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With the economy doing better recently, the Bank of Canada’s decision to cut by 25bp today might have been a closer call were it not for the looming threat of tariffs. Admittedly, the Bank hinted that it might have to refrain from providing more policy …
29th January 2025
Bank cuts by 25bp as 25% tariff threat hangs over the economy With the economy doing better recently, the Bank of Canada’s decision to cut by 25bp today might have been a much closer call were it not for the looming threat of US tariffs. Any tariffs could …
Soft CPI data paves the way for RBA to cut in February With underlying inflation on track to enter the RBA’s 2-3% target band this quarter, we now expect the Bank to begin its easing cycle at its next meeting in February. The 0.2% q/q rise in consumer …
The inflationary impact of tariffs for all President Trump’s various tariff threats would, if implemented in full, trigger a rebound in consumer price inflation later this year to between 3% and 4%, which would make it much harder for the Fed to resume …
28th January 2025
Fourth-quarter business equipment investment set to decline The fall in durable goods orders in December was due to the volatile transport component, whereas core and underlying capital goods orders both rose. While real underlying capital goods shipments …
News that Chinese start-up DeepSeek’s AI Assistant has usurped US OpenAI’s ChatGPT as the most downloaded free app on Apple’s App Store has dealt the US stock market a blow today, just a week after Stargate was launched to much fanfare. Exports from the …
27th January 2025
Newbuild demand remains a bright spot in otherwise frozen market The 3.6% increase in new home sales in December wraps up a solid year for newbuild demand in an otherwise stagnant housing market, with sales up nearly 3% over 2024 as a whole. We expect new …
The experience from other advanced economies is that there’s no hard and fast rule for how long it will take for the labour market to loosen in response to rate hikes by the Bank of Japan. But with the real policy stance set to remain loose, we expect the …
President Donald Trump’s first week back in office kicked off with a bang. He signed around 100 executive orders and strongly signalled that there were more policy changes to come. The week’s developments give us more confidence in our earlier assumptions …
24th January 2025
An especially ‘Blue Monday’ for Canadians President Trump used his first week (back) in office to double down on threats to impose a 25% tariff on imports from Canada, with the added detail that this could come into effect on February 1 st . As we …
Small rise in sales does not mark beginning of the recovery The small rise in existing home sales in December reflects deals that came together in September and October, when mortgage rates hit a nadir of 6.2%, getting across the line. Given the recent …
At face value, the latest batch of flash PMIs suggest that economic activity remained weak in Europe at the start of the year and lost some momentum in the US. Meanwhile, price pressures seem to be increasing everywhere, meaning that most central banks …
In the first glimpse into how the economy has started the new year, this week’s data took another turn for the worse. First, according to the CBI Industrial Trends Survey (ITS) of the manufacturing sector, in Q1, the optimism, expected activity and …
This page has been updated with additional analysis since first publication. Stagflation concerns remain at the start of 2025 Despite the small rise in the composite activity PMI from 50.4 in December last year to 50.9 in January, at face value it is …
Having hit a record high, we expect the trade-weighted US dollar to climb further in 2025. While the short-term danger that a strong dollar poses to the world economy tends to be overblown, the bigger risk is that is worsens external imbalances which …
The Bank of Japan signalled further tightening when it lifted its policy rate to 0.5% today. With inflation set to remain above its 2% target this year, we expect the policy rate to reach 1.25% next year. The Bank’s decision to lift interest rates to 0.5% …
BoJ signals further tightening As widely anticipated, the Bank of Japan resumed its tightening cycle with a 25bp rate hike to 0.5% at its meeting on Friday. And the Bank’s Outlook report suggests that there’s more to come: the Bank revised up its …
Bank of Japan will lift policy rate to 1.25% next year The Bank of Japan hiked its policy rate to 0.5% today and we think it will lift it to an above-consensus 1.25% by the middle of next year. The Bank’s decision to resume its tightening cycle with a …
Case for RBNZ to ease aggressively remains intact With data released this week showing that inflation in New Zealand remained subdued last quarter, it’s all but certain that the RBNZ will cut rates by another 50bp, to 3.75%, at its meeting next month. …
Flash PMI points to pick-up in activity this quarter The continued rise in the composite PMI to its highest point since Q3 last year supports our view that activity will pick up again this quarter. Today’s flash estimate showed that the manufacturing PMI …
Strength in underlying inflation points to further tightening The acceleration in headline inflation and strength in underlying inflation in December should add to the Bank’s confidence that it can resume rate hikes today and over the coming months. In …
23rd January 2025
Although developed market (DM) equities outside the US have purportedly benefited from bargain hunting recently, we doubt they will outperform their counterparts in the US over the course of 2025 as a whole. MSCI’s World ex USA Index of DM equities has …
