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This week both the Conservative and Labour Party have been quick to tell us about ‘financial black holes’ in their opponent’s tax and spending plans. But there are two big things neither party is telling us. First, sticking to their fiscal rules means …
7th June 2024
Regular earnings growth hits 30-year high At first glance, the jump in regular earnings growth to a 30-year high of 2.3% in April is a clear sign that the strong pay hikes agreed in this year’s spring wage negotiations (Shunto) are filtering through. …
GDP growth set to undershoot RBA’s forecasts Australia last quarter recorded the weakest annual GDP growth since the early-1990s recession, leaving aside the pandemic. If the measly 0.1% q/q rise in output last quarter was repeated this quarter, annual …
The weaker-than-expected first-quarter GDP data and downward revision to fourth-quarter growth caused markets to price in a higher chance that the Bank of Canada will cut interest rates next week. With consumption growth strong, however, we still think …
31st May 2024
Trump conviction won’t sway the election Trump campaign won’t be decided by courts We doubt that Donald Trump’s New York felony conviction on charges of falsifying business documents will have any significant impact on the presidential election …
With both Labour and the Conservatives this week ruling out increases in income tax, national insurance and VAT, it remains difficult to see how cuts to public services can be avoided after the election. (For all our election analyses, see here .) But …
Fertility rate may have fallen to fresh lows According to some estimates , Japan’s fertility rate fell from 1.26 in 2022 to 1.21 last year. Although higher than in some other Asian economies, for Japan this would still be a fresh record low. (See Chart …
Disinflation stalling The economic data released this week once again highlighted the dilemma the Reserve Bank of Australia finds itself in. On the one hand, the April Monthly CPI Indicator showed the second consecutive rise in both headline and trimmed …
The further fall in headline inflation in April, to a three-year low of 2.6%, means the 2% target could be achieved as soon as August. Whether the Bank of Canada cuts interest rates in a couple of weeks or waits until July, our key message is that the …
24th May 2024
Fed in wait-and-see mode Fed to proceed with caution The minutes of the Fed’s early May policy meeting were, not surprisingly given the backdrop of data releases ahead of that meeting, somewhat hawkish. The resilience of economic growth and employment, …
It’s tempting to think that every bit of economic data released between now and the general election on 4 th July will make a difference to who will be Prime Minister on 5 th July. Inevitably, data releases will be written up as “good” or “bad” for Sunak …
Inflation rapidly losing momentum The economic data released over the last couple of weeks hardly suggest that the Bank of Japan should tighten monetary policy any further. After all, GDP plunged by 0.5% q/q in Q1 and the April inflation data released …
Households seem keen on saving more The minutes of the RBA’s May meeting confirmed that the Bank discussed a rate hike in response to the upside surprises in inflation and the labour market, but ultimately decided against it. One reason was that the …
The further evidence of softer activity this week might not be enough to persuade the Bank of Canada to cut interest rates in June, but they add to our sense that rate cuts are coming very soon. Momentum fading going into Q2 The recent data suggest that …
17th May 2024
New tariffs much ado about nothing The Biden administration’s announcement this week of an increase in tariffs on hi-tech & green-related goods imports from China will have little impact. The biggest change ostensibly was the announcement that the tariff …
We’ll be discussing the outlook for UK inflation and interest rates in a 20-minute online briefing at 9.30am BST on Wednesday 22nd May shortly after the release of April's CPI data. (Register here .) Next Wednesday’s release of April’s CPI inflation data …
BoJ starting to scale back bond purchases The 0.5% q/q fall in Q1 GDP was the second fall over the last three quarters. With GDP unchanged in Q4, Japan barely escaped a recession. What’s more, with real consumption falling for four consecutive quarters, …
Budget leaves much to be desired The headlines this week were dominated entirely by the contentious 2024/25 Federal Budget , which some commentators have described as “smoke and mirrors”. We certainly sympathise with those who take umbrage at Treasurer …
Markets brace for April data dump After a quiet week for data this week, following April’s softer Employment Report, things will heat up again next week with April’s CPI report. CPI the new king of data releases CPI is now undoubtedly the most …
10th May 2024
The strength of the April labour market data means we now expect the Bank of Canada to begin its loosening cycle in July, rather than June. Nonetheless, the sharp growth in labour supply and moderation in wage growth means we remain confident in our view …
With the Bank of England hinting on Thursday that it is close to cutting interest rates and that rates may need to fall further than investors expect, we have become a bit more confident in our view that, due to low inflation, rates will be cut from 5.25% …
Production shutdowns now over If we’re right and the GDP data due next week show a 0.6% q/q drop in output, that would mark the second fall in just three quarters. The recent weakness largely reflects a slump in industrial output at the start of the …
A tricky balancing act At its meeting this Tuesday, the Reserve Bank of Australia continued to leave rates on hold, contrary to our expectations that the Bank would feel compelled to take out some additional insurance in the form of a 25bp hike. To be …
After 12 long years, the Trans Mountain oil pipeline expansion finally entered commercial service this week. The pipeline has the potential to raise oil exports significantly, but the full boost is unlikely to be felt for some time. The project increases …
3rd May 2024
We’ll be discussing the outlook for Bank of England policy in a 20-minute online briefing at 3pm BST on Thursday 9th May. (Register here .) OECD too downbeat We think the OECD’s new forecast that the UK will grow at a slower rate in 2025 (of 1.0%) than …
