07 PM UTC

We expect June’s CPI to look similar to May’s, with an unchanged outcome overall and a 0.2% increase ex food and energy. Before rounding we expect gains of 0.04% overall and 0.19% ex food and energy, up from 0.01% and 0.15% respectively in May, but both May and June would still be softer than an

China: Weak CPI and M2 Trends

July 10, 2024 7:27 AM UTC

China disinflation process is clear in the June CPI data, with excess production and soft consumer spending producing a lower than expected outcome.  Combined with weak M2 money growth, parts of China economy remain weak and point to a softening of GDP growth in H2.  However, policy action will li

Israel and Hezbollah: Tensions or War?

July 9, 2024 2:28 PM UTC

Tensions are growing between Israel and Hezbollah, though the odds of a war in the next 6 months remain modest.  Military strategists note that such a war would require a large scale ground offensive and this is difficult given the war in Gaza.  

U.S. June Employment - Consistent with an economy growing below potential

July 5, 2024 12:59 PM UTC

June’s non-farm payroll is slightly stronger than expected in the overall gain of 206k, but with significant negative back month revisions of 111k, while private sector payrolls rose by a weaker than expected 136k. With average hourly earnings up a moderate on consensus 0.3% and unemployment up to

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. 

US Equities: Soft v Harder Landing More Than Politics

July 4, 2024 11:05 AM UTC

The U.S. equity market sees positives and negatives behind the volatility of U.S. presidential expectations, partially as Donald Trump is seen to be in favour of lower corporate tax rates.  We see the soft versus harder landing for the U.S. economy as being more important, as a harder landing could

Preview: Due July 5 - U.S. June Employment (Non-Farm Payrolls) - Initial claims suggest some loss of momentum

July 3, 2024 2:41 PM UTC

We expect June’s non-farm payroll to hint at some loss of labor market momentum, with a 185k increase overall and 145k in the private sector, the latter the slowest since October 2023. We expect average hourly earnings to follow a strong 0.4% May increase with a rise of 0.3% and less before roundi

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. Q2 GDP heading for a similar rise to Q1, with weaker detail

July 2, 2024 6:06 PM UTC

In our quarterly outlook on June 20 we looked for Q2 US GDP to increase by 2.0% annualized before growth of near 1.0% in the second half of the year. Weaker than expected trade and consumer spending data released since then have moved our forecast down to 1.5%, similar to the 1.4% increase seen in Q

China: 3rd Plenum Incremental Not Game Changing

July 2, 2024 8:10 AM UTC

The 3 plenum July 15-18 will likely see some additional measures that will support or stimulate China economy.  However, they are unlikely to be game changers, such as a Yuan2-4trn program of buying most unsold homes or structural increase in the unemployment/health and pension safety nets to free

Preview: Due July 11 - U.S. June CPI - Another subdued month, similar to May

July 1, 2024 3:55 PM UTC

We expect June’s CPI to look similar to May’s, with an unchanged outcome overall and a 0.2% increase ex food and energy. Before rounding we expect gains of 0.04% overall and 0.19% ex food and energy, up from 0.01% and 0.15% respectively in May, but both May and June would still be softer than an

EM After the Elections: Fiscal Focus and Inflation Questions

July 1, 2024 8:05 AM UTC

Enhancing fiscal credibility is key post-election in India and S Africa, but also for Brazil.  India, will do this in the 3 week of July, but S Africa needs to move from ANC/DA led coalition optimism to reality quickly. Brazil needs to stop the vicious circle of sentiment building up on fiscal slip

UK Markets After The Election: Will Labour Push for Growth Slowly or Quickly?

June 28, 2024 7:14 AM UTC

It is uncertain whether an incoming Labour government in the UK would slowly or quickly take action to boost trend growth and this is the most important question for post-election sentiment towards UK assets.  For the Gilt market, the key is that the BOE actually starts cutting rates and that the 1

Outlook Overview: Cyclical and Structural Forces

June 25, 2024 10:15 AM UTC

•    The global economy is showing signs of healing, as inflation comes back towards targets and growth recovers momentum in some economies. Nevertheless, the cyclical headwind of lagged monetary tightening remains in DM countries, and will likely be one of the forces slowing the U.S. economy

Charting Our Views: Technical Analysis for Q3 2024

June 25, 2024 9:08 AM UTC

Our latest quarterly technical analysis views on Bonds, Equities, Commodities and FX is now available.  

