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While overall inflation has moderated, services inflation has accelerated Bank will wait for upcoming spring wage negotiations before adjusting policy We expect a rate hike to 0.1% in March, with Yield Curve Control ending by mid-year The Bank of …
16th January 2024
The Bank of Canada’s quarterly business and consumer surveys continue to flash warning signs about the outlook for the economy and labour market. The normalisation of inflation expectations remains painfully slow, however, presenting a risk to our view …
15th January 2024
We don’t expect the Federal Reserve, European Central Bank or Bank of England to cut rates in their first meetings of 2024, but they may drop hints about when monetary easing could start. A team of our senior economists held this online briefing after the …
There’s a popular view that the RBA won’t start cutting interest rates until later in the second half of this year. We think Australia’s Q4 CPI release on 31 st January will help build the case for those cuts to start far sooner. Our ANZ and Markets …
Will US equities continue to lead the pack in 2024? How will monetary policymaking affect the level of yields? What will this mean for FX markets? To mark the launch of our new, interactive forecast dashboards, our Markets economists hosted a special …
Temporary rebound in sales volumes The rebound in manufacturing sales in November was broad-based but, with new orders dropping back and the manufacturing surveys weakening in December, that strength is unlikely to be sustained. The 1.2% m/m rise in …
US house prices saw strong gains in 2023, defying widespread expectations for them to fall as surging mortgage rates crimped supply. Will falling borrowing costs in 2024 swamp the market with a wave of new listings or could house prices surprise to the …
We doubt the recent resilience of business investment in the face of higher interest rates will last. Instead, we think a drop back in business investment will contribute to the economy continuing to stagnate in the first half of this year and a modest …
There was a wide disparity in house price growth across regions in 2023 and little reason to think that this year will be any different. Following the recent decline in mortgage rates, we suspect the largest rises in prices will be in the regions that …
While most of the recent pick-up in services inflation has been driven by just a handful of components, there’s been an upward shift in the distribution of price changes across the CPI basket. However, even if wage growth settles at higher levels than …
With US and UK strikes on Houthis in the headlines and Taiwanese voting in their flashpoint election, Group Chief Economist Neil Shearing unpicks what the now- clichéd idea that we live in a “more dangerous world” actually means for thinking through macro …
12th January 2024
The latest Trans Mountain regulatory hearing will determine whether the pipeline expansion is once again delayed. That would weigh further on the outlook for exports, with external demand already very weak. Another year, another year’s delay? Admittedly, …
Trump faces first test in Iowa Iowa marks the start of the primary race Donald Trump is still the prohibitive favourite to win the Republican presidential nomination. But the Iowa caucuses, which kick off the primary season this coming Monday, should …
The rebounds in CPI inflation in both the US and the euro-zone in December (from 3.1% to 3.4% and from 2.4% to 2.9% respectively) raise the question of whether the downward trend in the UK will also stall. After all, inflation in the UK has been following …
We doubt that the modest fall in mortgage rates we anticipate this year will bring a great deal more stock onto the market. Because of that, the supply of existing homes will remain very tight, so we’re now forecasting a more subdued recovery in existing …
This page has been updated with additional analysis since first publication. Stagnation in Q4, but recovery in sight The 0.3% m/m rebound in real GDP in November (consensus and CE forecast 0.2%) increases the chances that the economy escaped a recession …
Inflationary pressures moderating The economic data released this week all suggest that the case for tighter monetary policy is diminishing. For a start, the Tokyo CPI showed that inflation excluding fresh food fell to just 2.1% in December, within …
Inflation could start with a 3 in December We explained last week why we expect the RBA to cut interest rates earlier than most anticipate and the sharp fall in inflation in November supports our view. The available data suggest that the Q4 inflation …
Consumer spending continued to tumble in Q4 The continued slowdown in household spending in November further cements our view that the RBA won’t lift rates any higher. The ABS’ monthly indicator suggests that household spending rose by 3.1% y/y in …
We think that global growth will undershoot consensus expectations in 2024 as various props to growth from 2023 fade and as the lagged effects of past rate hikes continue to feed through. Among the advanced economies, the US will continue to outperform …
11th January 2024
Core prices boosted by used vehicles & shelter The slightly bigger 0.3% m/m increases in both headline and core CPI would seem to justify the stance of Fed officials that the road back to target could be a little bumpy, but we’re not convinced. The annual …
The lagged effects of the weak economy and high interest rates may mean that loan default rates rise in the coming months. But the prospect of interest rate cuts later this year will mean they won’t rise much. Higher interest rates and the weak economy …
10th January 2024
The surge in Chapter 11 business bankruptcy filings last quarter is not as bad as it looks, as many of them related to the WeWork failure. Excluding those, bankruptcies trended lower at the end of 2023 and, with corporate bond yields falling sharply in …
This page has been updated with additional analysis since first publication. Disinflation will pave the way for policy loosening before long With price pressures cooling in earnest, we’re growing increasingly confident in our call that the RBA will start …
