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Streets of Baltimore The collapse of the Francis Scott Key bridge, which was hit by an out-of-control container ship this week, could result in a lengthy disruption to the Baltimore port. Nevertheless, since that port is the 15 th largest in the country, …
28th March 2024
Inflation risks linger on At first glance, it would appear that much of the data released this week went the way the RBA was hoping. First, we found out that CPI inflation is on track to undershoot the Bank’s expectations this quarter. Second, retail …
BoJ won’t provide much help in supporting yen With the yen hitting a 34-year low of just under 152 against the dollar on Wednesday, the Ministry of Finance’s Masato Kanda noted that the government will respond resolutely to “excessive” yen weakness and …
The Fed wasn’t as hawkish as we had expected this week and, assuming the recent upturn in core inflation proves temporary, there is still a good chance that interest rate cuts will begin in June. Fed content with more gradual inflation fall Despite recent …
22nd March 2024
The surprise fall in February leaves CPI inflation on track to average 2.8% this quarter, well below the Bank of Canada’s forecast of 3.2%. As the decline in inflation pressures was broad-based, there is a growing likelihood that the Bank of Canada will …
The Bank of England was never going to do anything except keep interest rates at 5.25% this week, but we and the financial markets were surprised that it took further steps in preparing the ground for the first interest rate cut. (See here .) As a result, …
Rate cut in August remains plausible At its meeting earlier this week, the RBA dialled down its hawkish bias, with Governor Bullock noting that “the risks to the outlook are finely balanced”. However, her statement may well have been a little premature. …
Run-off in bond holdings will accelerate The Bank of Japan didn’t disappoint at this week’s meeting as the Bank ended negative interest rates, Yield Curve Control and its ETF purchases. Even so, 10-year JGB yields declined and the yen weakened to as low …
Fed to stress caution amid inflation uncertainty We still expect the Fed to cut interest rates in June, although we don’t expect officials to provide a strong steer either for or against at next week’s FOMC meeting. The updated Summary of Economic …
15th March 2024
Households are offsetting the impact of high interest rates by paying down less of their debt. While that has helped the economy to avoid recession, it also suggests there will be less of a boost from interest rate cuts than in the past, because …
January’s GDP figures received the most attention this week, mainly as they suggested the economy may have exited recession. (See here .) But while there was better news on demand, the same cannot be said for the supply-side of the economy. The rise in …
BoJ set to unwind negative rates next week A preliminary tally published by the Japanese Trade Union Confederation (RENGO) today showed that pay hikes in this year’s spring wage negotiations (Shunto) reached 5.28%, up sharply from 3.6% last year and the …
Property downturn set to weigh on iron ore prices As our China team explains here , the downturn in China’s construction sector has barely started but once it does happen, it could knock off one percentage point from GDP growth. Australia got a glimpse of …
Governor Tiff Macklem dropped a hint this week that the Bank of Canada may be ready to cut rates by June. There was little in the data to dissuade the Bank, with unemployment rising and bankruptcies surging, while a productivity rebound pulled down unit …
8th March 2024
Fed Chair Jerome Powell’s congressional testimony struck a notably less hawkish tone than we have heard recently from some of his colleagues. And with the economic data this week providing little support for the idea of a renewed upturn in inflation, we …
Much ink has been spilled on the Spring Budget this week. For our part, we discussed the macroeconomic and financial market implications in our UK Drop-In and in our UK Economics Focus . The main takeaway is that while the Chancellor was desperate to use …
Household spending could be at a turning point The big news out of Australia this week was that the economy just barely managed to limp along last quarter. To be sure, the 1.5% annual rise in real GDP in Q4 was broadly in line with what the RBA had …
The recession that probably wasn’t Developments over the past week have increased the chances that the Bank of Japan will end negative rates in March rather than our current forecast of April. For a start, following several weeks of discouraging data on …
The return to growth in the fourth quarter means it is probably safe to say that the economy has avoided recession, but that is mainly due to rapid immigration. Per capita GDP fell for the fifth quarter running and is now barely higher than in 2016. Ahead …
1st March 2024
Following the more hawkish speeches from Fed Vice Chair Philip Jefferson and Governor Christopher Waller last week, that tone continued this week – with regional Fed Presidents including New York’s John Williams repeating the suggestion that interest rate …
Could there be a tax-cutting Budget bombshell? The rumours this week suggest that the Chancellor may have a bit less to play with in the Budget on Wednesday 6 th March than the £15bn we estimated. As a result, he seems to be considering more revenue …
Third contraction in GDP now likely We doubt that the slump in industrial output in January will prevent the Bank of Japan from ending negative rates over the coming months, but the recent string of disappointing data reinforces our view that this will …
More good news for the RBA The Reserve Bank of Australia should take comfort from the fact that most of the data released this week point to a better balance between demand and supply in the economy. On Wednesday we learnt that CPI inflation came in at …
The encouraging January CPI data mean that the Bank of Canada’s April policy meeting is back in play for a potential interest rate cut, although it still seems more likely that the Bank will wait until June – unless the economic and labour market data …
23rd February 2024
Fed to delay first rate cut until June Fed to wait until June Based on comments from Fed officials this week, we now expect the Fed to wait until June to begin cutting interest rates. Moreover, when it does begin to loosen policy, we suspect that the Fed …
