Bilal Hafeez
Obsessing over the next hour’s move in markets can make us lose sight of the big picture – and what bigger question is there than what ends a dominant civilisation? Historians have debated this for centuries. But to avoid getting bogged down in endless two-sided arguments, I find Arnold Toynbee’s view in his epic ‘A […]
Dominique Dwor-Frecaut
Summary Much higher than expected NFP and other data sources show still-strong labour demand. By contrast, labour supply seems to be peaking and will likely suffer from fewer migrants under the incoming administration. Various indicators point to an already tight labour market, with signs the economy could be running out of easily employable workers. While […]
Bilal Hafeez
Speech given to members of a leading UK political party in London on 5 December 2024. The UK’s Fundamental Problem: Productivity Rather than talking about the recent UK budget or other such announcements, I would rather discuss the broader context of what hampers the UK economy. From there, we can then understand which are the […]
Dominique Dwor-Frecaut
Summary The incoming Treasury Secretary will likely have two key priorities. First is funding the government: expect lower bill issuance and a lower TGA target at the February QRA. Second is enacting Trump’s electoral promises, which will probably widen the budget deficit. Market Implications Likely fiscal stimulus adds to my conviction of no cuts in […]
Dominique Dwor-Frecaut
Summary Recent NFP prints and pre-pandemic CBO projections suggest sub-100k NFPs could be the new normal now the immigration surge is over. If so, a large negative surprise at the 6 December NFP release is likely, which would rekindle recessions fears and expectations of Fed cuts. I expect the Fed to respond with a cut […]
Dominique Dwor-Frecaut
Summary Unemployment has been increasing for the past 1.5 years, triggering Sahm’s rule. But Sahm’s rule is more a statistical regularity than a predictive model of recession. With other labour market indicators and aggregate demand data pointing at expansion, the US economy is not headed for recession. Market Implications We are short 10Y and 30Y […]
Antonio Del Favero
Summary US monetary policy (MP) does not look that restrictive, and financial conditions (FCs) are supporting labour market and economic growth. While the mistakes of the great inflation have been avoided, core inflation will struggle to return to target. The Fed and markets are still too optimistic about cuts. The election outcome could just mean […]
Dominique Dwor-Frecaut
Summary A bottom-up assessment of monetary policy transmission suggests policy fine-tuning would be difficult. Residential investment is the demand component most responsive to funding costs but accounts for only 3.5% of GDP. The Fed impacts consumption, which accounts for 70% of GDP, mainly through equity and home prices rather than through funding costs. Non-residential investment […]
Dominique Dwor-Frecaut
Summary NFPs again surprised on the upside by a wide margin. The release details show the labour market tightened in September. This may reflect the end of the 2022-24 immigration surge that allowed for disinflation with strong growth. Ahead, the Fed could start facing the traditional employment vs inflation trade-off. Market Implications I still expect […]
Dominique Dwor-Frecaut
Summary US dockworkers in ports accounting for 60% of maritime freight have gone on strike. The impact on growth and inflation is likely to be limited as any deep disruption would likely see the Biden administration intervene. Market Implications I still expect two more 25bp Federal Funds Rate (FFR) cuts in 2024. Dockworkers on Strike […]
Macro Hive
Summary A Republican sweep (red WH and Congress) could result in stagflation and force the Fed to hike. Meanwhile, a Democratic sweep (blue WH and Congress) would likely align with the Fed’s current projections. Market Implications A Trump victory would likely lead to bear steepening in the yield curve, and a stronger USD especially vs […]
Dominique Dwor-Frecaut
Summary The high costs of a large balance sheet means the Fed seeks the lowest reserves still consistent with low FFR responsiveness to short-term changes in demand or supply. The Fed has slowed QT even though reserves have not decreased yet due to its limited control over reserves and due to demand uncertainty. On current […]
Dominique Dwor-Frecaut
Summary The current account balance will likely weaken further due to: A growing budget deficit and accelerating corporate investment. Strong US growth and dollar. A weaker current account deficit is sustainable but leaves the US exposed to a reversal of the bond flows currently funding it. Market Implications A wider current account reflects growing resource […]
Dominique Dwor-Frecaut
Summary Recently higher jobless claims do not announce a recession as: They reflect residual seasonality. The insured unemployment rate has remained flat. Neither the distribution of unemployment spells nor flows into unemployment are consistent with a recession. Market Implications I continue to expect no cut in 2024 against 1.9 cuts currently priced in. Higher Claims […]
Viresh Kanabar
Key Events G10 In the US, our focus will be on the consumer confidence survey: Mich. Consumer confidence (Friday): Consensus expects no change. We agree based on inflation stickiness (the survey tends to reflect HH inflation perceptions). We expect little change in short- and long-term inflation expectations, with the latter stable but higher than pre-pandemic. […]
Dominique Dwor-Frecaut
Summary April NFPs were lower than expected but remained above the 2019 average. Labour supply increased on the back of unchanged participation and US-born workers. The labour market rebalanced further: the unemployment rate increased, and wage growth slowed; however, growth in the real wage bill, a proxy for household income, accelerated further. These data are […]
Bilal Hafeez, Viresh Kanabar
Summary The Fed is likely to maintain interest rates this week, emphasizing caution on inflation targets and readiness to hike if necessary. We get April’s preliminary inflation in the Eurozone. Our model predicts downside in headline and core vs market expectations. The rest of G10 sees ANZ Business Survey and labour market data, Canada GDP […]
Bilal Hafeez, Viresh Kanabar
Summary In the US, this week will be all about how Fed speakers react to the hot inflation print. We think September is now the earliest they can cut rates. The UK and Europe will get inflation figures this week. For both the BoE and ECB, we expect June remains the most likely time for […]
Bilal Hafeez, Viresh Kanabar
Summary The US sees CPI and PPI data this week – both likely to be consistent with a June cut from the Fed. In Europe, the ECB sets policy on Thursday. We expect rates on hold with an optimistic tone to prevail until they get March’s final inflation print. New Zealand’s central bank meets on […]
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