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Stronger-than-expected growth unlikely to prevent September rate cut The sharper-than-expected pick-up in second-quarter GDP growth to 2.8% annualised should make the Fed a bit more comfortable about keeping policy unchanged next week, but the recent …
25th July 2024
Overview – Inflation still looks set to be in line with central banks’ targets next year (see Chart 1), but upside risks have increased outside the US. With the sharp falls in energy and food inflation behind us, disinflation has slowed amid …
Following a wobbly period around the turn of the year, the economy is on the mend and should gather further momentum as real wage growth turns positive in the second half of the year. With goods inflation still having strong momentum, we now expect the …
Alongside its decision to cut interest rates today, the Bank of Canada struck a more dovish tone than in June, supporting our forecast that another cut is coming at the next meeting in September. The Bank’s second 25 bp cut, taking the policy rate to …
24th July 2024
The latest flash PMIs suggest that while GDP growth probably slowed in Europe at the start of Q3, it continued to recover in Japan. Although the rise in shipping costs has caused manufacturers’ input prices to rise, central banks may take comfort from the …
Today’s sell-off in the US stock market in the wake of a poor reception to yesterday’s results from the first two members of the ‘Magnificent 7’ to report during this earnings season is likely to have reassured those arguing we are in the early stages of …
New home sales remain weak New home sales were essentially unchanged in June after their 15% slump the month before, not helped by mortgage rates which remained stubbornly high at around 7%. So far in July, borrowing costs have declined and currently sit …
Gradual loosening cycle continues and another cut in September looks likely Following its interest rate cut today, the Bank of Canada reiterated that further cuts are likely if inflation continues to ease in line with its expectations. Our forecast for …
Disinflationary trend broadening out Fed officials growing more concerned about labour market downside risks Interest rate cut likely in September With the disinflationary trend broadening out and the unemployment rate rising, recent comments from Fed …
GDP growth appears to be slowing at the start of Q3 July’s composite PMI suggests some of the recent rebound in activity this year may have been due to catch-up growth following the weakness of activity last year and GDP growth is easing towards a more …
Bank has pledged that it will keep tightening policy if inflation evolves as expected If anything, weak yen creates upside risks to Board’s inflation forecasts Bank will hike its policy rate by 20bp in both July and October At its upcoming meeting, we …
Recovery will retain momentum across second half of 2024 The strong rebound in the composite PMI in July suggests that the recovery of Japan’s economy will continue across the second half of the year. According to the flash estimate released today, the …
There are several structural factors that explain the underperformance of Canadian productivity growth compared to the US since the 1980s, but the underperformance in the last few years specifically reflects more cyclical factors including extremely …
23rd July 2024
Spike in rates takes sales to 13-year low The sharp rise in mortgage rates in April was the catalyst for existing home sales falling to a 13-year low in June. However, borrowing costs have since receded and timelier indicators of activity such as mortgage …
Which commercial real estate markets are set to recover first, and where will recovery be strongest? The Capital Economics real estate team has been looking closely at the comparative performance of the US, European and UK markets to advise clients on …
Without wishing to downplay the ugly fiscal picture, we think the new government is overplaying the gloom. We suspect more optimistic economic forecasts and various tweaks to the fiscal rules will save the new Chancellor from hitting the electorate with …
We doubt the independent pay review bodies’ recommendations for the government to give teachers and NHS staff a 5.5% pay rise will prevent wage growth from slowing to 3.0% by the end of next year. But if the government chooses to extend this pay rise to …
Much of the recent resilience in Australia’s house price growth can be attributed to a handful of capital cities where the property markets have gone from strength to strength. We believe that there are a number of factors that help explain the divergence …
The recent set of mild inflation data and growing concerns among Fed officials about downside risks to the labour market reinforce our view that the first interest rate cut will come in September. We forecast that core PCE inflation will return to the 2% …
22nd July 2024
Overview – House prices will probably remain flat for the rest of 2024, but lower mortgage rates will provide scope for prices to beat expectations next year. Indeed, our forecast that Bank Rate will be lowered by more than investors anticipate suggests …
The dramatic departure of Joe Biden throws fresh uncertainty into the US presidential election race. With just over three months to go, Democrats are scrambling to agree a candidate and Donald Trump is looking only slight less likely to win in November in …
After his disastrous debate performance, President Joe Biden has dropped out of the race to be re-elected in this November’s election. His withdrawal letter acknowledges Vice President Kamala Harris as “an extraordinary partner in all this” and, in a …
21st July 2024
In the latest episode of The Weekly Briefing from Capital Economics, Chief Global Economist Jennifer McKeown speaks about the macroeconomic implications of the global IT outage before going on to explain what’s happening to the world inflation and …
19th July 2024
