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This week the FTSE 100 broke through the 8,000 mark for the first time since its brief three-day flutter in February last year and reached a record high of 8,100. This appears to be justified based on the recent improvement in economic activity. Indeed, …
26th April 2024
Wage increases becoming more widespread The Bank of Japan’s measures of underlying inflation suggest that the case for further policy tightening is diminishing as two out of three indicators fell below the Bank of Japan’s 2% target in March. (See Chart …
The last mile will be the hardest The release of Australia’s quarterly CPI data this Wednesday made for grim reading. With price pressures proving more stubborn than most had anticipated, markets have now given up any hopes that the RBA will cut rates …
Protectionism seen as a vote winner by both parties After Fed Chair Jerome Powell acknowledged this week that there has been a “lack of further progress” on lowering inflation this year, markets dialled back rate cut expectations, with the first 25bp …
19th April 2024
Budget 2024 made a bit of a splash thanks to the unexpected changes to capital gains taxes, but we do not think the new net spending measures were large enough to change the outlook for GDP growth or interest rates this year. The encouraging March CPI …
In the previous Weekly we said “the risks are tilted towards inflation proving sticker and rate cuts happening a bit later”. This week’s global and domestic events have left our forecast that interest rates will first be cut from 5.25% in June and will …
We’ll be discussing what a stronger-for-longer dollar means for the Japanese policy outlook and the yen in a 20-minute online briefing at 9am BST/4pm SGT on 26th April . (Register here .) Yen falling to fresh low but no intervention yet The yen …
RBNZ to watch and wait for longer On Wednesday we learnt that inflation in New Zealand moderated from 4.7% in Q4 to 4.0% in Q1. At first glance, that outturn was only a touch stronger than the 3.8% the RBNZ had predicted. However, the details of the CPI …
The third consecutive 0.4% m/m increase in core CPI in March, coming on the heels of the 303,000 surge in non-farm payrolls, fuelled fears that a pick-up in the real economy is now translating into a resurgence in inflation too. We are not convinced. …
12th April 2024
Finance Minister Chrystia Freeland’s pledge to create the conditions needed for lower interest rates means the government is unlikely to announce much new near-term spending in Budget 2024 next week. Providing that core inflation pressures remain muted, …
Where the US leads, the UK often follows. So the rebound in the US CPI inflation rate from 3.2% in February to 3.5% in March and the unchanged core CPI inflation rate of 3.8% has spurred fears that the downward trend in UK inflation will soon stall. In …
Markets fret inflation risks The RBNZ’s meeting this Wednesday went by without much ado, with the Bank leaving rates unchanged as everyone had expected. If anything, the Committee sounded a touch dovish, as it no longer mentioned its limited tolerance for …
Yen falling to fresh 34-year low Following a hotter-than-expected US inflation print, the yen has now weakened to 153 against the dollar for the first time since 1990. Bank of Japan Governor Ueda explicitly ruled out responding to the weakness of the …
The insolvency data released this week show the toll that high interest rates are putting on consumers and businesses. That is unlikely to be enough to persuade the Bank of Canada to cut interest rates next week but, with the cracks in the labour market …
5th April 2024
Supercore inflation fundamentals still improving Inflation fundamentals improving This week brought more good news on the outlook for so-called supercore inflation. Core services (ex-housing) prices, aka supercore, are the most labour-sensitive component …
Whether you’re a monetarist or not, it’s hard to ignore the big rise in the annual growth rate of M4 money coming out of the pandemic being a harbinger of the surge in CPI inflation. Shortly before CPI inflation surged from 0.3% in November 2020 to a …
No rush to cut rates The minutes of the RBA’s March meeting, published earlier this week, revealed that the Bank has now abandoned its tightening bias. Indeed, for the first time since May 2022, the Board didn’t discuss the option of raising rates higher. …
Tankan points to persistent strength in inflation Bank of Japan Governor Ueda today provided the strongest hint yet that the Bank is keen to hike interest rates further in the second half of the year. He noted that the probability of attaining a …
The economy made a strong start to 2024, but that was partly due to the end of strike disruption and the record warm winter. We expect GDP growth to slow sharply next quarter, persuading the Bank of Canada to start its loosening cycle in June. GDP surges …
28th March 2024
Everyone knows that one reason why the recession was so small and short is because higher interest rates had a smaller drag on the economy than in the past. But it’s less appreciated that future interest rate cuts may not boost the economy as much either. …
Streets of Baltimore The collapse of the Francis Scott Key bridge, which was hit by an out-of-control container ship this week, could result in a lengthy disruption to the Baltimore port. Nevertheless, since that port is the 15 th largest in the country, …
Inflation risks linger on At first glance, it would appear that much of the data released this week went the way the RBA was hoping. First, we found out that CPI inflation is on track to undershoot the Bank’s expectations this quarter. Second, retail …
BoJ won’t provide much help in supporting yen With the yen hitting a 34-year low of just under 152 against the dollar on Wednesday, the Ministry of Finance’s Masato Kanda noted that the government will respond resolutely to “excessive” yen weakness and …
The Fed wasn’t as hawkish as we had expected this week and, assuming the recent upturn in core inflation proves temporary, there is still a good chance that interest rate cuts will begin in June. Fed content with more gradual inflation fall Despite recent …
22nd March 2024
The surprise fall in February leaves CPI inflation on track to average 2.8% this quarter, well below the Bank of Canada’s forecast of 3.2%. As the decline in inflation pressures was broad-based, there is a growing likelihood that the Bank of Canada will …
