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We don’t think the slew of inflation-busting public sector pay deals that have been agreed by the new government will prevent wage growth from slowing next year to the rates of 3.0-3.5% we think are consistent with the 2.0% inflation target. But the big …
21st August 2024
Downward revisions leave employment growth still healthy The 818,000 downward revision implied by the preliminary benchmark estimate to the non-farm payroll data were roughly in line with what we had expected based on the earlier data implied by the …
This page has been updated with additional analysis since first publication. Limited wiggle room for the Chancellor at the Budget July’s public finances figures continued the recent run of bad news on the fiscal position, with public borrowing on track to …
We believe that employment growth isn’t as strong as the Australian Bureau of Statistics is reporting because net migration seems to have weakened more sharply than the ABS is assuming. While it will take many months for the labour force survey to reveal …
Nearly all of the pullback in the S&P 500 since the bout of rotation in the stock market began in the wake of June’s CPI report on 11 th July has now been reversed. Admittedly, the same cannot be said for the rotation itself. But we remain of the view …
20th August 2024
Retail real estate has faced a tough period, buffeted by the rise of e-commerce, extensive oversupply and the impacts of the pandemic on in-store shopping. But we think the sector is well down the road to dealing with those challenges and now offers a …
Renewed downward momentum in core prices The softer monthly gains in the Bank of Canada’s preferred core price measures in July suggest that the previous two months reflected normal volatility rather than a stalling of the downward trend in core …
There are good reasons to expect services inflation to start falling again towards the end of this year and in 2025. But as long as wage growth remains high, services inflation will stay strong too. This morning Eurostat published the full breakdown of …
After a summer of extraordinary economic, market and political developments, what can investors expect through the end of 2024? Our senior economists held this special briefing all about the risks we’re watching in the final months of the year. During …
RBA won’t be rushed into rate cuts The minutes of the RBA’s August meeting confirmed what we already knew from Governor Bullock's post-meeting press conference: the Board discussed the case for a 25bp hike before ultimately deciding to leave rates …
The weaker July employment report and another set of mild inflation data mean the Fed remains on track to cut interest rates in September. With the activity data still supportive of our view that the economy is heading for a soft landing, we doubt the Fed …
19th August 2024
The global macroeconomic risks surrounding a possible ceasefire deal between Israel and Hamas are asymmetric. An agreement – while having significant economic consequences for countries in the region – would probably not itself be a game-changer for …
While we expect inflation to fall below the Bank of Japan’s 2% next year, the Bank’s still very accommodative stance means that this alone won’t trigger interest rate cuts. We think it would require a major downturn in activity that results in a looser …
As markets have come roaring back from the recent growth scare, Group Chief Economist Neil Shearing talks to Jennifer McKeown, Capital Economics’ Chief Global Economist, about the true state of the global economy and the outlook for policy. Their …
18th August 2024
The data this week cast doubt on the Bank of Canada’s view that the worst is already behind us for the economy, with manufacturing sales slumping to a two-and-a-half year low in June and non-residential building permit volumes plunging to their lowest …
16th August 2024
Housing recovery yet to take off Interest rate cuts have so far failed to stimulate the housing market, although the sharper drop in borrowing costs this month will lend more support. Regional divergences are growing, with Toronto likely to struggle with …
More good data all round More good price data The July price data should have provided more relief for any Fed officials still worried about inflation. The PPI, CPI and import price data imply that the Fed’s preferred core PCE measure increased by 0.16% …
Rebound in confidence driven by political change The small rebound in the University of Michigan consumer sentiment index in August was entirely driven by recent political developments, and still leaves it below its level for most of this year. At face …
The good news just kept coming this week. The economy grew by an above-trend rate for the second quarter in a row in Q2 (see here ), the unemployment rate fell to 4.2%, well below most estimates of the natural rate of around 4.50%. (See here .) And at …
Housing starts hit by hurricane The slump in both housing starts and building permits in July, to the lowest levels since the epoch of the pandemic, only partly reflects the temporary impact of Hurricane Beryl. Accordingly, even though lower interest …
Manufacturing sales weakest since January 2022 It was an extremely poor month for the manufacturing sector in June, with sales falling to a two-and-a-half-year low. As new orders slumped, inventories are elevated and the S&P Global manufacturing PMI for …
This page has been updated with additional analysis since first publication. Better start to Q3 not as good as it looks After a weather disrupted Q2, July’s 0.5% m/m rise in retail sales volumes (consensus forecast 0.6% m/m, CE forecast 0.5% m/m) was …
Real labour incomes rising again The 0.8% q/q rise in Q2 GDP was stronger than most had anticipated though close to our Nowcast estimate. The main driver was a 1% q/q jump in consumption, the first increase following four consecutive quarterly falls. That …