Government intervenes in FX market yet again As Japanese markets were closed due to Sh ō wa day, the yen surpassed 160 against the dollar in thin trading on Monday, the weakest it has been since the mid-1980s. While the Ministry of Finance refused to …
RBNZ caught between a rock and a hard place We learnt this week that New Zealand’s labour market deteriorated further last quarter. On the back of unexpected job shedding, the unemployment rate rose from 4.0% to 4.3% in Q1, above the RBNZ’s forecast of …
Have soft landing hopes been dashed? GDP growth slows, but stronger under the hood The slowdown in first-quarter GDP growth to 1.6% annualised, from 3.4%, was more marked than expected, but it was principally due to a bigger drag from the net exports …
26th April 2024
The latest Summary of Deliberations showed division among the Governing Council about when it will be appropriate to cut interest rates. The data released since the April meeting favour the doves, however, so we are sticking to our view that the first cut …
Recovery in activity won’t stop ECB rate cuts This week brought some more evidence that the euro-zone economy is coming out of recession. The euro-zone Composite PMI rose more than expected in April, to a level consistent with GDP expanding slightly. …
This week the FTSE 100 broke through the 8,000 mark for the first time since its brief three-day flutter in February last year and reached a record high of 8,100. This appears to be justified based on the recent improvement in economic activity. Indeed, …
Wage increases becoming more widespread The Bank of Japan’s measures of underlying inflation suggest that the case for further policy tightening is diminishing as two out of three indicators fell below the Bank of Japan’s 2% target in March. (See Chart …
The last mile will be the hardest The release of Australia’s quarterly CPI data this Wednesday made for grim reading. With price pressures proving more stubborn than most had anticipated, markets have now given up any hopes that the RBA will cut rates …
Protectionism seen as a vote winner by both parties After Fed Chair Jerome Powell acknowledged this week that there has been a “lack of further progress” on lowering inflation this year, markets dialled back rate cut expectations, with the first 25bp …
19th April 2024
Budget 2024 made a bit of a splash thanks to the unexpected changes to capital gains taxes, but we do not think the new net spending measures were large enough to change the outlook for GDP growth or interest rates this year. The encouraging March CPI …
In the previous Weekly we said “the risks are tilted towards inflation proving sticker and rate cuts happening a bit later”. This week’s global and domestic events have left our forecast that interest rates will first be cut from 5.25% in June and will …
We’ll be discussing what a stronger-for-longer dollar means for the Japanese policy outlook and the yen in a 20-minute online briefing at 9am BST/4pm SGT on 26th April . (Register here .) Yen falling to fresh low but no intervention yet The yen …
RBNZ to watch and wait for longer On Wednesday we learnt that inflation in New Zealand moderated from 4.7% in Q4 to 4.0% in Q1. At first glance, that outturn was only a touch stronger than the 3.8% the RBNZ had predicted. However, the details of the CPI …
The third consecutive 0.4% m/m increase in core CPI in March, coming on the heels of the 303,000 surge in non-farm payrolls, fuelled fears that a pick-up in the real economy is now translating into a resurgence in inflation too. We are not convinced. …
12th April 2024
Finance Minister Chrystia Freeland’s pledge to create the conditions needed for lower interest rates means the government is unlikely to announce much new near-term spending in Budget 2024 next week. Providing that core inflation pressures remain muted, …
Where the US leads, the UK often follows. So the rebound in the US CPI inflation rate from 3.2% in February to 3.5% in March and the unchanged core CPI inflation rate of 3.8% has spurred fears that the downward trend in UK inflation will soon stall. In …
Markets fret inflation risks The RBNZ’s meeting this Wednesday went by without much ado, with the Bank leaving rates unchanged as everyone had expected. If anything, the Committee sounded a touch dovish, as it no longer mentioned its limited tolerance for …
Yen falling to fresh 34-year low Following a hotter-than-expected US inflation print, the yen has now weakened to 153 against the dollar for the first time since 1990. Bank of Japan Governor Ueda explicitly ruled out responding to the weakness of the …
The insolvency data released this week show the toll that high interest rates are putting on consumers and businesses. That is unlikely to be enough to persuade the Bank of Canada to cut interest rates next week but, with the cracks in the labour market …
5th April 2024
Supercore inflation fundamentals still improving Inflation fundamentals improving This week brought more good news on the outlook for so-called supercore inflation. Core services (ex-housing) prices, aka supercore, are the most labour-sensitive component …
Whether you’re a monetarist or not, it’s hard to ignore the big rise in the annual growth rate of M4 money coming out of the pandemic being a harbinger of the surge in CPI inflation. Shortly before CPI inflation surged from 0.3% in November 2020 to a …
No rush to cut rates The minutes of the RBA’s March meeting, published earlier this week, revealed that the Bank has now abandoned its tightening bias. Indeed, for the first time since May 2022, the Board didn’t discuss the option of raising rates higher. …
Tankan points to persistent strength in inflation Bank of Japan Governor Ueda today provided the strongest hint yet that the Bank is keen to hike interest rates further in the second half of the year. He noted that the probability of attaining a …
The economy made a strong start to 2024, but that was partly due to the end of strike disruption and the record warm winter. We expect GDP growth to slow sharply next quarter, persuading the Bank of Canada to start its loosening cycle in June. GDP surges …
28th March 2024
Everyone knows that one reason why the recession was so small and short is because higher interest rates had a smaller drag on the economy than in the past. But it’s less appreciated that future interest rate cuts may not boost the economy as much either. …
