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This website has been updated with additional analysis since first publication. Rebound in underlying inflation allows BoJ to hike rates further The continued fall in the job-to-applicant ratio isn’t translating into a higher labour market and the bulk of …
28th June 2024
We expect a 200,000 increase in non-farm payrolls in June. The unemployment rate probably edged back down to 3.9%, while we expect a renewed slowdown in wage growth. The reacceleration in non-farm payroll growth to 272,000 in May was at odds with other …
27th June 2024
If the polls are correct and Labour wins the election, the policies it implements and when it implements them will depend in part on the ‘headroom’ against the fiscal rules it is given by the Office for Budget Responsibility (OBR). We suspect the next …
Durable Goods & Advance Economic Indicators (May 2024) The small fall in core orders and larger fall in underlying capital goods shipments leaves prospects for second quarter business equipment investment weaker than we had expected. The 0.1% m/m rise in …
The stability of UK financial markets ahead of the UK general election is striking when compared to the sharp moves in French asset prices ahead of the French legislative elections. It’s probably because the UK election result isn’t in doubt and the …
This page has been updated with additional analysis since first publication. Riksbank pauses but will probably cut again in August The Riksbank’s decision to leave rates unchanged was as expected and does not suggest that policymakers are regretting their …
While the labour market held up initially as job vacancies started to fall, fewer job openings are now pushing up the unemployment rate in earnest and we expect it to rise from 4% now to 5% by 2026. According to data released by the Australian Bureau of …
New home sales fall to six-month low The 11.3% m/m decline in new home sales in May will steal all the headlines, but it largely reflected a significant upward revision to the April sales number, leaving us somewhat confused at the overall health of the …
26th June 2024
Will hype around AI continue to fuel a US stock market rally? How are elections and monetary policy shaping the path for bond yields? What will drive the dollar through the rest of 2024 and into 2025? Our Global Markets economists held this special …
Overview – Below potential GDP growth and falling core inflation will persuade the Bank of Canada to cut interest rates further, with the policy rate settling at 2.5% next year. Lower interest rates should, in turn, drive a recovery in GDP growth from …
Overview – Activity has slowed to a standstill in both countries. Although output growth should gather momentum going forward, it will remain below its pre-pandemic average. However, with underlying inflation still running well above target, central banks …
RBA will take upside surprise in inflation in its stride The jump in inflation in May means that the Reserve Bank of Australia will be debating interest rate hikes for a while yet, but with the economy doing worse than it has been anticipating, we still …
Overview – We expect core inflation to be back to the 2% target by early next year, allowing the Fed to begin cutting interest rates from this September. GDP growth will remain a little lacklustre this year but, as the shift in monetary policy begins to …
25th June 2024
After a strong recovery post-pandemic, momentum in hotel revenue growth is likely to remain subdued over the next few years. With a stronger US dollar hindering the revival of the tourist industry, we suspect metros such as Austin and Dallas will remain …
Price inflation slows for first time in almost a year The second consecutive moderate 0.3% m/m rise in house prices in April could be a sign that the increase in home listings this year has cooled the market. We think rising supply will eventually be …
July cut on shaky ground The stronger monthly gains in the Bank of Canada’s preferred core price measures in May will give the Bank some cause for concern after starting its loosening cycle in June. However, with some of that strength due to factors that …
Overview – The next government, which the polls ahead of the election on 4 th July suggest will be a Labour one, will benefit from a combination of lower inflation, lower interest rates and faster economic growth than most are expecting. We think that a …
Are signs of recovery sustainable? Is inflation receding enough for more central banks to join the global easing cycle? Do upcoming elections pose a risk to the economic outlook? Our senior economists for held two special briefings on Monday, 1st …
24th June 2024
The recent encouraging inflation data reinforce our view that the Fed will cut interest rates in September. We remain confident that core inflation is heading back to the 2% target, which should allow the Fed to cut rates again in December and by even …
In the latest episode of The Weekly Briefing from Capital Economics, Group Chief Economist Neil Shearing previews upcoming US PCE inflation data, outlines the fiscal challenges facing the next UK Chancellor and explains how Chinese manufacturing …
23rd June 2024
The Summary of Deliberations from the Bank of Canada’s June meeting reiterated that further interest rate cuts are likely but gave little away about how quickly the Bank will move. With another two CPI releases before the July meeting, our sense is that …
21st June 2024
The latest flash PMIs suggest that GDP growth in most major advanced economies slowed at the end of Q2. But weaker services activity hasn’t translated to softer price pressures, meaning central banks will take a gradual approach to loosening policy. Our …
Fiscal outlook deteriorates further Deficit going from bad to worse This week the CBO released new projections showing that the Federal deficit is expected to be $1.9trn, or 6.7% of GDP, in the current 2024 fiscal year that ends this September. (See Chart …
