Macro Strategy

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June 12, 2024

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

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

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

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.    

June 11, 2024

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

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

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

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

June 07, 2024

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

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

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China Excess Production: Exports Going Cheap?
Paying Article

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

June 06, 2024

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

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

June 05, 2024

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

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

June 04, 2024

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India Elections: Early Trends Point to a Weakened BJP Government
Paying Article

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

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

June 4, 2024 1:31 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

June 03, 2024

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Modi's Marathon: Exit Polls Predict Third Term with Sweeping Majority
Paying Article

June 3, 2024 12:59 PM UTC

Exit polls for the 2024 general elections indicate another Modi wave. The markets have welcomed the exit poll results and the overall business sentiment is euphoric. Exit polls forecast a landslide victory for the BJP-led NDA, with projections nearing the '400' mark. The BJP has also secured a signi

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China Finance Weakest Links: Small Banks and Property Finance
Paying Article

June 3, 2024 9:19 AM UTC

China authorities appear to have the financial stability spill over from the property sector until control currently, through a combination of direct support for housing and forced mergers of weak banks (mainly rural so far).  This game plan will likely be followed for the next few years. However,

May 31, 2024

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H1 2025 Fiscal Stress or Crisis?
Paying Article

May 31, 2024 2:30 PM UTC

We see the U.S. facing fiscal stress in H1 2025.  Either a re-elected President Biden would be restrained by Republicans over raising the debt ceiling or a president Trump would want to make the lapsing parts of the 2017 tax cuts permanent.  Rating agencies would be unhappy with either scenario an

May 29, 2024

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U.S. Financial Stress: Select Issues Not Widespread
Paying Article

May 29, 2024 10:00 AM UTC

Higher U.S. interest rates are still feeding through with a lag, which can cause weaker corporates and households problems but point to divergence within consumption and investment rather than anything more serious. High leverage for hedge funds/issues for a small subset of banks and high holdings o

May 28, 2024

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

May 28, 2024 6:06 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

May 27, 2024

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Fed Easing Expectations: Volatile and Data Driven
Paying Article

May 27, 2024 12:05 PM UTC

 Bottom Line: Fed easing expectations have been reset to higher for longer.  However, softer real sector data, plus less worrying inflation monthly outcomes, can rebuild easing expectations.  We see the first 25bps coming at the September 19 FOMC meeting and around this time a noticeable increase

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Votes to Volatility: Potential Market Outcomes and Policy Directions Post Elections
Paying Article

May 27, 2024 6:47 AM UTC

As India’s month long 2024 General Elections are almost coming to a close, lower voter turnout has increased uncertainty despite expectations of a BJP victory. While we still expect a BJP victory, the markets are becoming increasingly cautious. A decisive BJP win would likely strengthen the rupee

May 21, 2024

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BOE: August Expected But Could be June and Not Enough Discounted
Paying Article

May 21, 2024 11:11 AM UTC

The market is not discounting enough BOE easing in the next 6-18 months during which we see a cumulative 175-200bps of cuts.  The BOE is swinging from a reactive to proactive policy stance and will take account of the prospects of further wage and service inflation slowing.  UK fiscal tightening w

May 20, 2024

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ECB: June Rate Cuts Too Trigger More Rate Cut Expectations for 2024/25
Paying Article

May 20, 2024 10:50 AM UTC

However much the Council will resist fueling discussion of possible easing path, confirmation of a 1 cut normally increases speculation over further easing in subsequent quarters and we see 25bps in June followed by 25bps in September and December.  The market could discount some more easing over t

May 17, 2024

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China: Lopsided Growth and New Housing Measures
Paying Article

May 17, 2024 6:54 AM UTC

Overall, the April industrial production suggests Q2 GDP should be reasonable, but weak retail sales suggests H2 2024 can be disappointing. We stick with a 4.6% forecast for 2024 GDP growth.    