Economists from our US, Europe and UK teams hosted this online briefing all about the first rate decisions of 2025 from the Federal Reserve, European Central Bank and the Bank of England. During the session, the team addressed key issues, including: How …
Heading for another strong quarter On the surface, the 0.4% decline in retail sales volumes in November looks worrying, but that fall partly reflects households delaying purchases ahead of the December GST holiday. Encouragingly, November’s drop appears …
Our analysis suggests that most of the recent rise in the household saving rate can be attributed to cyclical rather than structural factors, which means the saving rate will slowly fall as interest rates decline. That lends support to our view that …
Recent upside surprises to activity and core inflation could justify a pause However, with tariffs hanging over the economy, Bank will opt for a 25bp cut Bank set to call time on QT this year The recent pick-up in GDP growth and core inflation pressures …
22nd January 2025
Donald Trump’s ringing endorsement of Stargate is another shot in the arm for Artificial Intelligence (AI) in the early days of his second presidency, and supports our long-standing view that the S&P 500 will thrive in 2025 amid growing investment in, and …
We think Trump’s trade policies will weigh on equity returns outside of the US, making 2025 a year of muted returns for emerging market (EM) equities. But we think it will still be a decent year for stocks in other developed markets (DMs). (See Charts 1 & …
This page has been updated with additional analysis since first publication. Figures not as bad as they appear but challenges remain Against a backdrop of slowing GDP growth and high interest rates, December’s overshoot in borrowing is further …
We suspect that a Coalition government would run slightly tighter fiscal policy than Labor, which in turn may encourage the Reserve Bank of Australia to loosen monetary policy a bit more aggressively than we’re anticipating. But while we expect the …
This page has been updated with additional analysis since first publication. With price pressures continuing to abate, the RBNZ should have no qualms about cutting rates by another 50bp at its meeting next month. The 0.5% q/q rise in consumer prices last …
21st January 2025
The “America First Trade Policy” White House memorandum makes it clear that tariffs are coming, although we still have little clarity on the timing. There are some signs that a universal tariff could come later than in the second quarter as we have …
The economy continues to do well with GDP growing strongly, employment growth solid and core inflation pressures easing again. We are concerned, however, that the Trump administration’s policies will weigh on GDP growth over the course of this year. …
The precarious nature of the outlook for the Federal budget deficit is well appreciated at this stage, but arguably the bigger long-term risk is the mounting current account deficit . With the primary income balance no longer in surplus and the dollar …
Concerning signs despite GST-related fall in headline inflation The small fall in headline inflation to 1.8% in December is not as encouraging as it looks, with the details suggesting that a higher proportion of the GST holiday was captured by the price …
This page has been updated with additional analysis since first publication. UK wage growth rebounds further, but there are signs of cooling further ahead While the further rise in regular private sector pay growth in November will cause the Bank of …
We aren’t overly worried about the impact of higher bond yields on Japan’s public finances because rising interest rates are a direct consequence of higher inflation. With the effective interest rate on public debt set to rise only slowly, the net impact …
President Donald Trump returned to the White House today with pen already in hand to sign what is expected to be close to 100 executive orders. That flurry of executive action will set the tone on what we can expect from his administration in a wide range …
20th January 2025
The Bank of Canada’s latest business and consumer surveys support our view that GDP growth will pick-up this quarter and suggest there are some upside risks to our forecast for another 75bp of interest rate cuts this year. That said, given the threat of …
We know that the economy flatlined or suffered a small contraction in Q4. But that would have been much worse if not for what appears to be a rise in government spending, which will play an important role in driving GDP growth throughout 2025 too. With …
The federal government is planning to fight US tariffs with tariffs, but reports this week suggest that those would cover a far smaller value of goods than the US is likely to hit. The government has also failed to muster enough support from the …
17th January 2025
Real economy still firing on all cylinders The strong December employment figures were followed by news this week of solid gains in control group retail sales, industrial production and housing starts. As a result, we now estimate that fourth-quarter GDP …
The Chancellor was able to breathe a sigh of relief this week after favourable CPI inflation prints for December in both the UK (see here ) and the US (see here ) led to a reversal in last week’s leap in gilt yields. In fact, the 28 basis points (bps) …
Manufacturing output rebounds The strong rise in industrial production in December is consistent with the recent improvement in the survey evidence. However, we do not think this marks the beginning of a sustained recovery in the manufacturing sector. The …