EMFX Outlook: USD Strength to Ebb with Different EM Impact

June 25, 2024 8:05 AM UTC

 We see Fed rate cuts from September starting to soften USD strength into year end and 2025.  Beneficiaries will include currencies with inflation moving towards target and high real rates or, alternatively, undervalued currencies. This should benefit the Brazilian Real (BRL) and Indonesian Rupiah

Equities Outlook: Choppy U.S. and Outperformance Elsewhere

June 25, 2024 7:05 AM UTC

 •    U.S. equities are overvalued and waiting for earnings growth to catch-up, which leaves the market choppy, directionless and vulnerable to intermittent 5% corrections. Our forecast slowing of the U.S. economy before Fed rate cuts or nervousness about the post-election prospects are potenti

Preview: Due July 5 - U.S. June Employment (Non-Farm Payrolls) - Initial claims suggest some loss of momentum

June 24, 2024 3:00 PM UTC

We expect June’s non-farm payroll to hint at some loss of labor market momentum, with a 185k increase overall and 145k in the private sector, the latter the slowest since October 2023. We expect average hourly earnings to follow a strong 0.4% May increase with a rise of 0.3% and less before roundi

DM Rates Outlook: Rate Cuts Arrive Except Japan

June 24, 2024 8:45 AM UTC

•    For U.S. Treasuries we see a steady easing process from the Fed from September, which can allow 2yr yields to fall consistently.  However, the decline in H2 2024 will be slower at the long-end from traditional yield curve steepening pressures and then we see fiscal stress in H1 2025 unde

DM FX Outlook: Politics rears its head

June 24, 2024 7:42 AM UTC

·       Bottom Line: The USD strength in Q2 on the back of a less dovish view of the Fed is unlikely to extend over the rest of the year. The JPY remains exceptionally cheap and has potential to recover sharply if risk appetite weakens. A slower JPY recovery is likely if lower inflation leads

Modi 3.0 to be Much Like Previous Two Terms

June 24, 2024 6:47 AM UTC

A weakened BJP has formed a government with support from regional parties and independents. The BJP holds 240 seats in parliament on its own and with its partners the government in power now holds 303 seats, which is substantially higher than the 272 needed to form a government. As a consequence, po

Asia/Pacific (ex-China/Japan) Outlook: Growth Momentum but Delayed Rate Cuts

June 21, 2024 9:45 AM UTC

•    Economic activity in emerging Asian economies is forecast to remain strong. Despite several challenges, including a tight oil market, constrained liquidity conditions, and delayed rate cuts, the region's economic activity is expected to show resilience. Other potential obstacles include u

U.S. Outlook: Economy Starting to Lose Momentum

June 20, 2024 6:17 PM UTC

•    The U.S. economy is starting to lose momentum after a surprisingly strong second half of 2023, and we expect the loss of momentum to become more apparent in the second half of 2024, causing a slowing in employment growth from its current strong pace. We expect inflation to resume a gradua

Commodities Outlook: Fundamentals Kick In

June 20, 2024 10:00 AM UTC

West Texas Intermediate (WTI) is projected to end 2024 at USD82. We anticipate that the voluntary cuts introduced in November 2023 will likely be reversed during H1 2025 and not in Q4 2024, as initially communicated by OPEC+. The scenario is built on our expectation that demand will not increase suf

SNB: 25bps Cut and Next Cut in September

June 20, 2024 8:34 AM UTC

The SNB cut by 25bps to try and stop inflation undershooting.  We look for a further 25bps cut in September, as the new inflation forecasts remains too far below target for SNB comfort. CHF strength will also not ebb quickly given the prospect of prolonged French political uncertainty.  