May 16, 2024

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France and Japan: Debt Fuelled Growth Problem
Paying Article

May 16, 2024 10:30 AM UTC

Most of the surge in debt/GDP in Japan and 40% in France is due to higher government debt and this should not be a binding constraint provided that large scale QT is avoided – we see the ECB slowing QT in 2025 and are skeptical about BOJ QT in the next few years.  The adverse impact of higher deb

May 15, 2024

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U.S. CPI and Retail Sales Show Some Loss of Momentum in April
Paying Article

May 15, 2024 1:14 PM UTC

April CPI has provided some relief by coming in lower than expected at 0.3% on the headline and while the 0.3% core is on consensus, it is on the soft side at 0.292% before rounding. Retail sales have also lost some momentum in April, unchanged overall, up 0.2% ex autos but down 0.1% ex autos and ga

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China: Too Much Debt In Some Sectors
Paying Article

May 15, 2024 9:55 AM UTC

While part of corporate debt is quasi government (SOE and LGFV’s) and China creditors can be pursued to rollover by the authorities for larger borrowers, households and part of the private sector are focused on the previous buildup of debt.  With China authorities reluctant to aggressive ease fis

May 14, 2024

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Preview: Due May 15 - U.S. April CPI - Core rate not quite as strong as the preceding three months
Paying Article

May 14, 2024 1:48 PM UTC

We expect April CPI to rise by 0.4% overall for a third straight month but with the ex food and energy pace slowing to 0.3% after three straight months at 0.4%. We expect the strong start to the year to fade as the year progresses, though April PPI strength was disappointing and inflationary pressur

May 13, 2024

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China RRR and Rate Cuts
Paying Article

May 13, 2024 7:54 AM UTC

The latest China money supply and lending figures show that private household and business lending is very subdued.  More need to be done to boost credit demand as well as credit supply.  However, the authorities desires to avoid too much Yuan weakness will likely mean that the next move is a 25bp

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Watts at Stake: India's Looming Power Shortage
Paying Article

May 13, 2024 6:58 AM UTC

India's power sector faces rising demand and power shortages, sparking fears of the most significant power shortfall in a decade. With coal imports continuing to rise and hydropower generation declining, India's aim to become a manufacturing hub could become challenging. Energy transition is likely

May 10, 2024

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Asset Allocation 2024: Tricky Seven Months Remaining
Paying Article

May 10, 2024 1:06 PM UTC

Fed easing expectations for 2025 and 2026 can shift from a terminal 4% Fed Funds rate towards 3%, as the U.S. economy slows due to lagged tightening effects.  Combined with Fed easing starting in September this should mean a consistent decline in 2yr yields.  However, 10yr U.S. Treasury yields wil

May 08, 2024

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China Equities: A Tactical Play
Paying Article

May 8, 2024 2:20 PM UTC

China equities can see a tactical bounce of 5-10% in the coming months.  Cheap valuations and  underweight global fund positions means that the scale of pessimism only has to get less bad on the economy and China authorities attitude towards businesses.  While we see a tactical opportunity, we do

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U.S. Q2 GDP to Increase by 2.0% Annualized Before Slowing In the Second Half
Paying Article

May 8, 2024 1:36 PM UTC

In our quarterly outlook on March 22 we looked for Q1 US GDP to rise by 2.4% annualized followed by growth of near 1.0% in the remaining three quarters. While Q1 at 1.6% came in weaker than expected details were constructive for Q2 for which we now expect a 2.0% annualized gain. We continue to expec

May 07, 2024

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Indonesia Q4 GDP Review: Robust Start to 2024
Paying Article

May 7, 2024 1:22 PM UTC

Bottom line: Indonesia's Q1 GDP — released on May 6 — saw growth rebound to 5.1% yr/yr from 4.90% yr/yr in Q4 2023. While private consumption continued its ascent, government expenditure emerged as the key driver of Indonesia's growth narrative. Private consumption was supported by festive deman

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U.S. Fiscal Problems: 2025 More Than 2024
Paying Article