Sales barely budge in May Existing home sales were essentially flat in May which is somewhat puzzling given that pending home sales and home purchase mortgage applications, which lead transactions by a month, both fell meaningfully in April. Either way, …
Strong population growth supporting retail sales Retail sales volumes performed a little better than we expected in April, but that seems to be largely due to strong population growth, with the interest rate-sensitive sectors performing poorly. Stats Can …
Economic soft landing not budging the polls It is striking how little recent economic events have influenced the polls ahead of the general election on 4 th July. This week’s news that CPI inflation fell to 2.0% in May meant that, just as we predicted …
This page has been updated with additional analysis since first publication. Sticky price pressures may mean rate cuts are slower and smaller June’s composite PMI suggests the economic recovery lost a bit of momentum towards the end of the second quarter. …
Will this snap election mark the end of the France's political turmoil? And will the election results convince the bond vigilantes to stand down? Our senior Europe and Markets economists held this assessment of the French legislative election results and …
Rebound suggests lower inflation is beginning to support consumption The larger-than-expected increase in retail sales in May more than reversed the rain-driven weakness in April. And with inflation falling back to target, Bank Rate likely to be reduced …
This page has been updated with additional analysis since first publication. Better news doesn’t mask fiscal challenge awaiting next government May’s public finances figures delivered some better news on the fiscal position after the recent run of …
Inflation slowdown creates dilemma for BoJ The minutes of the Bank of Japan’s April meeting released this week confirmed that many Board members were concerned about a renewed strengthening of price pressures caused by the weak exchange rate. Those …
This page has been updated with additional analysis since first publication. Underlying inflation will fall below 2% in second half The jump in headline inflation in May mostly reflected electricity price hikes that have further to run. By contrast, …
Despite the many twists and turns in bond markets this month amid mixed signals from central banks, most sovereign bonds in developed markets (DM) have rallied on net. We expect this to continue, with yields falling further in the coming months. The three …
20th June 2024
The office sector faces another two years of value falls, led down by Seattle and San Francisco, where cumulative declines will be around 25%-30%. But our latest forecasts highlight the brighter spots in the South. Thanks to a smaller impact from remote …
The proposal to save governments money by ending interest payments on commercial banks’ reserves is a lot more complicated than some of its advocates suggest. The extreme version could either cause central banks to lose control of monetary policy or …
The Bank of England predictably left interest rates unchanged at 5.25% today but continued to give the impression that the pieces of the puzzle are almost in place for it to cut rates. This lends some support to our view that the Bank will first cut rates …
Housing starts fall to lowest level since June 2020 The drop in housing starts in May is consistent with the recent slowdown in permit issuance, pointing to construction continuing to falter this year. The 5.5% m/m decline in housing starts was driven by …
BoE leaves the door open to an August rate cut The Bank of England predictably left interest rates unchanged at 5.25% today but continued to give the impression that the pieces of the puzzle are almost in place for it to cut rates. As a result, we still …
This page has been updated with additional analysis since first publication. Economy struggles to gain momentum The modest rebound in GDP last quarter doesn’t change the bigger picture that the New Zealand economy is worse for wear. In fact, timely survey …
This page has been updated with additional analysis since first publication. Stubborn services inflation still a point of concern for BoE We’ll be discussing the outlook for Bank of England, ECB and Fed policy in a 20-minute online briefing at 3pm BST on …
19th June 2024
Drag from net trade will hold back Q2 GDP rebound Trade volumes were little changed in May which suggests that net trade provided a small drag on GDP growth this quarter. The 13.5% annual rise in export values was a touch stronger than the analyst …
The gap between downtown and suburban office vacancy rates has widened alarmingly since 2020. This reflects pandemic-driven changes to working patterns, exacerbated by the cyclical slowdown. In our view, this shift cannot last. While any recovery will be …
18th June 2024
Strong rise in manufacturing output unlikely to be repeated The strong rebound in manufacturing output in May was better than we expected but, given the softness of the earlier retail sales release, it does not change the big picture that second-quarter …
Soft sales add to signs that consumers are beginning to struggle The soft May retail sales data support our view that, after a disappointing first quarter, GDP growth remains a little lacklustre in the second quarter too. Our forecast now stands at 1.9%. …
While the economy has only narrowly avoided a recession, activity should rebound over coming quarters as real household incomes recover. Indeed, with inflation set to remain above the Bank’s 2% target this year and wage growth accelerating, we expect the …
The RBA discussed another rate hike at today’s meeting and an upside surprise to Q2 inflation could force its hand at its August meeting. However, with capacity constraints easing and government rebates pushing inflation into the Bank’s target band by Q3, …
RBA’s next move will be a cut but only next year The RBA probably debated another rate hike at today’s meeting and we only expect the Bank to start easing policy next year. The Bank’s decision to keep interest rates unchanged today was correctly …
