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This page has been updated with additional analysis since first publication. Solid consumption growth supports soft landing The rebound in retail sales in November provides further illustration that the continued rapid decline in inflation is not coming …
14th December 2023
Few signs Bank of England is starting to contemplate rate cuts The Bank of England sprung no surprises, leaving interest rates at 5.25% for the third time in a row and pushing back against the prospect of near-term interest rate cuts. While the recent …
Falling mortgage rates breathe life back into the market Declining mortgage rates have already generated a significant improvement in demand, with the new buyer enquiries and sales expectations balances recording their strongest readings for over a year …
GDP growth should rebound modestly in the fourth quarter but we expect it will remain soft in 2024. Meanwhile, weak job openings data suggests the labour market should loosen slightly in the short term. However, there are mounting signs that a virtuous …
This page has been updated with additional analysis since first publication Labour market will continue to loosen Even though employment growth remains strong, job creation isn’t fast enough to absorb the surge in the labour force. Accordingly, we expect …
This page has been updated with additional analysis since first publication. Domestic demand to remain weak The rise in “core” machinery orders in October is a sign that business investment may rebound in Q4 after falls in q/q terms in both Q2 and Q3. In …
This page has been updated with additional analysis since first publication A double-dip recession is back in play Output slumped anew in Q3, and we suspect it remained in contractionary territory this quarter as well. Accordingly, we think the RBNZ will …
13th December 2023
The Fed’s reluctance to acknowledge that it will need to begin cutting its policy rate soon – to prevent a run-up in real rates – was predictable enough based on its intransigence ahead of previous turning points in the policy cycle. We continue to expect …
Stubborn Fed demonstrates the SEP’s shortcomings The Fed’s reluctance to acknowledge that it will need to begin cutting its policy rate soon – to prevent a run-up in real rates – was predictable enough based on its intransigence ahead of previous turning …
Falls in financial market interest rate expectations mean that mortgage rates will drop to a six-month low in December. That will support a further recovery in housing market activity in the near term. But, if we are right to think the Bank of England …
The detailed mortgage lending data for Q3 show that the high cost of borrowing has continued to price many out of the market and made new BTL investment unattractive. But while arrears are rising, they are not translating into repossessions so we still …
Contraction in October sets scene for stagnation in 2024 Note: We’ll be discussing the Fed, ECB and Bank of England December decisions and the policy outlook for 2024 in an online briefing on Thursday, 14 th December . Click here to register for the …
Today’s budget update showed that the government now expects a balanced budget in 2023/24, as opposed to the modest deficit it had projected a few months ago. With revenue likely to outperform the government’s conservative assumptions, we think an …
Overview – We suspect that both economies will narrowly avoid a recession but a prolonged period of below-trend growth will reduce price pressures and allow central banks to ease monetary policy again. We’ve pencilled in rate cuts in Australia in Q2 and …
This page has been updated with additional analysis since first publication. Strong Tankan suggests Japan won’t slip into recession The continued improvement in the Tankan suggests that the drop in Q3 GDP was just a blip, but we still expect GDP growth …
Inflation is slowing and domestic demand is weakening However, price pressures are increasingly broad-based and wage growth is accelerating Bank’s leadership signalling that end of negative rates isn’t far off The Bank of Japan is increasingly keen to …
12th December 2023
This page has been updated with additional analysis since first publication. Stronger rise in core prices buys Fed a little more time The slightly stronger 0.28% m/m rise in core consumer prices in November suggests the Fed may be able to hang onto its …
This page has been updated with additional analysis since first publication. Sharp fall in wage growth will further fuel market rate cut expectations The sharp fall in wage growth in October will probably further fuel investors’ expectations that interest …
The resurgence in the labour force over the past year mainly reflects the ongoing boost to participation from increasing opportunities for women to combine parenthood with work, more young people choosing jobs over college, and a continued decline in …
11th December 2023
We doubt that the removal of the RBNZ’s employment objective would make much difference to economic outcomes, but forcing the Bank to achieve its inflation target within too short a period of time could cause unnecessary swings in output when inflation is …
The same questions kept coming up in our client briefings on the 2024 outlook and Group Chief Economist Neil Shearing tackles them in this latest episode of our weekly podcast. He talks about why economic resilience will be increasingly tested and which …
8th December 2023
Markets call the Fed’s bluff on higher for longer Markets abandon higher for longer The Fed may not be quite ready to abandon its tightening bias at this week’s FOMC meeting, but the markets are no longer buying its “higher for longer” mantra. Markets …
