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Wage growth easing albeit slowly The labour market became a bit less tight in February and wage growth continued to ease, albeit slowly. That leaves the Bank of England with a tough call on whether to raise interest rates further. Tomorrow’s release of …
18th April 2023
Inflation concerns will prompt a final 25bp rate hike in May The minutes of the RBA’s April meeting reinforce our view that the decision to leave rates on hold did not signal an end to the Bank’s tightening cycle. Indeed, the Board did discuss the case …
Small rebound in confidence suggests no big hit from bank turmoil The small rebound in the University of Michigan consumer sentiment index in early April suggests that the easing of the crisis in the banking sector has reassured consumers. Nevertheless, …
14th April 2023
Further evidence of fading economic momentum The 0.5% m/m fall in manufacturing output in March provides yet more evidence of a significant loss of economic momentum going into the second quarter. While the return of temperatures to seasonal norms last …
Sales boosted by online strength Retail sales fell by 1.0% m/m in March, adding to the evidence that the strong start to the year was partly due to the unseasonably mild winter weather. With control group sales only falling by 0.3% m/m last month, …
Continuing to dodge recession The stagnation in real GDP in February (consensus +0.1%, CE 0.0%) means the economy probably avoided recession in Q1. But it also increases the chances that the Bank of England will need to raise interest rates further to …
13th April 2023
The strength in March’s labour market data will probably prompt the Reserve Bank of Australia to deliver a final 25bp rate hike next month, but unemployment will rise before long. The 53,000 rise in employment last month was much stronger than most had …
Fed uncertain about impact that banking turmoil will have on economy The minutes of the Fed’s mid-March policy meeting are, overall, arguably dovish since in the wake of the collapse of SVB and Signature Bank, “several participants noted that…they …
12th April 2023
The Bank of Canada delivered mixed messages today, noting that it is more confident that inflation will decline in the next few months but less confident that inflation will return to 2% as quickly as it previously anticipated. Nonetheless, with the …
Core inflation remains elevated despite easing in shelter There were some encouraging signs in the March CPI report, including the first evidence that housing cost inflation is slowing, but core prices still increased by 0.4% m/m which, on an annualised …
Another bearish sign for business investment in Q1 “Core” machinery orders fell by 4.5% m/m in February, following a 9.5% rise in January. Orders from the manufacturing sector saw a strong 10.2% m/m rebound, largely due to a huge spike in orders from the …
Employment and wage growth continue to trend lower The 236,000 gain in non-farm payrolls in March adds to the evidence that the economy’s strong start to the year was partly a weather-related blip, with momentum now fading again. With the sharp fall in …
7th April 2023
Industrial resilience won’t prevent recession The second consecutive big increase in German industrial production in February all but confirms that GDP returned to growth in Q1. The industrial resilience may continue in the coming months but we still …
6th April 2023
Strong start to the year already going into reverse The ISM services PMI fell to 51.2 in March, from 55.1, adding to the evidence that, following a weather-related sugar high to start the year, the economy and labour market are rapidly losing upward …
5th April 2023
Falling trade volumes adds to signs of economic slowdown The sharp declines in both exports and imports in February add to the signs that economic growth is faltering. Although strong gains in January mean that both are still likely to have risen over the …
Hawkish RBNZ will push New Zealand into recession The RBNZ’s decision to lift its official cash rate by 50bp, to 5.25%, came as an upside surprise to all. 22 out of 24 analysts polled by Reuters, including ourselves, had predicted a 25bp rate hike. The …
RBA will deliver one final rate hike in May The RBA’s decision to keep rates on hold does not signal an end to its tightening cycle. The RBA’s decision to pause was correctly predicted by 21 out of 37 analysts polled by Reuters, including ourselves. The …
4th April 2023
Domestic weakness offsetting China reopening boost The slump in the ISM manufacturing index to a new cyclical low of 46.3 in March, from 47.7, indicates that the post zero-Covid recovery in manufacturing activity in China has not benefited US producers …
3rd April 2023
Tankan points to sharp investment slowdown The Tankan’s headline index for large manufacturers fell for the fifth consecutive quarter from +7 to +1, broadly consistent with decline indicated by the monthly Reuters Tankan (Bloomberg consensus: +3, CE …
Real spending drops back; core inflation still elevated Although real consumption declined by 0.1% m/m in February, that reversed only a small fraction of the upwardly revised 1.5% surge in January (previously estimated to be 1.1%). Even allowing for …
31st March 2023
Households have a slightly larger savings buffer The upward revision to real GDP growth in Q3 and Q4 of last year suggests that high inflation took a slightly smaller toll on the economy than we previously thought. But with around two-thirds of the drag …
Rebound in industrial output won’t prevent recession While industrial production bounced back and retail sales recorded a strong increase in February, we still think that the economy entered a recession this quarter. The 4.5% m/m rebound in industrial …
Unemployment still has higher to climb, upside risks to inflation The unemployment rate rose from 2.4% to 2.6% in February, and the job-to-applicant ratio fell for the second month running from 1.35 to 1.34. Those movements are largely in line with our …
Higher interest rates continue to hurt housing more than consumer credit February’s money and credit data release suggests that higher interest rates were a further drag on lending in February, particularly in the housing market. That’s before the recent …
29th March 2023
Sharp slowdown in inflation will prompt RBA pause next week The further sharp fall in inflation coupled with the softness of consumption will probably prompt the Reserve Bank of Australia to pause its tightening cycle next week, though we still expect one …