This page has been updated with additional analysis since first publication. Virtuous cycle will get renewed boost this year Wage growth slowed sharply in November, driven by a plunge in bonus payments. While we expect the labour market to soften in the …
Our total returns forecasts for 2024 are significantly below consensus, as we predict that value falls will reach double digits for the second consecutive year. Retail stands out as the only sector where we expect positive returns, but distress in the …
9th January 2024
A continued pull-back in the spreads of US private-label commercial mortgage-backed securities (CMBS) since the start of 2024, at a time when those of US high-yield corporate bonds have edged up (see Chart 1) and “risky” assets in general have come under …
The surge in spending by state & local governments has boosted economic growth over the past year but, with tax revenues falling back in recent quarters, that boom is now set to fade. While there has been plenty of commentary on the support to the economy …
Tougher times ahead for exporters Export volumes were little changed in November but the surveys suggest that tougher times lie ahead, with export orders seemingly falling fast in December. The trade surplus halved to $1.6bn in November as exports …
Falling imports and exports suggests demand softening at home and abroad The weakness of both exports and imports in November suggests that weaker growth overseas is now being matched by a softening in domestic demand too. The trade deficit shrank …
This page has been updated with additional analysis since first publication. RBA will look past Black Friday spending spree Although retail sales bounced back with a vengeance in November, that result largely reflected a one-off boost from Black Friday …
This page has been updated with additional analysis since first publication. Inflation will jump again before long Inflation excluding fresh food came close to the Bank of Japan’s 2% target in December, but it will jump to nearly 3% from February and …
8th January 2024
The recent sharp fall in Japan’s ratio of public debt to GDP reflects one-off factors that won’t be sustained. While the influence of rising bond yields on the trajectory of the public finances will largely be offset by higher inflation and nominal GDP …
The Fed-triggered financial market exuberance which ended 2023 hasn’t carried into the new year, with yields rising and equities struggling. Group Chief Economist Neil Shearing explains what’s changed – and what hasn’t – to explain this mood shift. He …
5th January 2024
In what was an extremely volatile year for the housing market, we made two key forecasting errors. Firstly, we didn’t anticipate the extent of the rise in mortgage rates. Because of that, we underestimated how tight supply in the existing housing market …
Fed still coy about QT end-game FOMC minutes put focus on inflation data The minutes of the mid-December FOMC meeting did not dissuade us that the Fed will start to cut interest rates from this March onwards. Admittedly, officials warned that “they would …
Conditions in the housing market seem to be improving, with the local real estate board data pointing to a big improvement in the home sales-to-new listing ratio in December. While the unseasonably warm weather may have played a role and house prices …
Weak ISMs should probably be taken with a pinch of salt The plunge in the ISM services index to a 7-month low in December suggests, at face value, that the economy is sliding into recession. But the poor relationship between the surveys and the hard …
There are still plenty of downside risks to our below-consensus forecast that the economy will stagnate in 2024 with GDP growth of 0.0%. (See here .) But the news over the past week has highlighted three upsides. First, the slide in 2-year and 5-year …
Employment gains still dominated by non-cyclical growth The slightly bigger-than-expected 216,000 gain in non-farm payrolls (consensus estimate was 170,000) in December coupled with a second consecutive 0.4% m/m gain in average hourly earnings means that …
This page has been updated with additional analysis since first publication. Jump in wage growth a concern for the Bank The unchanged level of employment in December is consistent with the message from the business surveys that labour demand has weakened …
Our forecast of earlier Bank Rate cuts means that mortgage rates will be significantly lower than we had anticipated this year, which will lead to a stronger recovery in demand from mortgaged buyers. With little reason to think that demand from cash …
This page has been updated with additional analysis since first publication. Construction PMIs still subdued in December The rise in the headline CIPS construction PMI from 45.5 in November to 46.8 in December was driven by the increase in the housing …
Lower mortgage rates see house prices jump in December The big 1.1% m/m increase in the Halifax house price index confirms that falls in mortgage rates are translating into renewed increases in house prices. Given further recent falls in mortgage rates, …
Manufacturers keep losing market share overseas Just as we predicted a few months ago, the outperformance of Japan’s stock market relative to US stocks has unwound as the yen has strengthened in recent weeks. (See Chart 1.) Chart 1: Yen/Dollar vs. …
A cooling economy will give the RBA cover Earlier this week, the Australian Financial Review published its quarterly survey of economists. By and large, the perception amongst forecasters seems to be that the RBA will retain its hawkish bias for the …
The redirecting of trade ships away from the Red Sea and the associated rise in shipping costs are unlikely to lead to a resurgence in global inflation. However, if the warfare underpinning the disruption to shipping escalates into a wider regional …
4th January 2024
The run of softer-than-expected news on CPI inflation and wage growth means we now expect the Bank of England to cut interest rates sooner than before. Our forecast is that rates will be cut from 5.25% in June and will fall to 3.00% in 2025. The markets …
