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Opposing messages from Ifo and PMIs Contradictory messages from the Ifo – which was very weak in May – and the Composite PMI mean the performance of the German economy in Q2 is very uncertain . But regardless of how well the economy held up this quarter, …
24th May 2023
BoE will need to work harder to conquer inflation Note: We’ll be discussing the UK April CPI report in a briefing at 10:00 BST/17:00 SGT on 24 th May. Register here. The Bank of England won’t be able to ignore the smaller-than-expected fall in CPI …
Resurgence in core inflation means BoE to keep its foot on the interest rate brake Note: We’ll be discussing the UK April CPI report in a briefing at 10:00 BST/17:00 SGT on 24 th May. Register here. The smaller-than-expected fall in CPI inflation from …
The decision by the Reserve Bank of New Zealand to lift its official cash rate by 25bp, to 5.50%, was in line with what most had anticipated. However, with the Bank sounding more dovish than it has in the recent past, we think its hiking cycle is now …
RBNZ signals tightening cycle is at an end The RBNZ slowed the pace of tightening this month, while signalling that its tightening cycle was at a close. The Bank’s decision to hike its official cash rate by 25bp, to 5.50%, was correctly predicted by 20 …
The resilience of the April activity data and apparent stabilisation in housing have raised hopes that a recession may yet be avoided this year. That said, forward-looking indicators suggest that the huge rise in interest rates and tightening of bank …
23rd May 2023
May’s PMIs suggest that activity in advanced economies has continued to hold up well amid a strong rebound in the service sector. Meanwhile, weak demand for manufactured goods is weighing heavily on the outlook for industry. And although this means that …
Note: We’ll be discussing the UK April CPI report in a briefing at 10:00 BST/17:00 SGT on 24 th May. Register here. Stronger activity supporting domestic price pressures May’s PMIs suggest that economic growth is being supported by the services sector …
The rebound in global auto production and sales over the past year has been partly responsible for the better-than-expected activity data over the past several months. And with auto sales in most advanced economies still well below pre-virus levels, there …
Stronger activity supporting price pressures May’s PMIs suggest that the economy is being supported by the services sector while manufacturing activity continues to struggle. The strength in services activity may be feeding into more persistent domestic …
UK Drop-In (24th May): Join our UK team for a 20-minute online briefing on the implications of April’s CPI inflation release at 10:00 BST on Wednesday, 24th May. Register Now . Shaky start to the new fiscal year won’t prevent pre-election splurge April’s …
Shaky start to the new fiscal year April’s public finances figures got the new fiscal year off to a shaky start. But we doubt this will prevent the Chancellor from embarking on a fiscal splurge ahead of the next election, due to take place before January …
As in other advanced economies, Australia’s neutral rate of interest rate will probably edge up a bit over the coming decades. That will result in higher borrowing costs, but Australia’s low public debt levels mean that the government will be able to …
PMIs suggest economy strengthened further in May May’s flash PMI readings were the strongest they’d been in a while and point to gains in both industrial production and services spending, supporting our assessment that the economy continued to grow in Q2. …
National GDP data released so far suggest that euro-zone exports rose in Q1. However we suspect they will be more subdued in the coming quarters as a result of weak global growth. We have recently investigated the reasons behind the strength of euro-zone …
22nd May 2023
More convincing evidence of a loosening in the labour market and an easing in labour costs growth has started to emerge. It may not prevent the Bank of England from raising interest rate above 4.50%. But it does tentatively support our view that the peak …
Most of the recent acceleration in services inflation reflects pass-through of higher goods prices. While firms have become more willing to pass on higher input costs, we still think that sluggish wage growth and the recent slump in import prices means …
Business investment in for a tough H2 We already know that business investment rose despite a plunge in capital goods shipments last quarter . As such, we wouldn’t read too much into the fall in machinery orders in March. The bigger picture is that as …
Business investment likely off to a slow start this quarter We already know that business investment rose last quarter. As such, we wouldn’t read too much into the fall in machinery orders in March. Machine tool orders data point to a slight fall in …
The economy has been relatively resilient so far, but with the banking turmoil set to weigh on activity, we continue to expect a recession this year. Slower growth has already translated to softer occupier demand across all property sectors. This will …
19th May 2023
We think China’s Loan Prime Rate will be left unchanged (Mon.) We expect the Reserve Bank of New Zealand to raise its policy rate by 25bp, to 5.50% (Wed.) Real consumption in the US probably rebounded a bit in April (Fri.) Key Market Themes We suspect a …
The Bank of Canada’s latest Financial System Review reiterated the risks to households from higher interest rates, but concluded that most are coping well. Following the rapid turnaround in the housing market and upside surprise to CPI inflation in April, …
The UK economy’s underperformance and higher and longer lasting inflation problem has earned it the unenviable title of “stagflation nation”. (See here and our podcast : “What’s wrong with the UK economy and what will it take to fix it”?) And speculation …