The Bank of Canada this week reiterated that strong immigration is putting upward pressure on inflation because housing supply is failing to keep up. Yet the Bank surely can’t be oblivious to the negative impact of high interest rates on construction. …
Inflation concerns easing The plunge in the University of Michigan’s consumer inflation expectations measures in December will give reassurance to the Fed ahead of its meeting next week that there are few signs of inflationary pressures reigniting. …
The further drop in UK market interest rate expectations this week means that investors now think the first interest rate cut will happen in June next year instead of August. And investors are now pricing in an 80% chance of a cut by May. That has led to …
Payrolls boosted by returning strikers The 199,000 increase in November payroll employment included 47,000 workers returning from strikes (30,000 UAW members and 17,000 SAG Aftra members). Stripping out that one-off boost, the 152,000 gain was roughly the …
Services inflation continues to accelerate The economic data released this week seem to vindicate the Bank of Japan’s caution when it comes to abandoning ultra-loose monetary policy. For a start, the timely Tokyo CPI showed that inflation slowed from …
Not higher, not longer Earlier today, the Treasury and the RBA published an updated Statement on the Conduct of Monetary Policy. The revised statement clarified that the RBA’s objective is to return inflation to the mid-point of its 2-3% target. That led …
This page has been updated with additional analysis since first publication. Wage growth will stay strong Regular wage growth accelerated in October and we expect it to stay strong in the coming months as the virtuous cycle between prices and wages …
7th December 2023
We expect the US dollar’s resilience to fade over the next year or so, and forecast it to weaken against most major currencies. There’s been something of a return of the “heads I win, tails you lose” story for the US dollar lately. The “higher for longer” …
Overview – Further declines in GDP in the coming quarters mean that the economy is unlikely to grow at all next year. Weak growth and a return in inflation to the 2% target will leave scope for the Bank of Canada to cut interest rates sharply, with the …
Bank of England to keep interest rates unchanged at 5.25% but retain its hawkish bias It won’t risk fuelling bets on earlier rate cuts by watering down its forward guidance We expect Bank Rate to be cut later, but by more than most expect With the Bank …
The economic influence of elections is often overstated. They have only tended to have significant effects if governments have embarked on big structural reforms, interfered with monetary policy or changed their geopolitical stance. Even then, the …
Even though we expect the economy to be weaker than the consensus in 2024, we think that lingering constraints on domestic supply will prevent wage growth and services CPI inflation from falling quite as fast as is widely expected. As a result, we think …
Halifax confirms that prices are on the rise again The second consecutive monthly rise in the Halifax house price index in November mirrored the increase in the Nationwide index, confirming that house prices have not only stabilised, but are rising. …
We think that sovereign bond yields in most major economies will generally reach their troughs around the same time over the next year or so. But with the Bank of Japan seemingly set to buck the trend once again, yields there may be an exception. The …
Net trade could remain a drag on growth in Q4 Notwithstanding the slight expansion in the goods trade surplus in October, net trade could subtract from growth this quarter. The rise in the goods trade surplus from a downwards-revised $6.2bn in September …
Property yields rose across all sectors in Q3, but this was offset by a sharp rise in alternative asset yields towards the end of the quarter. As a result, all sectors saw a deterioration in valuations, which pushed the retail sector back into the …
6th December 2023
The Bank of Canada is clinging on to the idea that restrictive policy is still needed to get inflation back to 2%. Nonetheless, with core inflation pressures muted, GDP and house prices falling, and labour market conditions loosening rapidly, it won’t be …
Overview – As core inflation is on track to return to the 2% target by the middle of next year, we expect the Fed to cut interest rates by 25bp at every meeting next year from March onwards, with rates eventually falling to between 3.00% and 3.25% in …
Bank maintains tightening bias, but next move likely to be a cut The policy statement from the Bank of Canada was a bit more hawkish than we expected, with the Bank reiterating that it is still concerned about the outlook for inflation and “remains …
Officials not yet willing to fully endorse rate cut bets; tightening bias could be retained New SEP should confirm rates are at the peak but significant downgrades unlikely We expect the first rate cut in March and 175bp of easing in total next year With …
Imports and exports set for further growth in Q4 Despite the widening in the trade deficit in October, net trade looks set to be only a modest drag on fourth-quarter GDP growth. But the survey evidence suggests renewed weakness in exports may still lie …
Slump in imports only partly due to UAW strike The slump in import volumes in October was partly due to the knock-on effects of the UAW strike in the US, but it also suggests that firms are now drawing down their inventories as demand weakens. That raises …
Falling rates allow mortgage demand to recover Falling mortgage rates sparked a modest uptick in mortgage applications for home purchase in November. Recent falls in Treasury yields mean further falls in mortgage rates are imminent, so the trough in …