May 7, 2024 1:10 PM UTC

Current real yields in the U.S. government bond market already large reflect the large government deficit trajectory.  Even so, H1 2025 could see some extra fiscal tensions that add 30-40bps to 10yr U.S. Treasury yields as the post president election environment will either see a reelected Joe Bide

May 03, 2024

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U.S. April Employment - On the weak side in all key details, following strength in March
Paying Article

May 3, 2024 1:18 PM UTC

April’s non-farm payroll is on the low side of consensus across the board, with a 175k increase (though the 167k private sector rise is only modestly below consensus), with a 0.2% rise in average hourly earnings, a fall in the workweek and a rise in unemployment to 3.9% from 3.8%. The data should

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EMFX: Diverging On Domestic Forces Not Less Fed Easing Hopes
Paying Article

May 3, 2024 10:45 AM UTC

While U.S. economic developments, plus Fed policy prospects, will be important in terms of EM currency developments, domestic politics and fundamentals will also be decisive. These can keep the South Africa Rand volatile in the remainder of 2024, given the risk of a coalition government and African

May 02, 2024

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Preview: Due May 3 - U.S. April Employment (Non-Farm Payrolls) - Still strong if a little less so, earnings may be above trend
Paying Article

May 2, 2024 2:03 PM UTC

We expect a 255k increase in April’s non-farm payroll, still strong if the slowest since November, with a 195k increase in the private sector. We expect an unchanged unemployment rate of 3.8% and a slightly above trend 0.4% increase in average hourly earnings, lifted by a minimum wage hike in Cali

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China Politburo: Help for Housing, But No Game changers
Paying Article

May 2, 2024 10:50 AM UTC

Politburo statement in late April suggests extra support for residential property.  However, we see this as being incremental rather than any game changers and we still see residential investment remaining a negative drag on 2024 GDP growth.

April 30, 2024

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Preview: Due May 15 - U.S. April CPI - Core rate not quite as strong as the preceding three months
Paying Article

April 30, 2024 5:15 PM UTC

We expect April CPI to rise by 0.4% overall for a third straight month but with the ex food and energy pace slowing to 0.3% after three straight months at 0.4%. We expect the strong start to the year to fade as the year progresses, though inflationary pressures will still look quite significant in A

April 29, 2024

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China: Depreciation Rather Than Devaluation
Paying Article

April 29, 2024 1:00 PM UTC

We feel that a devaluation of the Yuan is unlikely in 2024, both to avoid potentially politically destabilizing capital outflows but also to avoid upsetting the next U.S. president.  Policy is geared more towards controlled depreciation to help competiveness but reduce other risks.  The Yuan has a

April 26, 2024

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Headwinds To Long-term Global Growth
Paying Article

April 26, 2024 9:30 AM UTC

Bottom line: While much focus is on the cyclical economic position to determine 2024 monetary policy prospects, the 2025-28 structural growth trajectory differs to the pre 2020 GDP trajectory for major economies.  While global fragmentation has a role to play, aging populations are already having a

April 25, 2024

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Q1 U.S. GDP Slows on Imports and Inventories, Core PCE Prices Stronger on the Quarter
Paying Article

April 25, 2024 1:14 PM UTC

Q1 GDP has come in weaker than expected at 1.6% annualized but with a stronger than expected 3.7% annualized increase in the core PCE price index. Weaker inventories and stronger imports are the main reason for the GDP slowing so the data is not a clear signal of underlying weakness. Lower initial (

April 24, 2024

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Preview: Due April 25 - U.S. Q1 GDP - Slower but Still Healthy With Stronger Core PCE Prices
Paying Article

April 24, 2024 1:54 PM UTC

We expect a 2.4% annualized increase in Q1 GDP, significantly slower than the second half of 2023 but slightly stronger than the first half and still a heathy pace of growth. We expect a pick up in the core PCE price index to 3.4% annualized after two straight quarters at 2.0%.

