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GDP revisions change little; recent gap with GDI remains The comprehensive benchmark revisions to the GDP data changed almost nothing of substance – the real economy was still 6.1% bigger in the second quarter of this year than it was pre-pandemic in the …
28th September 2023
As we anticipated , housing starts in England spiked to their highest level on record in Q2 as builders began work early to avoid having to conform with the Future Homes Standard. More timely monthly data show that starts slumped in July and August in …
This page has been updated with additional analysis since first publication. RBA will hike despite slower retail sales growth Retail sales lost some momentum in August. However, with sales volumes still running above their pre-pandemic trend, that …
10Y Treasuries have underperformed 2Y Treasuries over recent months, bucking the usual pattern after the final Fed hike (if, as we think, the final hike was in July). But we think the stage is now set for 10Y Treasuries to outperform over the next year or …
27th September 2023
Strong immigration and the resilience of the housing market raise the chance that the economy will avoid recession but, with the Bank of Canada keeping further rate hikes on the table, we still judge that GDP will contract later this year. Even if …
Equipment investment growth still set to slow The 0.2% m/m rise in durable goods orders in August was, at first glance, better than expected, but the outperformance was mainly due to a surge in defence aircraft orders. Admittedly, gains in core orders and …
New York and LA see a decline in office jobs Total employment growth slowed slightly in August to 0.4% 3m/3m across the 30 metros we cover, once seasonally-adjusted. But office jobs in western cities have continued to decline as layoffs in the technology …
Overview – We expect the euro-zone economy to struggle over the next 18 months, and a mild recession in the coming quarters looks more likely than not. Lower energy prices and improved global supply chain conditions should keep headline inflation on a …
Activity is holding up better than expected, while disinflation is stalling Another 25bp rate hike now seems more likely than not Policy easing pushed back to mid-2024 Stronger-than-expected GDP and inflation data should cement the case for the RBA to …
This page has been updated with additional analysis since first publication. Resurgent price pressures raise risk of tighter policy With Australia’s disinflationary process stalling, there’s a growing risk that the Reserve Bank of Australia will resume …
Softening demand proves a tipping point for new home sales The 8.7% m/m drop in New Home Sales in August was the largest monthly decline since September 2022 and suggests that the renewed rise in mortgage rates has caused home purchase demand to decline …
26th September 2023
Another dip in house prices this year unlikely after sixth consecutive rise The sixth consecutive rise in house prices in July showed that very tight supply is causing home prices to continue to rise despite sales volumes remaining weak, and suggests a …
Rising bankruptcy filings by large corporations are another reason to doubt that the economy will continue to grow at close to its potential rate, as the Federal Reserve now seems to believe. Admittedly, the bankruptcy data suggest that consumers and …
Overview – We expect another few quarters of near-zero GDP growth to lead to an annual gain of just 0.7% next year. Even with higher oil prices, the weakness of economic growth leaves scope for CPI inflation to fall back to the 2% target in 2024. That …
The sharp slowdown in broad money growth since late last year suggests that higher interest rates are working by reducing households’ and firms’ demand for borrowing, which should lead to softer activity and lower inflation. This supports our view that a …
RBNZ to reassert its tightening bias as activity surprises on the upside Given the noise in the recent data, we don’t expect further rate hikes However, policy will remain restrictive for longer, with rate cuts only in Q3 2024 Although economic activity …
Overview – With the economy showing signs of slowing and transaction volumes likely to stay low in H2 2023, a tough 6-12 months lies in store for commercial real estate. We still expect cap rates to rise on the back of higher Treasury yields, but the full …
25th September 2023
Given clearer signs of economic weakness in recent weeks, we think the surprise increase in underlying inflation pressures in August means the Bank of Canada is more likely to keep interest rates at their current level for longer than to raise rates …
Ifo points to renewed contraction in German GDP in Q3 The Ifo Business Climate Index (BCI) confirmed that the German economy remained in the doldrums in September. We continue to expect contractions in GDP in both Q3 and Q4 of this year. The small fall in …
The abandonment of Yield Curve Control would probably prompt the Bank of Japan to reduce its bloated holdings of government bonds, which could push up long-term bond yields. However, there are good reasons to think that the fiscal consequences wouldn’t be …
The September Flash PMIs add to evidence that economic activity in the US and Europe is weakening. This supports our view that the Fed, ECB, and Bank of England have finished hiking interest rates. Our estimate of the DM average composite PMI edged down …
22nd September 2023
Although the 10-year Treasury yield rose further to a post-Global-Financial-Crisis high of ~4.5% in the wake of this week’s FOMC meeting, we continue to forecast that it will drop back to 3.75% by the end of this year and to 3.25% by the end of next year. …
This week’s news that interest rates are probably at their peak (see here ) and the news that public borrowing in the current fiscal year is £11bn below the Office for Budget Responsibility’s forecast has raised the pressure on the Chancellor to deliver …
