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Rebound suggests lower inflation is beginning to support consumption The larger-than-expected increase in retail sales in May more than reversed the rain-driven weakness in April. And with inflation falling back to target, Bank Rate likely to be reduced …
21st June 2024
This page has been updated with additional analysis since first publication. Better news doesn’t mask fiscal challenge awaiting next government May’s public finances figures delivered some better news on the fiscal position after the recent run of …
Inflation slowdown creates dilemma for BoJ The minutes of the Bank of Japan’s April meeting released this week confirmed that many Board members were concerned about a renewed strengthening of price pressures caused by the weak exchange rate. Those …
This page has been updated with additional analysis since first publication. Underlying inflation will fall below 2% in second half The jump in headline inflation in May mostly reflected electricity price hikes that have further to run. By contrast, …
Despite the many twists and turns in bond markets this month amid mixed signals from central banks, most sovereign bonds in developed markets (DM) have rallied on net. We expect this to continue, with yields falling further in the coming months. The three …
20th June 2024
The office sector faces another two years of value falls, led down by Seattle and San Francisco, where cumulative declines will be around 25%-30%. But our latest forecasts highlight the brighter spots in the South. Thanks to a smaller impact from remote …
The proposal to save governments money by ending interest payments on commercial banks’ reserves is a lot more complicated than some of its advocates suggest. The extreme version could either cause central banks to lose control of monetary policy or …
The Bank of England predictably left interest rates unchanged at 5.25% today but continued to give the impression that the pieces of the puzzle are almost in place for it to cut rates. This lends some support to our view that the Bank will first cut rates …
Housing starts fall to lowest level since June 2020 The drop in housing starts in May is consistent with the recent slowdown in permit issuance, pointing to construction continuing to falter this year. The 5.5% m/m decline in housing starts was driven by …
BoE leaves the door open to an August rate cut The Bank of England predictably left interest rates unchanged at 5.25% today but continued to give the impression that the pieces of the puzzle are almost in place for it to cut rates. As a result, we still …
This page has been updated with additional analysis since first publication. Economy struggles to gain momentum The modest rebound in GDP last quarter doesn’t change the bigger picture that the New Zealand economy is worse for wear. In fact, timely survey …
This page has been updated with additional analysis since first publication. Stubborn services inflation still a point of concern for BoE We’ll be discussing the outlook for Bank of England, ECB and Fed policy in a 20-minute online briefing at 3pm BST on …
19th June 2024
Drag from net trade will hold back Q2 GDP rebound Trade volumes were little changed in May which suggests that net trade provided a small drag on GDP growth this quarter. The 13.5% annual rise in export values was a touch stronger than the analyst …
The gap between downtown and suburban office vacancy rates has widened alarmingly since 2020. This reflects pandemic-driven changes to working patterns, exacerbated by the cyclical slowdown. In our view, this shift cannot last. While any recovery will be …
18th June 2024
Strong rise in manufacturing output unlikely to be repeated The strong rebound in manufacturing output in May was better than we expected but, given the softness of the earlier retail sales release, it does not change the big picture that second-quarter …
Soft sales add to signs that consumers are beginning to struggle The soft May retail sales data support our view that, after a disappointing first quarter, GDP growth remains a little lacklustre in the second quarter too. Our forecast now stands at 1.9%. …
While the economy has only narrowly avoided a recession, activity should rebound over coming quarters as real household incomes recover. Indeed, with inflation set to remain above the Bank’s 2% target this year and wage growth accelerating, we expect the …
The RBA discussed another rate hike at today’s meeting and an upside surprise to Q2 inflation could force its hand at its August meeting. However, with capacity constraints easing and government rebates pushing inflation into the Bank’s target band by Q3, …
RBA’s next move will be a cut but only next year The RBA probably debated another rate hike at today’s meeting and we only expect the Bank to start easing policy next year. The Bank’s decision to keep interest rates unchanged today was correctly …
Housing market still struggling for momentum The housing market was soft in May, with sales and prices edging down, but we expect conditions to improve over the rest of the year as the Bank of Canada cuts interest rates further and mortgage rates decline. …
17th June 2024
Emmanuel Macron’s decision to call a snap legislative election has triggered turmoil in French politics that is spilling into its financial markets. But what’s driving market panic? Is France heading for a ‘Liz Truss’-style bond market meltdown? And how …
The household debt-to-income ratio fell again in the first quarter, albeit because incomes continued to rise at a faster pace than debt levels. Although the aggregate situation is slowly improving, many households are still in a precarious situation, …
