Slowing before entering recession The modest economic growth recorded by both France and Spain in Q3 was broadly in line with expectations and represents a significant slowdown from the second quarter. We expect both economies to go into recession in the …
28th October 2022
Window for tighter policy is closing The Bank of Japan revised up its medium-term inflation forecasts while keeping policy unchanged today, but we still think that it won’t snuff out the budding virtuous cycle between prices and wages. As widely …
Tokyo inflation to start falling next month The unemployment rate rose slightly in September on the back of a large jump in the labour force and a continued rise in the job-to-applicant ratio suggests that the labour market will continue to tighten. …
GDP rebounds, but underlying demand stagnating The 2.6% annualised rebound in third-quarter GDP looks impressive, but it was entirely due to a 2.7% boost from net external trade. Final sales to domestic purchasers, a better measure of underlying economic …
27th October 2022
ECB’s work is far from done The ECB is very likely to follow today’s 75bp rate hike with further aggressive increases in the coming months, even if we are right that the forthcoming recession will be deeper than most expect. The decision to maintain the …
Egypt’s central bank has just announced that it is shifting to a more flexible exchange rate regime, which we think will result in the pound falling 18% to 24/$ by end-2023 if not sooner. The move will result in some short-term economic pain but it will …
Further weakness ahead GDP growth in Korea slowed sharply in the third quarter of the year, and we think the economy will remain weak over the coming quarters as higher interest rates and weaker export demand weigh on prospects. According to figures …
Bank slows pace of tightening despite ongoing inflation concerns Today’s smaller 50 bp interest rate hike, which took the overnight rate to 3.75%, suggests that the Bank of Canada is growing confident that its actions so far will be enough to vanquish …
26th October 2022
Inflation hasn’t peaked yet The stronger-than-expected rise in consumer prices in Q3 is consistent with our forecast that the Reserve Bank of Australia will hike rates more aggressively than most anticipate. The 1.8% q/q increase in consumer prices last …
MNB to keep relying on unconventional tools to support the forint Hungary’s central bank (MNB) left its base rate on hold today and we expect that the central bank will continue to use its new “market stabilisation tools” to keep short-term interest rates …
25th October 2022
Yet more evidence of recession The Ifo Business Climate Index held up better than expected in October but was still extremely low. With other business surveys also persistently weak, we think Germany will experience the deepest recession among euro-zone …
PMIs point to rapid slowdown The drop back in the S&P Global composite PMI for the US to 47.3 in October, from 49.5, means that indicator has now been below the 50 boom-bust level for four months. Admittedly, the ISM survey indicators remain at much …
24th October 2022
Fiscal tightening still on its way as next PM has to work hard to restore credibility The fall in gilt yields on the news today that Rishi Sunak will become the UK’s next Prime Minister has reduced the chances of a significant fiscal consolidation. Even …
PMIs point more firmly to recession The decline in the composite flash PMI to 47.2 in October took it further below the boom-bust level of 50.0, placing it deeper into contraction territory, and sits with recent data that suggests the economy is heading …
PMIs show recession and high inflation The flash PMIs for October provide yet more evidence that the euro-zone is sliding into quite a deep recession but that inflationary pressures remain intense. The decline in the flash euro-zone Composite PMI from …
Omicron hit reversed but momentum still weak Growth ticked up in Q3 as China's economy recovered from the Omicron wave. But this leaves output only slightly higher than where it started the year. And momentum is already weakening again. GDP growth picked …
Fiscal tightening on its way as next PM has to work hard to restore credibility The weakness in retail sales and further overshoot of the OBR’s March public borrowing forecast won’t make the next Prime Minister’s task any easier in navigating the economy …
21st October 2022
Weaker yen means higher inflation for longer Headline inflation remained at a three-decade high in September and will climb slightly higher by early 2023. That said, the Bank of Japan will remain steadfast in maintaining its ultra-easy monetary policy. …
New Prime Minister will have to work hard to restore credibility Although the resignation of Liz Truss as Prime Minister leaves the UK without a leader when it faces huge economic, fiscal and financial market challenges, the markets appear to be relieved. …
20th October 2022
CBRT inches further into the unknown Turkey’s central bank stepped up its easing cycle with a 150bp interest rate cut (to 10.50%) today but hinted that the easing cycle will end next month. Even so, policymaking is stretching further into the unknown and …
BI has more work to do Bank Indonesia today raised its main policy rate by 50bp (to 4.75%), and further rate hikes are likely in the near term as the central bank looks to support the currency and clamp down on inflation. A rate hike today was always …
Unemployment rate will remain low for now Australia’s labour market is starting to sputter but with unemployment set to remain low, the RBA will continue to hike interest rates. The number of employed people rose by just 900 last month, well below the …
Weaker yen an obstacle to deficit narrowing again The trade deficit narrowed from its record high in August, but with the yen weakening dramatically in recent days, any further narrowing of the deficit will likely be delayed. Export values accelerated to …
Strength of core inflation points to another 75 bp hike The Bank’s core CPI inflation measures were unchanged in September but, given that we expected a decline due to more favourable base effects, that probably increases the odds of another 75bp hike …
19th October 2022
Underlying inflation still strengthening despite weakening economy The rebound in CPI inflation, from 9.9% in August to 10.1% in September (consensus 10.0%, CE 10.2%), lends some support to our view that the Bank of England will raise interest rates by …
