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In contrast to those at the US Fed, ECB policymakers are not ready to retire their argument that the current bout of high inflation is temporary. Indeed, Vice President Luis de Guindos said this week that “the high rate of inflation we’re experiencing …
3rd December 2021
Turkey tumult Safe to say that this week has been dominated by the collapse in the Turkish lira and we’ve been helping clients navigate through the crisis and its implications across our services. All of the research that we’ve published can be found here …
26th November 2021
It is too early to judge how serious the B.1.1.529 variant will turn out to be (though see our initial thoughts here ) but it has already caused European equities to fall by over 2% as travel and energy stocks in particular have tanked on fears of new …
For most of this week our Europe economics team have been re-evaluating their forecasts due to the prospect of more COVID-19 restrictions on the continent. We weren’t. That’s because a combination of higher infections since the summer, high vaccination …
What could the SPR release mean for the Gulf? The US-led release of oil reserves did little to bring down the price of oil as President Biden would have hoped and we suspect that the move is unlikely to drastically alter the outlook for the Gulf …
25th November 2021
Turkey roasted In a turbulent week for Turkey, we’ve written various pieces on our services looking at the implications so we’ll summarise the key points in this Weekly . We looked at how a sell-off in the lira could damage the economy and financial …
19th November 2021
“Given these two-sided risks – weaker activity and higher inflation – the labour market story really is the crucial part of it, and we haven’t yet seen enough of that story, post furlough scheme.” ”Don’t forget what our framework is. It’s about inflation. …
After weeks of worrying about surging inflation and what the ECB will do next, developments this week were a stark reminder that the pandemic is far from over. The rapid deterioration in the Covid situation in Austria over the past week has driven the …
Well, that happened quickly! We argued only last week that the SNB would be comfortable with letting the Swiss franc push higher against the euro. (See here .) As it happens, we didn’t have to wait long to be vindicated. The sharp rise in the franc this …
On the face of it, the GDP data released this week suggest that the recovery is ticking along quite nicely. Indeed, the data showed that the economy picked up some pace at the end of Q3, providing a decent platform for the current quarter. (See here .) …
12th November 2021
Deciphering the SNB’s intentions on the FX front The weekly sight deposit data published by the SNB every Monday morning provide a timely, if imprecise, window into the Bank’s actions in the FX market. The last three data releases suggest that the SNB has …
Price pressures still weaker than in the US Inflation releases on both sides of the Atlantic this week highlighted how price pressures are still weaker in the euro-zone than in the US. Core inflation in Germany rose in October to 2.8% (see here ), much …
You’re not dreaming: Israel passed a budget For the first time in more than three years, Israel’s government has brought some stability to the public finances by passing the 2021 and 2022 budgets. These are not game changers as far as fiscal policy is …
5th November 2021
Yesterday’s 1.5% weakening in the pound against the US dollar to $1.35 and the 20 basis point decline in 2-year gilt yields to 0.43% show that the markets are reassessing the Bank of England’s inflation fighting credentials. And who can blame them. At the …
After failing to push back convincingly against financial markets’ expectations for rate hikes in last week’s press conference, ECB policymakers were out in force this week insisting that the Bank will not raise rates next year. Christine Lagarde said the …
Familiar foe of flying franc occupying minds at SNB Unlike the Norges Bank , the SNB did not have a policy meeting to keep itself busy this week. That said, while the meeting in Oslo was a snooze-fest, as anticipated, the recent surge in the value of the …
Two key points from the Budget Budget day produces a flurry of analysis but the most interesting reflections tend to come once the dust has settled and everyone has had time to digest the documents. Two points stand out to us. The first relates to the …
29th October 2021
The ECB stuck to its script this week, with Christine Lagarde claiming that, after some “soul searching”, the Bank was comfortable with its view that the recent surge in inflation will prove to be transitory. Also, she didn’t sound too worried that other …
Lira see-saws but CBRT more tolerant A diplomatic spat between Turkey and its Western allies this week was quickly resolved, but it highlighted how vulnerable the lira is to geopolitical developments. And comments from Turkey’s central bank governor …
Strong rebound in Sweden Data released this week showed that Sweden’s economy grew by a stronger-than-expected 1.8% q/q in Q3, but the data weren’t as encouraging as they first appeared. The upside surprise in the third quarter was largely due to a …
A renewed wave of COVID-19 cases has prompted some governments to reimpose strict containment measures and talk of lockdowns is becoming more widespread. The downside risks to what are already strong headwinds facing the recovery are mounting. COVID-19 …
22nd October 2021
The timing of Jens Weidmann’s resignation was not the shock that many journalists suggested it was. After all, early resignations have become as much of a tradition for the Bundesbank as its opposition to QE and negative interest rates! Nor was it a …
Markets and monetary policy The markets easily shook off this week’s news that CPI inflation fell back in September, from 3.2% to 3.1%, and continued to price in some rapid rises interest rates. That makes sense when everyone knows that CPI inflation is …
Riksbank Board increasingly finely balanced Like any good double act, Riksbank Governor Ingves and Deputy Governor Flodén stuck to the same script when they jointly addressed the Bank’s Finance Committee on Tuesday. Both reiterated the view that the …
Core inflation still subdued While global financial markets are obsessing over the possible rebirth of inflation, there are precious few signs that it is about to take off in Scandinavia. We learnt this week that the headline rate rose in both Norway and …