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China: Surging Government Debt and Does It Matter?
Paying Article

April 24, 2024 9:30 AM UTC

Total non-financial sector debt, plus the IMF estimates of government debt/GDP, do seem to matter for the action of China authorities, as fiscal policy stimulus is targeted rather aggressive as in 2009 or 2015.  The overall debt picture also matters for the growth outlook, as the excess debt/GDP le

April 22, 2024

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Preview: Due May 3 - U.S. April Employment (Non-Farm Payrolls) - Still strong if a little less so, earnings may be above trend
Paying Article

April 22, 2024 4:44 PM UTC

We expect a 255k increase in April’s non-farm payroll, still strong if the slowest since November, with a 195k increase in the private sector. We expect an unchanged unemployment rate of 3.8% and a slightly above trend 0.4% increase in average hourly earnings, lifted by a minimum wage hike in Cali

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Indonesian Court Delivers Verdict: Prabowo prevails
Paying Article

April 22, 2024 3:18 PM UTC

The Constitutional Court dismissed cases against Vice President Gibran Rakabuming Raka and President Joko Widodo. In Gibran's case, the court didn't disqualify him from running for president but sanctioned the election committee for not amending regulations following a previous ruling. This ruling l

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Short-end European Government Bonds Following U.S. But June Decoupling
Paying Article

April 22, 2024 1:15 PM UTC

The Fed’s shift to higher for longer has spilled over to drag European government bond yields higher through April.  This now looks overdone as a June ECB rate cut is not fully discounted and ECB officials/data clearly point towards a 25bps cut.  UK money markets are more out of line, with a Jun

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The Pulse of the Nation: Insights into India's 2024 Election
Paying Article

April 22, 2024 7:54 AM UTC

As India braces itself for the upcoming elections, the political landscape is rife with anticipation, strategy, and uncertainty. With the ruling Bharatiya Janata Party (BJP) seeking to consolidate its power and a diverse coalition of opposition forces vying for a chance to unseat them, the stage is

April 18, 2024

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China and the South China Sea
Paying Article

April 18, 2024 2:00 PM UTC

 Bottom Line: A China coastguard vessel blocked two Philippines government vessels over the weekend in the Second Thomas shoal area near the Philippines, which has raised questions over whether the South China Sea will be another geopolitical flashpoint.  We would say not in 2024, both given China

April 17, 2024

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Preview: Due April 25 - U.S. Q1 GDP - Slower but Still Healthy With Stronger Core PCE Prices
Paying Article

April 17, 2024 3:06 PM UTC

We expect a 2.4% annualized increase in Q1 GDP, significantly slower than the second half of 2023 but slightly stronger than the first half and still a heathy pace of growth. We expect a pick up in the core PCE price index to 3.4% annualized after two straight quarters at 2.0%.

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Markets: Fed Rather Than Middle East Worries
Paying Article

April 17, 2024 12:34 PM UTC

Global markets are being driven by a scale back in Fed easing expectations and we see a 5-10% U.S. equity market correction being underway.  However, with the market now only discounting one 25bps Fed cut in 2024, any downside surprises on U.S. growth or better controlled monthly inflation numbers

April 16, 2024

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China: Q1 Upside Surprise, but March Disappoints
Paying Article

April 16, 2024 8:33 AM UTC

Q1 GDP upside surprise was driven mainly by public sector investment.  With the government still to implement the Yuan 1trn of special sovereign bonds for infrastructure spending, public investment will likely remain a key driving force.  However, the breakdown of the March data show that retail s

April 12, 2024

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U.S. PCE Prices, Residual Seasonality and the Fed Outlook
Paying Article

April 12, 2024 6:22 PM UTC

Strength in Q1 inflation data contrasts the encouraging subdued data seen in the second half of 2023, and it looks likely there is some residual seasonality in the data even after seasonal adjustments. The underlying picture is still probably in a gradual downtrend, which should become clear later t