Manufacturing can’t deft gravity for much longer The 0.4% m/m gain in manufacturing output in September, together with some modest upward revisions to previous months, suggests that the factory sector is just about holding up despite the deterioration in …
18th October 2022
Strong inflation will prompt further rapid hikes The much stronger than expected rise in consumer prices in Q3 will encourage the Reserve Bank of New Zealand to hike rates by another 50bp at its November meeting and poses upside risks to our view that it …
17th October 2022
Fiscal uncertainty reduced, but inflation may be higher for longer The Chancellor didn’t just do a further U-turn on the Truss/Kwarteng policies in his statement today, he essentially wiped them out in an attempt to reassure the financial markets that the …
Confidence boosted by lower energy prices The University of Michigan’s consumer confidence index rebounded slightly to 59.8 in October, from 58.6, as the impact of lower gasoline prices and still-strong labour market conditions just about outweighed the …
14th October 2022
Government still has a lot more to do to restore credibility Today’s sacking of the Chancellor and reversal of more of the tax cuts included in the mini-budget creates some downside risks to our forecast that interest rates will rise from 2.25% to 5.00% …
Real consumption growth muted as higher rates bite With retail sales unchanged in September there is still little evidence that the boost to purchasing power from the earlier sharp fall in gasoline prices has helped real consumption. Energy prices are now …
Core inflation continues to ease Consumer price inflation rose to a 29-month high in September and is now scraping up against the government’s preferred ceiling of 3%. But this was due to a rise in food inflation that is likely to prove temporary. With …
Continued hot inflation raises risks that 75bp hikes will keep coming The stronger than expected 0.4% rise in consumer prices in September, driven yet again by a stronger increase in core prices, nails on a 75bp rate hike at the November meeting and, in …
13th October 2022
Fed remains in hawkish mood for now While the minutes provided some hints that Fed officials are beginning to lay the ground for a slower pace of rate hikes eventually, the overall tone was still hawkish, suggesting that the Fed will push ahead with …
12th October 2022
The rise in headline consumer price inflation in September to further above the RBI’s 2-6% target range challenges our view that the RBI will slow the pace of tightening. But with food and energy inflation now set to lastingly drop back and growth likely …
Economy losing more momentum as the markets fret The 0.3% m/m fall in GDP in August (consensus and CE 0.0%) won’t ease the jitters in the financial markets at a time when the recent behaviour of politicians and the words of the Governor of the Bank of …
BoK hikes rates again, but tightening cycle drawing to a close The decision by the Bank of Korea to raise its policy rate by a further 50bp (to 3.0%) suggests the central bank’s near-term focus will remain on combating inflation. But with growth set to …
Q3 investment growth outlook still strong Although “core” machinery orders dropped sharply in August due to a crash in non-manufacturing orders, Q3’s average still points to an expansion in non-residential investment growth this quarter, chiming with …
Labour market won't make the Bank of England's task any easier While there were tentative signs that the labour market is cooling from the red-hot conditions seen in recent months, the shortfall in labour supply is keeping it exceptionally tight. That …
11th October 2022
Hours worked fall despite modest rebound in employment The first rise in employment in four months in September is not as strong as it looks as it was driven entirely by public sector employment, while the fall in hours worked points to downside risks to …
7th October 2022
Labour market conditions cooling only gradually The 263,000 gain in non-farm payrolls in September is another signal that labour market conditions are cooling. But with the unemployment rate dropping back to 3.5% the report is unlikely to significantly …
Industrial contraction to drag Germany into recession The larger-than-expected drop in German industrial production in August was driven mainly by some volatile components and suggests industrial output may have held up better than we had anticipated in …
No sign of FX sales, but PBOC pushing back in other ways The decline in China’s foreign exchange reserves appears to be due to valuation effects rather than direct intervention in the FX market. But we still think the PBOC will try, and may well succeed, …
August surge largely due to favourable base effects Labour cash earnings jumped in August, but this was largely due to favourable base effects for hours worked and should slow over coming months. Preliminary estimates for August showed overall earnings …
Account shows hawks still ruling the roost The account of the September ECB meeting confirms that there was a strong consensus in favour of rapid policy normalisation. Since the September meeting, inflation has again increased more than expected, …
6th October 2022
Having prepped the market well beforehand, OPEC+ announced a 2mn bpd cut to its production quota from November. Of course, given that the group has been producing significantly below its quota, the decline in physical supply will be much less, though …
5th October 2022
Services activity growth looks set for sharper slowdown soon The marginal fall in the ISM services index to 56.7 in September, from 56.9, suggests activity in the sector is still holding up well and leaves a weighted average of the two ISM surveys …
NBP now looking through the inflation figures Poland’s central bank (NBP) left interest rates unchanged at 6.75% today, which is a big surprise after data released last week showed a larger-than-expected rise in inflation in September. The accompanying …
Weak export volumes a risk to third-quarter GDP growth The drop in export volumes in August and the large downward revision to the trade surplus in July present downside risks to our already-weak estimate for third-quarter GDP growth of 0.8% annualised. …
Surging exports keeping economy afloat The further sharp decline in the nominal trade deficit to $67.4bn in August, from $70.5bn, means that net exports provided a big boost to third-quarter GDP growth. But the twin drags from the surging dollar and the …