15th October 2021
Erdogan playing with fire in push for rate cuts After putting the final nails in the coffin of the Turkish central bank’s credibility with last month’s surprise interest rate cut, the grave started to be dug this week with the firing of three MPC members. …
Perhaps the most significant event of the past week came as markets opened on Monday morning. In response to two hawkish interviews by members of the Monetary Policy Committee (MPC) in the weekend papers – one by Governor Bailey and another by Michael …
Higher oil and gas prices… lower inflation? The rollercoaster ride in European gas prices continued this week, but the big picture is that they remain very high. Meanwhile, oil prices have continued to climb. We think that this will contribute to a bigger …
Moves in wholesale natural gas and electricity prices have continued to dominate this week in the euro-zone, with the price of European natural gas having doubled over the past month and currently trading almost 12% higher than it was just a week ago. …
8th October 2021
Halloween came early this year in Sweden It might not be Halloween until the end of the month but the 3.8% m/m drop in Sweden’s GDP Indicator in August (released on Wednesday) was a horror show in its own right. (See here .) (Incidentally, the fact that …
Poland-EU tensions crank up a notch The decision this week by Poland’s Constitutional Court to rule that some EU laws are in conflict with the Polish Constitution has sent shockwaves through Europe. The ruling gets to the heart of the conflict over the …
Truth be told, neither Boris Johnson’s nor Rishi Sunak’s speeches to the Conservative Party Conference this week contained anything new on the economic front. Instead, the most notable development came in an interview to the BBC in which PM Johnson …
CEE: loose fiscal policy set to persist in 2022 Government budget drafts approved for 2022 this week in Czechia and Poland and further details of social support in Hungary suggest that fiscal policy will remain supportive of growth in Central Europe and …
1st October 2021
The 3.4% euro-zone inflation rate recorded in September (up from 3.0% in August) is probably not the peak. (See here .) Surging European gas prices, which have risen by more than twenty-fold from last year’s lows, prompted us to revise up our forecasts …
Clouds are darkening over the outlook for the UK economy. A combination of broadening shortages, the fuel crisis, less fiscal support and the risk of higher interest rates will make it difficult for the UK economy to perform as well as its European peers. …
United façade at the Riksbank set to be tested Against the backdrop of the recent hawkish shifts by the US Fed and the Bank of England – and the start of hikes in Norway – the release of the minutes from the Riksbank’s last policy meeting underline that …
Appetite for further monetary tightening wanes Central banks have started to slow tightening cycles in recent weeks and, in Turkey’s case, begin cutting interest rates. As inflation pressures ease, this pattern is likely to continue. But the Czech …
24th September 2021
There are two reasons why we now think the Bank of England’s Monetary Policy Committee (MPC) will hike interest rates in 2022 rather than in 2023. First, underlying wage growth and inflation expectations have risen by more than we expected. These are …
This week, some of the world’s major central banks, from the US Fed to the Bank of England , hinted that they will be shifting towards tighter monetary policy in the months ahead. Indeed, the Norges Bank this week hiked its policy rate, the first G10 …
The phoney interest rate ‘war’ in Norway is over Norwegian policymakers would make terrible poker players because they have a habit of telling you what they will do and do not bluff. Accordingly, having finally started the long-awaited and well-signalled …
Energy prices adding to inflationary pressures The recent surge in European gas and coal prices will push headline inflation further above central bank’s targets in most countries in the coming months. European coal and natural gas prices have surged over …
17th September 2021
On the back of the surge in inflation from 2.0% in July to 3.2% in August and the blistering increases in wholesale gas and electricity prices, investors are now pencilling in a rise in Bank Rate from 0.10% to 0.25% in Q1 2022 and to 0.50% at the start of …
Rising inflation eating into spending power Data published this week highlight the twin drags of weak pay growth and rising inflation to households’ real incomes. We expect inflation to fall sharply next year, but the risks to our forecast are to the …
Rule of law dispute escalates in Poland The Poland-EU dispute over the rule of law reached a breaking point this week and raises the threat of potential fines and a significant delay to receiving EU recovery funds in the coming months. This week brought …
10th September 2021
The stalling in the economic recovery in July doesn’t mean the recovery is over. But the 0.1% m/m rise in GDP in July revealed on Friday (see here ) does illustrate that the recovery has entered a slower and more challenging phase. To some extent this was …
Norway is a riddle, in a mystery, inside an enigma Norwegians will go the polls in parliamentary elections on Monday in what has been dubbed the “climate election”. The run-up to the vote has been dominated by a debate over the appropriate speed at which …
For most of the pandemic period, policymakers have been worrying that there will be too much unemployment. But now the fear is that there aren’t enough workers to fill all the jobs! Admittedly, there are still some lingering concerns that when the …
3rd September 2021
The 3.0% inflation rate recorded in the euro-zone in August is the highest for a decade but it will not be the peak for this year. We expect the headline rate to reach over 3.5% in the coming months. And in Germany, the national CPI inflation rate could …
Mamma Mia! ABBA are back! Of course, it could just be a coincidence that ABBA announced that they are re-forming the day after we released a Focus with a shameless ABBA pun in the title, but we’d like to think otherwise. We will resist the temptation to …
Poland’s inflation surge splits opinion at the NBP The surge in Polish inflation to a fresh two-decade high in August has shown no sign of prompting a more hawkish shift at the central bank. But with inflation likely to remain stuck above target for some …
