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RBA content to stay put for a while The RBA’s decision to leave rates unchanged at 4.35%, despite the material upside surprise in the CPI data last quarter, suggests that the bar for a resumption of rate hikes is high. However, the other side of that coin …
7th May 2024
Banks easing credit conditions amid soft demand The second-quarter Senior Loan Officer Opinion Survey revealed that, a year after the regional banking crisis, only a modest net share of banks are still tightening lending standards. The Net percentage of …
6th May 2024
In the latest episode of The Weekly Briefing from Capital Economics, Group Chief Economist Neil Shearing unpacks a tumultuous week in markets that ended on a high. April's soft payrolls report may have given investors much-needed evidence that US …
4th May 2024
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
Fundamentals point to slower wage growth Powell leaves all options open Fed Chair Jerome Powell argued in his post-FOMC press conference this week that, despite the stickiness of inflation in recent months, additional interest rate hikes were still …
Today’s favourable reaction in the US stock market to April's softer-than-expected Employment Report has coincided with renewed hopes of interest rate cuts, judging by the initial plunge in the 2-year Treasury yield towards 4.7%. (See Chart 1.) …
Rise in prices paid not yet a concern The fall in the ISM services index to 49.4 in April, from 51.4 in March, suggests that services spending could slow from the 4% annualised in the first quarter. The prices paid index rebounded but, for now, it is …
Labour market easing puts rate cuts back on the table April’s employment report was weaker across the board; with employment growth slowing back to the pace from last fall, the unemployment rate ticking up to 3.9% and average hourly earnings growth …
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 …
Inflation in Norway has been falling faster than Norges Bank expected for some time, but with the core rate still a long way above target, today’s communications show that policymakers are not counting their chickens. While they now seem to envisage …
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 …
The latest manufacturing PMIs suggest that global industry continued to recover at the start of Q2, but that this was entirely due to higher output in emerging markets, while activity remained much weaker in advanced economies. Meanwhile, the increase in …
2nd May 2024
Our forecast that the Bank of Canada will cut interest rates earlier and more aggressively than the Federal Reserve means that the loonie is likely to depreciate, but we doubt the move will be large enough to push up imported goods inflation …
Many central banks are concerned about the fact that services inflation has remained too high. But we think the risks in Switzerland are skewed to the downside and, in our view, outweigh the upside risks from goods prices. This leaves us comfortable with …
With downtowns generally suffering most from the growth in remote work, the hardest-hit cities such as San Francisco are now seeing this impact other revenue streams too, not least tourism. While there are promising signs that conversions from office to …
Deficit narrows; Productivity growth stalls The trade deficit narrowed slightly in March to $69.4bn, from $69.5bn, with exports down by 2.0% m/m and imports falling by 1.6%. The $5.1bn decline in goods exports included a $1.2bn drop in civilian aircraft …
External demand still weak Despite the slump in March, export volumes grew strongly over the first quarter and net trade appears to have been behind about half of the likely 2.5% annualised rise in first-quarter GDP. Nonetheless, the fall in March and the …
Euro-zone construction output picked up at the beginning of this year but we don’t think this was the beginning of a sustained rebound. Surveys suggest that output will decline in the next few months, and while rate cuts should support a recovery later in …
This interactive dashboard allows you to explore all of our forecasts and key data for major economies. If you have subscriber access to the data underlying this redesigned dashboard, you can download it via the menu options in the top right of each chart …
We envisage cyclical sectors generally continuing to outperform defensive ones in the S&P 500 through the end of 2025. That reflects our view about the economic outlook; our expectation that hype around artificial intelligence (AI) will grow; our forecast …
Rapid growth in unit labour costs poses an upside risk to core inflation in many advanced economies. However, firms’ pricing power is weakening and we think that it will continue to do so. As a result, higher labour costs will not be passed on in full and …
We’ll be discussing the outlook for Bank of England policy in a 20-minute online briefing at 3pm BST on Thursday 9 th May. (Register here .) Rates on hold at 5.25% and Bank unlikely to provide a strong hint first cut will be soon Faster fall in inflation …
Swiss CPI jumps, but will fall in the coming months The jump in Switzerland’s inflation rate in April was largely due to increases in the volatile food and fuel components. While the data increase our confidence that the SNB will not cut interest rates at …
Fed biding its time Fed Chair Jerome Powell argued in his post-FOMC press conference that, despite the stickiness of inflation in recent months, additional interest rate hikes were still “unlikely”. Moreover, while he admitted that the strong start to the …
1st May 2024
Fed statement acknowledges inflation rebound; announces QT taper The Fed admitted in the statement issued after today’s FOMC meeting that “in recent months, there has been a lack of further progress toward the… 2% inflation objective”. Otherwise, today’s …