The Bank of England was never going to do anything except keep interest rates at 5.25% this week, but we and the financial markets were surprised that it took further steps in preparing the ground for the first interest rate cut. (See here .) As a result, …
Rate cut in August remains plausible At its meeting earlier this week, the RBA dialled down its hawkish bias, with Governor Bullock noting that “the risks to the outlook are finely balanced”. However, her statement may well have been a little premature. …
Run-off in bond holdings will accelerate The Bank of Japan didn’t disappoint at this week’s meeting as the Bank ended negative interest rates, Yield Curve Control and its ETF purchases. Even so, 10-year JGB yields declined and the yen weakened to as low …
Fed to stress caution amid inflation uncertainty We still expect the Fed to cut interest rates in June, although we don’t expect officials to provide a strong steer either for or against at next week’s FOMC meeting. The updated Summary of Economic …
15th March 2024
Households are offsetting the impact of high interest rates by paying down less of their debt. While that has helped the economy to avoid recession, it also suggests there will be less of a boost from interest rate cuts than in the past, because …
January’s GDP figures received the most attention this week, mainly as they suggested the economy may have exited recession. (See here .) But while there was better news on demand, the same cannot be said for the supply-side of the economy. The rise in …
BoJ set to unwind negative rates next week A preliminary tally published by the Japanese Trade Union Confederation (RENGO) today showed that pay hikes in this year’s spring wage negotiations (Shunto) reached 5.28%, up sharply from 3.6% last year and the …
Property downturn set to weigh on iron ore prices As our China team explains here , the downturn in China’s construction sector has barely started but once it does happen, it could knock off one percentage point from GDP growth. Australia got a glimpse of …
Governor Tiff Macklem dropped a hint this week that the Bank of Canada may be ready to cut rates by June. There was little in the data to dissuade the Bank, with unemployment rising and bankruptcies surging, while a productivity rebound pulled down unit …
8th March 2024
Fed Chair Jerome Powell’s congressional testimony struck a notably less hawkish tone than we have heard recently from some of his colleagues. And with the economic data this week providing little support for the idea of a renewed upturn in inflation, we …
Much ink has been spilled on the Spring Budget this week. For our part, we discussed the macroeconomic and financial market implications in our UK Drop-In and in our UK Economics Focus . The main takeaway is that while the Chancellor was desperate to use …
Household spending could be at a turning point The big news out of Australia this week was that the economy just barely managed to limp along last quarter. To be sure, the 1.5% annual rise in real GDP in Q4 was broadly in line with what the RBA had …
The recession that probably wasn’t Developments over the past week have increased the chances that the Bank of Japan will end negative rates in March rather than our current forecast of April. For a start, following several weeks of discouraging data on …
The return to growth in the fourth quarter means it is probably safe to say that the economy has avoided recession, but that is mainly due to rapid immigration. Per capita GDP fell for the fifth quarter running and is now barely higher than in 2016. Ahead …
1st March 2024
Following the more hawkish speeches from Fed Vice Chair Philip Jefferson and Governor Christopher Waller last week, that tone continued this week – with regional Fed Presidents including New York’s John Williams repeating the suggestion that interest rate …
Could there be a tax-cutting Budget bombshell? The rumours this week suggest that the Chancellor may have a bit less to play with in the Budget on Wednesday 6 th March than the £15bn we estimated. As a result, he seems to be considering more revenue …
Third contraction in GDP now likely We doubt that the slump in industrial output in January will prevent the Bank of Japan from ending negative rates over the coming months, but the recent string of disappointing data reinforces our view that this will …
More good news for the RBA The Reserve Bank of Australia should take comfort from the fact that most of the data released this week point to a better balance between demand and supply in the economy. On Wednesday we learnt that CPI inflation came in at …
The encouraging January CPI data mean that the Bank of Canada’s April policy meeting is back in play for a potential interest rate cut, although it still seems more likely that the Bank will wait until June – unless the economic and labour market data …
23rd February 2024
Fed to delay first rate cut until June Fed to wait until June Based on comments from Fed officials this week, we now expect the Fed to wait until June to begin cutting interest rates. Moreover, when it does begin to loosen policy, we suspect that the Fed …
Disappointing economic and fiscal forecasts from the OBR haven’t prevented the Chancellor, Jeremy Hunt, from unveiling a splash at previous fiscal events. This time last year, he was handed £14.5bn of headroom against his fiscal mandate to ensure the …
Import volumes weakest since 2020 We’ve been arguing that Japan is not in recession even though GDP has fallen for two consecutive quarters. However, February’s soft flash PMI and the large fall in imports in January hardly instil confidence in the …
RBA won't hike rates again Flash PMI data released yesterday showed that Australia’s composite output index jumped to a 10-month high of 51.8 in February. The index is now consistent with annual real GDP growth of about 2.0% in Q1 (see Chart 1), which …
PPI a kick in the teeth for inflation doves Mea Culpa The much stronger-than-expected 0.5% m/m increase in core PPI in January came as a hammer blow for PCE estimates, since the overshoot was mostly in the portfolio management and health care-related …
16th February 2024
Signs of healthy growth going into the first quarter support our view that the Bank of Canada will probably wait until June to pivot to rate cuts. Signs of positive activity in the first quarter The latest January data has brought signs that growth could …