Recent solid activity data and the apparent progress on debt ceiling negotiations appear to have convinced some Fed officials that it is still too early to pause interest rate hikes. We still aren’t convinced the Fed will hike again in June, but there is …
The larger than anticipated rebound in mortgage approvals in March and a slowdown (or even partial reversal) of house price falls suggested that the housing market downturn may have ended much earlier than we anticipated. The unwinding of some of the …
Weakness mainly due to lower vehicle sales The fall in retail sales in March was driven mainly by lower vehicle sales. Overall sales volumes still rose by 4.9% annualised last quarter, suggesting that a pick-up in consumption supported GDP growth, but the …
Sweden inflation surprise As of this week, coverage of Switzerland and the Nordic economies will be incorporated, along with the euro-zone, in our expanded Europe Economics service. We will continue to analyse the economic data from the Nordics and …
Although monetary tightening has been a drag on equities over the past year or so, we don’t think the end of rate hikes means the stock market is set for big gains. Rate hikes among developed markets look to be drawing to a close . In particular, we think …
Consumers running out of steam The 0.4% q/q expansion in Q1 real GDP reported on Wednesday outperformed the 0.2% we and the consensus had expected. One reason was that private consumption rose at a quicker 0.6% q/q than the 0.4% the consensus was …
Productivity crunch creates dilemma for RBA The RBA has been ringing the alarm bells about dismal productivity gains for a while now. In the minutes of its May meeting, the Board noted that if productivity growth did not return to the modest pace recorded …
Inflation should fall rapidly in H2 on stronger yen, weaker wage growth Underlying inflation pushed past 4.0% for the first time in 40 years partly due to a spike in food inflation. Meanwhile, services inflation set a fresh 30-year high, largely …
Underlying inflation to rise further before falling due to stubborn food price pressures Headline inflation rose from 3.2% to 3.5% in April, despite a 4.4% fall in energy prices. As was the case with Tokyo, that was largely due to a rise in underlying …
Sales in a slump Existing home sales fell back towards their recent lows in April, not helped by a very tight inventory. The high cost of a new mortgage is acting to discourage homeowners with a low fixed-rate mortgage from moving, which is disrupting …
18th May 2023
The weakness in April’s jobs data suggest that the labour demand is starting to cool. Admittedly, there continue to be some pockets of resilience in the labour market. However, with wage growth remaining sluggish, we think it’s more likely than not that …
Labour market will loosen further The labour market is showing signs of cooling, reinforcing our view that the RBA’s tightening cycle is over. The 4,300 fall in employment in April was much weaker than most had anticipated (Refinitiv Consensus: +25k, …
Exports outlook improving in Q2, but not for long The trade deficit narrowed in April as export values rose faster than import values, largely reflecting the faster fall in import prices. Export climate readings suggest export volumes will continue to …
Falling energy imports supported trade balance The trade deficit narrowed in April as export values rose faster than import values. That’s more a reflection of lower energy prices, which decreased the value of fuel imports. Export values increased by 2.6% …
The rapid turnaround in the housing market and the upside surprise to CPI inflation in April have raised the case for another interest rate hike from the Bank of Canada, which we now judge is slightly more likely than not. The potential for US debt …
17th May 2023
After stalling at the end of last year export growth seems to have provided a boost to the euro-zone economy in the first quarter of 2023. However, we doubt that exports will be a major source of growth over the rest of the year given our downbeat …
We think the Philippines’ central bank will pause its tightening cycle… (08.00 BST) …but expect Egypt’s central bank to hike its policy rate by 200bp A number of US data releases tomorrow may show signs of weakness Key Market Themes We think the recent …
Inflation is now on a downward trend and interest rates are at, or very close to, a peak. But central banks will only cut interest rates once there are clearer signs that underlying price pressures are under control. That could be as early as later this …
Weakening economy to weigh on starts Homebuilders have turned their attention to finishing off the large number of homes under construction rather than starting new ones, keeping single-family starts close to their recent lows in April. While starts …
Following a surge in property yields over the second half of last year, property moved closer to fair value again in Q1. Admittedly, on our measure the all-property score is still sitting in overvalued territory. (See Chart 1.) But that is largely due …
The RBNZ will lift its OCR by 25bp next week. With upside risks to inflation persisting, we’ve pencilled in another 25bp hike in July. However, we still think the Bank will pivot to rate cuts by year-end. The latest data don’t tell a compelling story as …
Sluggish wage growth suggests RBA is done tightening The Q1 wage price index showed that quarterly wage gains were a bit softer than the RBA had anticipated which supports our view that the Bank won’t raise interest rates any further. The 0.8% q/q rise in …
Exports downturn to drag economy into recession in H2 GDP surprised to the upside last quarter, mainly because of stronger performances in private consumption and business investment than preliminary data had indicated. That suggests that there is …
Decent rebound in GDP as investment surprised to the upside GDP surprised to the upside last quarter, mainly because of stronger performances in private consumption and business investment than preliminary data had indicated. That suggests that there is …