14th June 2024
Fed split, but better data point to two rate cuts The Fed’s updated projections indicated that a slim majority of officials favour fewer than two interest rate cut this year but, in response to the soft May CPI, PPI and import price data, the markets …
Plummeting sentiment suggests consumers are suffering The further decline in the University of Michigan consumer sentiment index to a seven-month low of 65.6 in June, from 69.1, suggests that households are now struggling more under the weight of higher …
Strong start to the second quarter unlikely to be sustained The increases in manufacturing and wholesale sales in April were marginally lower than first estimated, but not by enough to make us doubt the preliminary estimate that GDP rose by a solid 0.3% …
Higher levels of housebuilding is a prize that both Labour and the Conservatives seek, evidenced by the identical target of building 300,000 new homes a year published in their manifestos this week. (You can see all of our election analysis here , and …
Will the outcome of the UK general election move the dial on the UK economic outlook? How much would a Labour government deviate from Conservative economic policy? What does a change of government mean for the UK’s financial and housing markets? Our UK …
The Bank of Japan disappointed markets today by announcing that it will only present a detailed plan for reducing its bond purchases at its July meeting. We think it will also deliver a final policy rate hike then . Today’s BoJ meeting was a damp squib . …
BoJ pledges to unveil taper plans next month With the Bank of Japan today disappointing financial markets by delaying any announcement on the reduction of its bond purchases to its July meeting, 10-year JGB yields initially dropped by around 5bp and …
Underlying price pressures will abate only slowly When Queensland Treasurer Cameron Dick unveiled the state government’s 2024/25 Budget, he made no pretence about his desire to prime the pump in the run the up to local elections in October. The Budget …
Bank will deliver a final rate hike in July The Bank of Japan announced today that it will present a detailed plan for reducing its bond purchases at the upcoming meeting in July and we think it will also deliver a final policy rate hike then. Around …
BoE watching and waiting for more evidence that inflation will settle at the 2% target But a summer rate cut is more likely than investors expect We think rates will be cut to 3.00% next year, below current market pricing of 4.00% Far more interesting …
13th June 2024
We are retaining our forecast that the 10-year Treasury yield will fall to 4.0% by the end of this year. That reflects our expectation that the Fed will pursue a slightly looser conventional monetary policy than the one discounted in the financial markets …
While what’s in and what’s out of the election manifestos is informative, the bigger issue is whether the next government delivers or deviates from its manifesto. This Update sketches out three plausible scenarios and the possible implications for the …
The SNB is likely to keep rates on hold at 1.5% at its meeting next week as inflation in Q2 so far has been in line with the its forecast in March. Moreover, the latest data on wage growth were much stronger than ahead of the March meeting, which we think …
Soft PPI adds to the better inflation news With the May producer price data also coming in weaker than expected, we now estimate that the core PCE deflator increased by only 0.11% m/m last month, which would take the annual core PCE inflation rate down to …
Faltering demand and rising supply mean prices will slip back The May RICS survey was the weakest so far this year, as new demand faltered and sales slowed. With the quantity of homes coming onto the market increasing at the same time, prices are likely …
This page has been updated with additional analysis since first publication. Although the unemployment rate fell anew in May, leading indicators continued to point to a marked rise in the months ahead. All told, the data suggest that the RBA will remain …
Fed projects one cut this year, but notes inflation progress The median FOMC projection now shows only one 25bp rate cut this year, but it was a relatively close run thing. Four officials expect no cut this year, a further seven anticipate one cut, while …
12th June 2024
Fed forecasts one rate cut this year, but notes inflation progress This publication was resent to correct the error in the headline in an earlier version. The median FOMC projection now shows only one 25bp rate cut this year, but it was a relatively close …
Global Economics Chart Pack (June 2024) …
First month of target-consistent price data this year Core CPI increased by a more modest 0.2%m/m in May and, although we still need to see the PPI data tomorrow, it looks like core PCE, the Fed's preferred inflation metric, increased by significantly …
The current fiscal framework is not perfect and could be reformed to improve investor confidence in the management of the public finances, tilt the composition of spending towards investment and reduce political uncertainty. However, the importance of the …
This page has been updated with additional analysis since first publication. Despite stagnating in April, economy will be a tailwind for the next govt The stagnation in GDP in April (consensus 0.0%, CE -0.1%) doesn’t mean the economic recovery has been …
While the official job openings figures have fallen since late-2022, the bulk of the evidence suggests that firms are facing increasingly severe job shortages. One explanation for the fall in job vacancies could be a change in firms’ recruitment …
