Dominique Dwor-Frecaut
Summary The growth–unemployment relationship—Okun’s Law—remains intact, supporting the signal from today’s low UR despite conflicting labor-market data. Stronger productivity and slower labor-supply growth explain why weak hiring can coexist with solid growth and stable unemployment. Breakeven growth is likely more useful than breakeven NFP in predicting unemployment. Weak NFP alone is unlikely to trigger Fed […]
Dominique Dwor-Frecaut
Summary A year in, there has only been some progress on the Trump administration’s key objectives, partly due to their structural and complex nature. The continued trend of rising profit income share is supportive of equities. The lack of fiscal consolidation could be LT bearish for bonds, though actual fiscal policy so far has been […]
Dominique Dwor-Frecaut
Summary The US current account outlook is deteriorating while the dollar is losing its exceptional status, which makes funding of the deficit more difficult. For decades, the US sustained persistent trade deficits while maintaining a positive income balance despite a negative international investment position (IIP) — a phenomenon seen as evidence of “exorbitant privilege.” However, […]
Dominique Dwor-Frecaut
Summary The administration pledged to prioritize Main Street by boosting labor income through tighter immigration, higher tariffs, stronger antitrust enforcement, and other pro-worker policies. A year later, outcomes have disappointed: real wage growth has stagnated, labor’s income share has hit a record low, equities have reached new highs, and economic approval ratings have weakened. In […]
Dominique Dwor-Frecaut
Summary In this note, I review key labour market indicators and show that they point to a softening in conditions: Declining continuing jobless claims reflect longer unemployment durations and the exhaustion of benefits, rather than faster reemployment. Falling average weekly hours and temporary employment signal weakening labour demand, in contrast to the early recovery period […]
Dominique Dwor-Frecaut
Summary To be sure, the recovery is K-shaped: households in the top income quintile account for roughly 40% of consumption. But that is not new. The distribution of income, savings, and consumption has been remarkably stable over time—unlike consumer pessimism, which is a recent development. Consumer gloom likely reflects a triple blow: a softening labor […]
Dominique Dwor-Frecaut
Summary Both positive and negative AI-related developments are likely to lead the Fed to cut rates more than expected next year. On the positive side, AI-driven productivity gains are expected, which would be disinflationary. This disinflation is likely, even amid continued high AI capital expenditures, since such spending affects imports more than domestic demand and […]
Dominique Dwor-Frecaut
Summary The Fed is likely to cut 25 basis points, as well as end QT, without committing to a cutting cycle. Market Implications In line with market consensus, I continue to expect two more cuts in 2025. I also expect three 2026 cuts, which is greater than current expectations (2.5 cuts). Cut Without Guidance At […]
Henry Occleston
Summary The BoE cut 25bp as expected. Pill’s backing for a pause was an unexpectedly hawkish surprise. So too was Bailey’s comment that the decision among centrists was a coinflip until the tariff announcement. We retain our central case that they skip cutting in June but will have the evidence needed to accelerate cuts from […]
Henry Occleston
Summary We expect the MPC to cut 25bp this week, with Dhingra and possibly Taylor backing a larger cut. Forecasts are likely to be more dovish on tariffs, low energy costs and undershooting wage growth. This and broader tariff uncertainty will add to a dovish tone in the statement – but we do not expect […]
Bilal Hafeez, Eric Wang
In this report, we focus on five market moving events: the announcement of Donald Trump as US President (2024-11-06), the pausing of Mexico/Canada tariffs (2025-02-03),
Henry Occleston
Summary We expect the ECB will cut 25bp this week, in line with consensus. For now, tariffs are dominating all else. In our view, the hawks are overly sanguine about inflation returning sustainably to target. However, hawkishness may not gain traction near-term given tariff fears and suppressed energy prices. The labour market continues to tighten […]
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 […]
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