Downside risks abound in New Zealand Our non-consensus call that the RBNZ would start normalising policy this week came to fruition, with the Bank handing down its first rate cut in over four years. But while the Committee reached a full consensus that it …
The recent drop in mortgage rates has caused house prices to rise a bit faster than expected. As a result, we now think house prices will grow by 2.0% y/y in Q4 2024 (1.0% previously). What’s more, our forecast that Bank Rate will be cut from 5.00% now to …
15th August 2024
Given the revival in house prices and recent falls in mortgage rates, we are raising our Q4 2024 house price growth forecast from 1.0% y/y to 2.0%. We now think that the number of housing transactions per year will increase from 1.02m in 2023 to 1.07m in …
Minimal movement in property yields and a slight edge up in the 10-year Treasury yield meant improvement in our property valuation scores stalled in the second quarter of the year. Despite the recent financial market turmoil, we still expect the 10-year …
Temporary disruptions hit IP The fall in manufacturing output in July was entirely driven by temporary disruptions which should reverse this month. Excluding those temporary factors, this is a strong report which, together with last month’s solid gain in …
Don’t bet against the American consumer There was almost nothing in the July retail sales report for the perma-bears to latch on to, with the rebound in retail sales led by a recovery in vehicle sales, but encouragingly broad-based with control group …
This page has been updated with additional analysis since first publication. Strength in Q2 won’t last While the economy flatlined in June, it still managed to grow by 0.6% q/q rise in GDP in Q2. That said, some of the rebound in activity in Q2 may have …
This page has been updated with additional analysis since first publication. Labour force continues to absorb surge in workers The slight uptick in the unemployment rate last month belies a renewed acceleration in employment growth. Accordingly, the data …
Strong rebound in consumption points to further monetary tightening The strong rebound in GDP last quarter was driven by the first rise in consumption in more than a year and should encourage the Bank of Japan to press ahead with another rate hike later …
While investment has tentatively turned a corner, subdued activity and further rises in cap rates mean 2024 will still be a tough year. All-property values are down by 18% from their mid-2022 peaks, but we expect the eventual peak-to-trough decline to …
14th August 2024
The renewed widening of global imbalances has become another faultline in the fracturing of the world economy, and will continue to provoke trade barriers in the coming decades. With overall imbalances most prominent in the US, further tariffs aimed at …
CPI consistent with a 25bp rate cut rather than 50bp The 0.15% m/m increase in all-items CPI and the 0.17% increase in core CPI in July suggest that, after the temporary relapse in the first quarter, the disinflationary trend has firmly reasserted …
Prime Minister Kishida’s resignation is hardly a surprise. At this stage, it’s very difficult to predict who will succeed him and the ruling LDP will probably remain in power for the foreseeable future. The upshot is that Kishida’s withdrawal doesn’t have …
This page has been updated with additional analysis since first publication. Soft surprise opens the door to more interest rate cuts later this year The smaller-than-expected rise in CPI inflation from 2.0% in June to 2.2% in July (consensus forecast …
The RBNZ began its easing cycle with a 25bp rate cut at its meeting today. Although the Bank appeared to strike a cautious tone about further policy easing, we think it will cut rates more aggressively than many are anticipating. We were among the 12 …
RBNZ will loosen policy aggressively The RBNZ began its easing cycle with a 25bp rate cut at its meeting today. Although the Bank seemed to strike a cautious tone about further policy easing, we think it will cut rates more aggressively than many are …
Muted PPI is more good data The muted 0.1% m/m increase in final demand PPI and unchanged core PPI for July is not quite as good as it looks, but it is nevertheless consistent with the Fed’s preferred core PCE prices measure increasing at a below-2% …
13th August 2024
This page has been updated with additional analysis since first publication. Easing in wage growth clears path for more rate cuts later this year The further easing in wage growth will be welcomed by the Bank of England as a sign that labour market …
This page has been updated with additional analysis since first publication. Wage growth will cool in earnest The RBA probably won’t read too much into the fact that annual wage growth stalled last quarter. A gradual loosening of the labour market should …
While a big reduction in speculative positioning against the Japanese currency may mean that future moves in global financial markets will be less extreme than recent ones, it doesn’t preclude more turbulence if, e.g., this week’s US data disappoint. Much …
12th August 2024
We are sceptical that the recent decline in mortgage rates will revive the housing market. Rates are still high compared to recent years, discouraging homeowners from moving, while most potential new buyers remain sidelined due to historically stretched …
Container shipping costs have fallen back slightly in the past few weeks. And while the potential for further shipping disruptions makes the outlook for shipping costs highly uncertain, as things stand the rise in shipping costs this year is unlikely to …
With the Summary of Deliberations this week confirming that the Bank of Canada is putting more weight on the downside risks, we feel confident that the Bank will continue to cut interest rates at each remaining meeting this year. Still, with wage growth …
9th August 2024
Economy still nowhere near recession In purely mechanical terms, the limited data released this week did trigger a downward revision to our third-quarter GDP growth forecast to 1.7%, from 2.0%. But only because the June trade data sets up for a slightly …