Despite some measures of monthly core price growth remaining above the rates consistent with 2% inflation, the June CPI release on the whole supported the case for another interest rate cut from the Bank of Canada next week. Downward trend in inflation …
Shelter disinflation adds to case for September rate cut Fed officials back September rate cut In comments ahead of the pre-July FOMC blackout that begins this weekend, Fed officials appeared open to a September rate cut. On Monday, Chair Jerome Powell …
Cracks in consumption getting larger After a brief rebound in April, the renewed fall in retail sales volumes in May suggests that consumption growth is weakening again. We estimate that sales volumes fell by around 1% annualised in the second quarter, …
This page has been updated with additional analysis since first publication. Limited wiggle room for the new Chancellor June’s disappointing public finances figures suggest that public borrowing is on track to come in a little higher than the OBR’s …
Mof intervenes again All signs are that Japan’s government sold US dollars to support the yen on Thursday and Friday last week. Bank of Japan data suggest that the intervention was a bit smaller than previous ones, perhaps because the yen was already …
A policy pivot is imminent If the RBNZ had any doubts that it had broken the back of inflation, they will have been quashed by the slew of weaker-than-expected data releases this week. Accordingly, we’re bringing forward our forecast for the Bank’s first …
This website has been updated with additional analysis since first publication. Inflation will remain above target until early-2025 While the Bank of Japan will still see the July Tokyo CPI before its meeting later this month, the June nationwide figures …
With the share of non-performing CMBS loans on the rise, and plenty of loans set to refinance onto a higher rate this year, recent data provide further evidence that distress will rise both this year and next as we expected. However, while there is still …
18th July 2024
DM central banks may not be done raising rates – a too-hot Australian Q2 inflation report on 31 st July could push the RBA to hike at its meeting the following week. Our ANZ and Markets teams still think there’s a case for the Bank to hold, and they …
This page has been updated with additional analysis since first publication. Encouraging, but interest rates may not be cut in August While the easing in wage growth in May was broadly in line with what the consensus and the Bank of England expected, it …
This page has been updated with additional analysis since first publication. A loosening labour market should forestall further rate hikes Although job growth remained healthy last month, it didn’t prevent the unemployment rate from rising anew. And we …
Drag from net trade will moderate Q2 GDP rebound While the widening of the trade deficit in June points to a sizeable drag from net exports on Q2 GDP growth, activity should still have rebounded last quarter. The 5.4% y/y rise in export values was weaker …
Totality of the data supports another cut Downside risks to activity rising, upside risks to inflation falling Bank to cut interest rates by 25bp at each meeting until 2.50% Despite stronger core price pressures in May and June, the totality of the data …
17th July 2024
A recent surge in the Russell 2000 after the US CPI report for June was published last week has prompted claims that we are entering the initial stage of a secular rotation into US small-cap stocks. We are not convinced, for four reasons. First, what has …
Manufacturing sector bucking negative tone of the surveys The rise in manufacturing output in June was better than we expected based on the small fall in hours worked, but it owed a lot to a rebound in motor vehicle production, which seems unlikely to be …
Multi-family driven increase in housing starts The rise in housing starts and building permits in June is not as good as it seems at first glance, as it was driven by gains in the volatile multi-family sector, which we think will prove temporary. …
This page has been updated with additional analysis since first publication. We’re holding a 20-minute online briefing at 9.30am BST on Thursday 18 th July to discuss how today’s CPI and tomorrow’s labour market releases influence the chances of a rate …
In the latest episode of The Weekly Briefing from Capital Economics, Chief North America Economist Paul Ashworth reflects on a couple of crucial inflation reports, explaining how they’ve shifted the disinflation narrative and could even lead to even more …
This page has been updated with additional analysis since first publication. With inflation falling rapidly, the RBNZ’s August meeting is now “live” Today’s CPI release confirms that inflation is all but certain to return to the RBNZ’s 1-3% target by Q3. …
Housing market turning a corner Further interest rate cuts from the Bank of Canada should breathe some life into the housing market in the coming months, but the dimmer outlook for rent growth and apartment prices present downside risks to construction. …
16th July 2024
Many households have left western metros in favor of those in the South over the past two years. With remote working looking like a permanent fixture of office-based jobs and affordability significantly stretched in the West, we do not expect to see a …
Overview – We expect mortgage rates to continue falling, but not by enough to fully offset the effects of mortgage rate ‘lock-in’. As a result, although we expect existing home sales to rebound, we forecast that they will still be a muted 4.8 million even …
The downward revisions to global population growth in the UN’s latest projections won’t have a major bearing on our long-term GDP growth forecasts. That’s because a lot of the revision was driven by lower population projections in China, where we had …
Odds still favour a July rate cut The Bank of Canada’s preferred CPI-trim and CPI-median measures of core prices rose at an above-target monthly pace for the second month running in June. Nonetheless, with the Bank’s Business Outlook Survey , released …
