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 […]
Viresh Kanabar
Summary We think the BoC will remain on hold tomorrow. Since the last meeting, reciprocal tariffs have impacted Canada less, while core inflation has crept above 3% YoY. Given recent CAD appreciation, further labour market weakness and the potentially smaller hit to inflation, there may be more focus on Canada’s growth outlook in the months […]
Ben Ford
Summary The RBA cautiously lowered the cash rate by 25bps to 4.1% at its February meeting. Three factors drove the easing bias, one held it back. 1) Moderating underlying inflation saw price pressures below RBA forecast. Forward-looking data suggests continued easing, too. 2) Subdued private demand growth has worried the RBA. They have baked in […]
Henry Occleston
Summary The BoE cut 25bp, as expected. MPR forecasts were bearish, and comments still indicate more cuts ahead. I read little into the two 50bp votes. Upward revisions to MPR near-term inflation forecasts exceeded our expectations, with smaller impact from one-offs than we anticipate. Despite labour market loosening, medium-term inflation is below target but still […]
Viresh Kanabar
Summary The BoC cut 25bp as expected, while ending QT. The reduction in 2025 GDP growth forecast is not dovish as the BoC reduced its assumption for potential growth. Importantly, the bank’s estimate of the output gap narrowed to -0.75% from -1.25%. This implies there is less economic slack than previously thought. Despite stronger consumer […]
Viresh Kanabar
Summary We expect the BoC to cut its policy rate by 25 bps tomorrow. Despite a bearish consensus, we don’t see a further reduction in growth forecasts but appreciate the risks to the downside. That’s because we see green shoots in activity, hiring, and investment. Expect Gov Macklem to continue pushing the case for slower […]
Henry Occleston
Summary We expect the ECB to cut 25bp on 12 December. It will also update macroeconomic projections, which are likely to see dovish revisions with inflation sustainably at target in H1 2025. We expect the ECB to avoid fully opening the way to 50bp cuts, but comments will likely add that they are flexible to […]
Viresh Kanabar
Summary Recent developments including Japan’s Q3 GDP data, the October inflation report, and Rengo’s wage demand support the BoJ’s FY 2024 outlook. The LDP announced measures to support the economy, including further cash transfers to low-income workers and raising the income tax threshold. Taken with the recent data, it poses the question: why wait for […]
Viresh Kanabar
Summary The BoC wants strong growth to absorb labour market slack. However, Q3 GDP growth could be nearer 1.6%, while core inflation may also undershoot in both Q3 and Q4 by 10bps. The BoC will likely look through October’s unemployment report given the hiring outlook remains weak. Market Implications We expect the BoC to 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 […]
Richard Jones
Summary This week’s UK inflation data was weaker than expected, with headline and core at the lowest levels since 2021. This has weighed on UK yields and GBP and increased the probability of two 25bp BoE rate cuts in November and December. Market Implications We expect further downside for UK yields and GBP. We like […]
Henry Occleston, Caroline Grady
Summary The ECB is widely expected to cut its depo rate by another 25bps on Thursday. Below-target inflation and increasing signs of economic, and in particular labour market, weakness are why. But we expect a cautious tone given inflation is set to rise again in Q4, risks over January repricing remain, and Q2 employment growth […]
Viresh Kanabar
Summary Friday’s headline employment data was strong, adding 47k jobs of which 112k were full-time. The unemployment rate unexpectedly declined to 6.5% as the labour force participation rate fell further to 64.9%. Meanwhile the BoC’s Business Outlook Survey showed signs of a recovery, but demand remains weak. Finally, inflation expectations continued to decline, while hiring […]
Richard Jones
Summary US Treasury (UST) yields have risen sharply across the curve, driven by a stronger-than-expected US jobs report last Friday. Market pricing of further Fed easing for 2024 aligns with the FOMC’s Summary of Economic Projections (SEP) and our expectations. We expect rates to remain rangebound ahead of the elections next month, with the next […]
Henry Occleston
Summary The ECB seems almost certain to cut 25bp at its 17 October meeting. Post-NFP, the market has pared expectations of cuts over the next year, but it is still pricing four 25bp cuts in as many meetings. While September inflation took it below ECB forecasts, we are cautious that we may be seeing a […]
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 […]
Viresh Kanabar, Ben Ford
Summary Core and services inflation rose to 3.6% YoY and 5.6% in August. And while core now sits above BoE forecasts (3.4%), services inflation remains below. Meanwhile, wage growth is decelerating too slowly to force the BoE into a September rate cut. Assuming the BoE maintains a monthly pace of £100bn for balance sheet reduction, […]
Richard Jones
Summary US fixed income has staged an impressive bull run since late April/early May, with yields plummeting across the curve. Yet several signals now warn of a short-term correction higher for US yields. We anticipate the correction will depend on the FOMC’s policy update next week and therefore avoid initiating countertrend tactical positioning as the […]
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