France Debt: Dependent on Non-Residents

June 18, 2024 9:20 AM UTC

Any further major fiscal slippage under a new government could prompt more of a reduction in French government bond exposure, which would likely mean a multi month/quarter risk premia for France and cause spillover difficulties for Italy. It is worth remembering that France is dependent on non-resid

China Data: Mixed Momentum and No MTF Cut Until October

June 17, 2024 6:59 AM UTC

Overall the May data suggests that enough momentum exists for Q2 GDP to be above 5.0% Yr/Yr, which given the Q1 GDP figure means that the odds are good that the 2024 5.0% GDP target can be meet.  However, we see a softer of H2 GDP and 4.0% GDP in 2025, given weak domestic demand is unlikely to chan

U.S. May CPI Loses Momentum, Most Notably in Transport Services

June 12, 2024 1:10 PM UTC

May CPI has come in softer than expected, unchanged overall with a 0.2% increase ex food and energy, with the latter up only 0.163% before rounding, which is the softest since August 2021. If sustained this would be consistent with inflation returning to target though the Fed will treat one soft mon

China CPI: Core Slows and 10bps June 17 MLF Cut?

June 12, 2024 7:34 AM UTC

 China disinflation is clear in the latest numbers for May, with core falling 0.2% on the month.  Further stimulus will likely arrive in the form of monetary easing.  While it is a close call, we look for a 10bps cut in the medium-term lending facility rate (MLF) from 2.50% on June 17.    

DM Fiscal Consolidation Problems: Politics/Central bank QT and Low Nominal GDP

June 11, 2024 2:10 PM UTC

 Some governments are politically reluctant to restrain government expenditure growth or in the U.S. case raise taxes.  This means that intermittent fiscal stress and concerns can be seen in the coming years.  However, to get to crisis levels would require a government that abandons any attempts

Preview: Due June 12 - U.S. May CPI - Slower overall, another 0.3% for the core

June 11, 2024 12:27 PM UTC

We expect May CPI to rise by 0.1% overall, which would be the slowest since October 2023, but with a second straight 0.3% increase ex food and energy, to follow three straight gains of 0.4% during Q1. Before rounding we expect the core rate to be very close to 0.3% but the headline to be on the firm

U.S. May Employment - Trends still firm in payrolls and average hourly earnings

June 7, 2024 1:05 PM UTC

May’s non-farm payroll is clearly stronger than expected with a 272k increase and only 15k in negative back month revisions, with private payrolls up by 229k. Average hourly earnings are also on the firm side of consensus with a rise of 0.4%. Despite unemployment edging up to 4.0% from 3.9% with w

China Excess Production: Exports Going Cheap?

June 7, 2024 8:45 AM UTC

China excess of production over domestic demand is causing disinflation pressures in China, but also leading to a fall in export prices as China companies seek buyers for production.  Though this is a helpful factor to the global inflation debate, it is causing trade tensions with the U.S. and EU o

Preview: Due June 7 - U.S. May Employment (Non-Farm Payrolls) - Stronger than April but trend may be starting to slow

June 6, 2024 2:22 PM UTC

We expect a 205k increase in May’s non-farm payroll, a little stronger than April’s below trend 175k but closer to that than March’s above trend 315k. We expect average hourly earnings with a 0.3% increase to also be a little stronger than in April, when a below trend 0.2% increase was seen, b

France Downgrade: Warning for the U.S./UK?

June 5, 2024 9:30 AM UTC

 French politics makes it difficult for President Macron to improve the underlying budget deficit and government debt after the S&P downgrade to AA-.  The National Rally could also do well in this week’s European parliamentary elections and put further pressure on Macron.  Meanwhile, though rat

India Elections: Early Trends Point to a Weakened BJP Government

June 4, 2024 2:02 PM UTC

Election counting trends indicate that the BJP-led NDA is on track to secure 290 seats, with the BJP projected to win 235-240 seats. The INDIA alliance is expected to secure around 230 seats. Final results will be announced later tonight. A weakened BJP is expected to form a government with its alli