Dollar’s strength not a threat to US economy The dollar’s rise is attracting a lot of attention, but is nowhere near big enough yet to have any significant impact on US inflation, although it does appear to be weighing on exports. In real trade-weighted …
We doubt the recent rise in US bond yields will continue much further, or significantly undermine the prospects of US equities. The 10-year Treasury yield has fallen back a bit today ahead of the FOMC’s policy announcement, as the US Treasury’s Quarterly …
The March JOLTS data showed clearer signs that labour market tightness is continuing to ease. Slower downward progress in wage growth could be concerning, but for now it still appears to be moving broadly in line with the forward-looking indicators, which …
Manufacturing struggling for momentum The fall in the ISM manufacturing index back below the theoretical 50.0 no-change level in April suggests that the nascent recovery in the manufacturing sector may already have gone into reverse. While the further …
Higher mortgage rates continue to hit prices The second consecutive decline in the Nationwide house price index in April confirms that the rise in mortgage rates since the start of the year will prevent further near-term price gains. But as we think Bank …
House prices continue to temper their gains The housing rebound that began early last year continued to lose momentum in April. With affordability likely to remain stretched for the foreseeable future, house price growth will only ease further in the …
This page has been updated with additional analysis since first publication. Spare capacity continues to open up in the labour market The labour market loosened more forcefully than we had expected in Q1. With subdued activity weighing on labour demand, …
The anti-dumping duties that the EU is likely to impose on Chinese imports in the coming months will have little macroeconomic impact. But more goods will be targeted in the next couple of years with significant implications for some sectors and …
30th April 2024
Is progress stalling on efforts to get inflation under control? Why are price pressures proving more stubborn than expected? When will central bankers get the genie back in the bottle? Our Global Economics team hosted an online briefing about the global …
Momentum in house prices continues The substantial shortage of existing homes for sale fueled a robust 0.4% m/m rise in house prices in February, consistent with our above-consensus call that house price growth will end 2024 at 5% y/y. The increase in the …
Strong Q1, but growth likely to slow in the second quarter Despite the weaker-than-expected rise in GDP in February, first-quarter growth still looks to be close to 2.5% annualised. The weaker flash estimate for March points to less momentum going into …
Wage growth now looks a little sticky too The persistence of wage growth is another reason for the Fed to take its time on rate cuts. According to the first-quarter employment cost index, civilian wages increased at a 1.1% non-annualised pace and the …
This page has been updated with additional analysis since first publication. Further evidence the drag on activity from high interest rates is fading March’s money and credit figures provide further evidence that the drag from high interest rates is …
Underlying inflation remains stubborn, labour market still running hot RBA to hand down a final 25bp hike to mitigate upside risks Rate cuts unlikely before early next year, with only limited room for easing We expect the Reserve Bank of Australia to hike …
This page has been updated with additional analysis since first publication. Softness in retail sales probably won’t prevent a rate hike The weakness in retail sales last month suggests that sales volumes fell across Q1 as a whole. That said, with …
This page has been updated with additional analysis since first publication. GDP set to rebound this quarter Coupled with solid output forecasts for April and May, the strong rebound in industrial production in March suggests that the likely slump in GDP …
Despite global panic about the DM inflation outlook, we still think that price pressures in the UK are set to fade faster than most assume, opening the way for the Bank of England to cut rates more aggressively than indicated by the consensus. Our UK …
29th April 2024
We think the Fed and most other developed markets (DM) central banks will be able to ease monetary policy this year and next more than investors currently anticipate. DM bond yields will end 2024 below their current levels, putting downward pressure on …
Trump, the Fed, and the dollar Most of the major policy initiatives being suggested by Donald Trump’s campaign would be inflationary; whether it’s narrowing the trade deficit via tariffs or a dollar devaluation, curbing immigration or, now we learn, …
Why is productivity so weak outside the US? Productivity growth in most advanced economies has been much weaker than that in the US since the pandemic. This partly reflects the relative weakness of demand, coupled with a degree of labour hoarding which …
While expectations for interest rate cuts in the UK have been pared back in recent months amid growing inflation concerns in the US, we think the markets have gone too far in concluding that UK interest rates will still be as high as 4.00% by the end of …
This page has been updated with additional analysis since first publication. Survey points to stagnant economy and still-high price pressures The weaker-than-expected EC business and consumer survey for April is a reminder that the euro-zone economy is …
The Ministry of Finance may have intervened earlier today by selling FX reserves to halt the sharp fall of the yen. However, the economic case for foreign exchange intervention is much weaker now than it was in 2022, when the MoF last sold dollars to …