The new projections published by the Fed this week signalled that officials are fully onboard with the idea of interest rates staying ‘higher for longer’, but that is based on forecasts for real economic growth and inflation which we believe are …
Retail sales volumes weakening despite strong population growth Retail sales volumes edged down in July and the preliminary estimate implies they fell even more sharply in August. Given that population growth has accelerated in recent months, retail sales …
We held a Drop-In yesterday to discuss the latest policy meetings of the Fed, ECB, and Bank of England and what they might mean for the future path of policy and financial markets. (See the recording here .) This Update answers several of the questions …
This page has been updated with additional analysis since first publication. Signs that recession has started all-but confirms interest rates have peaked The fall in the activity PMI further below the boom-bust level of 50.0 in September suggests the …
This page has been updated with additional analysis since first publication. Composite PMI edges up but still points to recession The small increase in the euro-zone Composite PMI in September left it still in contractionary territory. We think a further …
Higher inflation lowering deficit and debt/GDP Even though inflation excluding fresh food and energy remained stubbornly high at 4.3% in August, the Bank of Japan didn’t drop any further hints that it might tighten policy anytime soon at its meeting …
We now expect the Bank of Japan to hike its policy rate – for the first time in sixteen years – next January. While we think global markets are generally braced for such an event, there’s a clear risk nonetheless that it puts pressure on long-term bonds …
The Bank of Japan still sounded dovish when it kept policy settings unchanged today. But with inflation proving stickier than expected, we expect the Bank to lift its policy rate in January and have pencilled in the full-fledged dismantling of Yield Curve …
This page has been updated with additional analysis since first publication. Not as good as it looks, sales likely to fall in Q3 The 0.4% m/m rebound in retail sales volumes in August isn’t as good as it looks as it partly reflected a pickup in sales …
Overview – Both economies have dodged a recession so far, but we still consider it more likely than not that output will shrink across the second half of the year. With inflation softening and labour markets loosening, both central banks are done hiking …
Negative rates will end in early-2024 The Bank of Japan didn’t provide any hints that it will abandon loose monetary policy anytime soon when it kept policy settings unchanged today, but Governor Ueda may do so later today. We think the Bank will lift its …
Second-round effects set to be small The minutes of the RBA’s September meeting revealed that the Bank kept discussing another 25bp rate hike. One argument in favour was that the recent rise in petrol prices could make the process of returning to target …
This page has been updated with additional analysis since first publication. Inflation on its way down but price pressures remain Headline inflation fell slightly in August. This was driven by a slowdown in fresh food inflation as well as a further …
We think that both the Fed and the BoE are finished hiking interest rates and will cut by more than investors are discounting over the next couple of years. We also expect the US and UK economies to tip into mild recessions before long. These similarities …
21st September 2023
Despite ending the interest rate hiking cycle today, the Monetary Policy Committee (MPC) succeeded in convincing financial markets that interest rates will remain high for some time. As market interest rate expectations determine fixed mortgage rates, the …
Sales fall back to January lows The 0.7% m/m fall back in existing home sales in August reflects falling mortgage borrowing and took sales back close to the low levels recorded in January. Our view that mortgage rates will remain above 6% for the rest of …
Note: We’ll be discussing September’s Fed, ECB and Bank of England policy decisions in a Drop-In at 3pm BST today. Register here to join. The surprise decision by the Bank of England to leave interest rates unchanged at 5.25% today probably means that …
The Bank’s job is done The surprise decision by the Bank of England to leave interest rates unchanged at 5.25% today probably means that rates are already at their peak. We think rates will stay at this peak of 5.25% for longer than the Fed, the ECB and …
This page has been updated with additional analysis since first publication. Note: We’ll be discussing September’s Fed, ECB and Bank of England policy decisions in a Drop-In at 3pm BST today. Register here to join. A bit more wiggle room for pre-election …
This page has been updated with additional analysis since first publication. Strong pickup in growth puts rate hikes back on the table The unexpectedly strong rebound in activity last quarter means that the RBNZ may well judge it has more work to do. All …
The Fed doubled down on its mantra that interest rates will remain higher for longer, with its updated projections suggesting that the economy will enjoy the softest of soft landings and core inflation will still take some considerable time to return to …
20th September 2023
Fed wants us to believe in “higher for longer” The Fed left its policy rate unchanged at 5.25% to 5.50% and, while the median forecast still shows one more 25bp rate hike this year, the FOMC appears to be more evenly split, with 12 in favour of that hike …
We remain of the view that investors are overestimating how high the federal funds rate will be over the next couple of years, and that Treasury yields will fall as a result. A lot of discussion around the upcoming FOMC decision has focused on the path …