Disappointing economic and fiscal forecasts from the OBR haven’t prevented the Chancellor, Jeremy Hunt, from unveiling a splash at previous fiscal events. This time last year, he was handed £14.5bn of headroom against his fiscal mandate to ensure the …
Import volumes weakest since 2020 We’ve been arguing that Japan is not in recession even though GDP has fallen for two consecutive quarters. However, February’s soft flash PMI and the large fall in imports in January hardly instil confidence in the …
RBA won't hike rates again Flash PMI data released yesterday showed that Australia’s composite output index jumped to a 10-month high of 51.8 in February. The index is now consistent with annual real GDP growth of about 2.0% in Q1 (see Chart 1), which …
PPI a kick in the teeth for inflation doves Mea Culpa The much stronger-than-expected 0.5% m/m increase in core PPI in January came as a hammer blow for PCE estimates, since the overshoot was mostly in the portfolio management and health care-related …
16th February 2024
Signs of healthy growth going into the first quarter support our view that the Bank of Canada will probably wait until June to pivot to rate cuts. Signs of positive activity in the first quarter The latest January data has brought signs that growth could …
It’s debatable whether the 0.1% q/q and 0.3% q/q contractions in real GDP in Q3 and Q4 2023 should be labelled as a recession given the falls were so small. While it satisfies the usual definition of a recession being two consecutive quarters of falling …
Services inflation will slow sharply Australian labour market data published yesterday garnered considerable attention, largely because they showed that the unemployment rate overshot analyst expectations and jumped to a two-year high of 4.1%. However, we …
Japan’s economy is not in recession The preliminary estimate of Q4 GDP showed the second consecutive contraction in output, but we doubt it will scupper the BoJ’s plans to end negative interest rates. For a start, the quality of Japan’s preliminary GDP …
The strength of the labour market in January is another reason to think that the Bank of Canada can wait a little longer before it starts to cut interest rates. Bank’s latest communications give little away Governor Tiff Macklem gave little away in his …
9th February 2024
Bond vigilante fiddle, as budget burns Budget on an unsustainable path The CBO released new budget projections this week showing the Federal deficit falling only slightly from 6.2% of GDP in fiscal year 2023, to 5.3% in 2024. The deficit is then expected …
A lot of data is being released next week and it might not be a good look for the UK economy. The release of January’s CPI inflation figures on Wednesday may reveal a second rise in as many months, from 4.0% in December to 4.1%. Within that, both core and …
RBA’s hawkish bias will be put to the test While the RBA’s decision to leave rates on hold on Tuesday didn’t surprise anyone, the Bank’s Monetary Policy Statement did raise a few eyebrows. In contrast to a number of its developed-market counterparts, the …
External demand strong, domestic demand weak The Q4 GDP data due next week are likely to show that the economy staged a partial rebound after the sharp contraction in Q3. But the details will probably confirm that domestic demand remained weak. Indeed, we …
8th February 2024
First rate cut delayed until May Based on the steer provided by Fed Chair Jerome Powell halfway through this week’s press conference, we now expect the first Fed rate cut to come at the early-May FOMC meeting rather than in mid-March, with the Fed cutting …
2nd February 2024
The upside surprise to fourth-quarter GDP should, somewhat counterintuitively, make the Bank of Canada more confident that inflation is heading back to 2% because it implies that productivity has rebounded. Nonetheless, with the Federal Reserve pushing …
The Bank of England caused a lot of waves in the media and some ripples in the markets this week. But it hasn’t altered our thinking that lower inflation than the Bank of England expects will mean rates are cut from 5.25% to 5.00% in June and all the way …
Kishida pushing for wage increases PM Kishida pledged on Tuesday that the government will “take all possible steps” to raise real incomes this year. While he mentioned no new measures, his government recently rolled out tax breaks for firms that offer …
RBA will soon be gearing up for rate cuts… CPI data released this week bolstered our conviction that the Reserve Bank of Australia will loosen policy in Q2, rather than in Q4 as the analyst consensus is predicting. For one thing, both headline and trimmed …
It is hard to say which is more remarkable: that GDP growth accelerated last year following the Fed’s most aggressive tightening campaign in decades, or that core inflation nevertheless fell back to the 2% target in annualised terms over the second half …
26th January 2024
The outlook for monetary policy all depends on whether the Bank of Canada is willing to act based on where it thinks shelter inflation is heading, rather than its current rate. The Bank’s communications suggest it is starting to move in that direction, …
In last week’s UK Economics Weekly we highlighted the lingering upside risks to inflation, which were emphasised in this week’s release of January’s flash PMIs. (See here .) But this week, we need to talk about the risk of deflation. We’ve been …
Tokyo inflation won’t remain below 2% for long At its meeting on Tuesday, the Bank of Japan sounded increasingly confident that it will be able to meet its 2% inflation target on a sustained basis. And the minutes of the Bank’s December meeting released …
Much ado about nothing The headlines this week were dominated entirely by the Australian government’s decision to redesign the Stage 3 income tax cuts that are due to take effect on July 1 st . The long and short of it is that the government wants to …
We argued last week that there was little to support the idea that the “last mile” of getting inflation back to 2% will somehow be the hardest. But new data on rent inflation released this week raise the possibility that the disinflationary process won’t …
19th January 2024
There was little for the Bank of Canada to be encouraged by this week, with evidence of a further deterioration in the economy yet little sign of a fall in inflation expectations or downward pressure on core inflation. That puts the Bank in a tricky …