Softness in retail sales raises risk of RBA pause The tepid rise in retail sales in February all but locks in a contraction in sales volumes in Q1 and adds to the case for the RBA pausing its rate hiking cycle next week. The 0.2% m/m rise in retail sales …
28th March 2023
Deposits flow from small to big banks The Fed’s H.8 release shows that deposits at small banks declined by $120bn, to $5456bn, in the week ending Wednesday March 15 th . (SVB collapsed on the preceding Friday afternoon.) Borrowings increased by an even …
24th March 2023
Investment weakening even before banking woes The 1.0% m/m fall in durable goods orders in February indicates that business equipment investment was continuing to weaken even before the banking turmoil arose. With business confidence likely to have taken …
Activity remains resilient, despite global banking issues The flash PMIs suggest the economy’s strong start to the year was sustained in March. But with the full drag from high interest rates yet to be felt, our hunch is still that the economy will enter …
Too soon to conclude February’s rebound will be sustained The 1.2% m/m rise in retail sales volumes in February was much better than the consensus forecast of a +0.2% m/m rise (CE +0.5% m/m). That suggests the recent resilience in activity hasn’t yet …
PMIs continue to paint gloomy picture March’s flash PMIs corroborate our view that the economy will see a mild recession this year. The manufacturing PMI improved but was still contractionary, as demand remained weak. Meanwhile a further rise in the …
Government energy subsidies take 1%-pt off inflation Headline inflation fell from 4.3% in January to 3.3%, largely in line with our 3.2% forecast. The main driver of the slowdown was energy inflation, which flipped from 14.6% into outright deflation at …
23rd March 2023
Bank of England may not yet be finished in its battle with inflation The Bank of England followed the US Fed’s example by forging ahead today with a 25bps interest rate hike and signalling that it may not yet be finished in its battle with inflation. As a …
Fed opts for dovish hike The 25bp rate hike and new projections unveiled by the Fed today were towards the more dovish end of potential outcomes – with officials acknowledging the likely economic hit from recent banking sector turmoil and leaving their …
22nd March 2023
Reacceleration in inflation may force 25bps rate hike The reacceleration in overall CPI inflation from 10.1% in January to 10.4% in February (consensus 9.9%, BoE 10.2%) and core inflation from 5.8% to 6.2% (consensus 5.7%) may be enough to tilt the Bank …
Pre-election tax cuts in prospect, but risks to the fiscal outlook growing The news on the public finances may have raised the Chancellor’s hopes that he will be able to announce a pre-election giveaway later this year. But the big risk is that a further …
21st March 2023
RBA not done hiking yet The minutes of the RBA’s latest meeting confirm that the RBA is close to ending its tightening cycle, but we suspect that the strength of the latest labour force data will prompt it to deliver two more 25bp rate hikes. Contrary to …
Confidence declining even before banking turmoil Some of the hit to confidence from turmoil in the banking sector will have been captured in the University of Michigan’s consumer sentiment provisional reading, which fell to 63.4 in March, from 67.0, but …
17th March 2023
Surveys point to renewed weakness soon The February industrial production data were marginally stronger than we had expected, with manufacturing output rising by a further 0.1% following the earlier 1.3% m/m surge in January. But with the surveys going …
Fed’s discount window lending hits record high The Fed’s weekly balance sheet publication (H.4.1) shows the scale of the stresses in the financial system, with outstanding emergency loans standing at $318bn yesterday, up from $15bn a week earlier. To put …
16th March 2023
Red-hot labour market will prompt further RBA tightening February’s strong labour force figures will prompt the Reserve Bank of Australia to press ahead with another 25bp hike at its April meeting despite mounting signs of strain in the global banking …
Investment outlook still gloomy despite upside machinery orders surprise The trade deficit narrowed in February as export volumes picked up and import volumes continued to fall. “Core” machinery orders surprised to the upside in January, pointing to a …
RBNZ will cut rates by year-end as recession takes hold The -0.6% q/q contraction in production GDP was weaker than most had expected, but a tad stronger than our forecast (Refinitiv Consensus: -0.2%; CE: -1.5%). And crucially, it was much weaker than the …
15th March 2023
January surge mostly sustained The 0.4% m/m fall in retail sales in February only partly reversed the 3.2% surge in January, suggesting that real consumption growth will accelerate to at least 3.5% annualised in the first quarter. But there is a risk …
Chancellor a bit more generous, but may fall short on long-term growth Today’s Budget has taken a bit of a backseat given the renewed worries about the global banking system, but the Chancellor was a bit more generous than we expected and we suspect he …
Strong inflation data unlikely to outweigh financial stability concerns The 0.5% m/m rise in core consumer prices last month adds to the evidence that inflation remains stubbornly high, but the ongoing fallout from the SVB crisis over the coming days is …
14th March 2023
Wage growth eases despite labour market remaining tight The labour market remained tight in January. Even so, the Bank of England will breathe a sigh of relief as wage growth is easing. But the fallout from Silicon Valley Bank’s collapse suggests that the …
Fed, Treasury and FDIC lay out fire break for banking system In the wake of the collapse of Silicon Valley Bank ($215bn in assets) – which has been followed today by the demise of Signature Bank ($110bn) – the Fed, Treasury and FDIC have acted …
12th March 2023
Employment strong, but rest of report suggests 25/50bp Fed hike debate still unresolved While the above-consensus 311,000 increase in payroll employment last month confirms that the super-sized 504,000 gain in January wasn’t just a seasonal distortion, …
10th March 2023
Resurgence in activity unlikely to last The 0.3% m/m rise in real GDP in January (consensus +0.1% m/m, CE +0.4% m/m) leaves the economy in better shape than we had expected just a few months ago. But looking beneath the surface, the figures suggest the …
