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 […]
Henry Occleston
Summary ECB voters have started discussing where R* is. But there is little appetite right now in discussing cutting below the neutral rate. We estimate consensus R* is around 2-2.5%, making the market pricing (1.70% in October 2025) look overly dovish. The US election outcome has driven some of this. It probably underestimates the reality […]
Henry Occleston
Summary The BoE cut 25bp last week as expected. The MPR forecasts and tone of comments were largely in line with our base-case expectation. Inflation was revised down near-term, but revised up in the long-term too, albeit with the positive skew removed as per our base-case. Headline and core CPI profiles to year-end seem reasonable, […]
Dominique Dwor-Frecaut
Summary The FOMC cut 25bp as expected. Powell expressed his confidence in a soft landing and willingness to accept inflation above target for another couple of years. The Fed is likely to cut 25bp in December as core PCE is likely to remain in its comfort zone. Market Implications I agree with markets pricing about […]
Henry Occleston
Summary We expect the BoE will cut rates by 25bp this week, with a 6:3 vote split. The accompanying MPR will be important, there are many moving parts, particularly the inclusion of the UK’s new budget. My expectation is that BoE look through much of the budget impact, retain expectations for further gradual easing, and […]
Viresh Kanabar
Summary The BoJ kept its policy rate unchanged as expected, reaffirming its July forecast. During his presser, Governor Ueda distanced himself from the previous ‘time to spare’ narrative, leaving the door open for a December rate hike. We watch for further yen weakness and subsequent BoJ speeches guiding towards a December rate hike. Market Implications […]
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 […]
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 […]
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 […]
Dominique Dwor-Frecaut
Summary The Fed has turned more hawkish after stronger GDP and employment data. This is unlikely to impact the central bank’s 2024 policy easing plans. Further tightening of the labour market together with the US election could make the Fed reconsider its 2025 easing plans. Market Implications I still expect the Fed to cut twice […]
Henry Occleston
Summary The BoE voted (almost unanimously) not to cut in September and explicitly guided a ‘gradual approach’ to easing. However, we think recent data continues to suggest dovishness. Meanwhile, Greene and Mann (hawks) show increasing concern with consumer weakness. We are less optimistic than both on the outlook for the UK consumer based on the […]
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, […]
Dominique Dwor-Frecaut
Summary Today’s Fed meeting is one of the most uncertain in years. It will be the first cut in an easing cycle, and markets are almost split between a 25bp (40% chance) and 50bp cut (60% chance). We therefore lay out possible scenarios for the Fed meeting and likely market reactions. We look at four […]
Dominique Dwor-Frecaut
Summary The Fed is planning unprecedented easing during an expansion. Meanwhile, the FOMC will likely heed Waller’s call for policy nimbleness due to multiple uncertainties including: The shape of the Beveridge curve. The inflation impact of lower immigration. The elections outcome and associated economic policies. Market Implications I expect a 25bp cut this month and […]
Viresh Kanabar
Summary Since our ECB monitor last month, wage data shows further slowing in Q2. This will ease ECB concerns about the risk of an overshoot given the staggered nature of the negotiated wage agreements. While Q2 GDP data was revised lower, excluding Ireland, EZ growth remains fine. Finally, inflation continued to cool in August but […]
Dominique Dwor-Frecaut
Summary Relative to the June SEP, inflation is roughly in line, but growth and unemployment are tracking above the Fed Q4 2024 forecast. The FOMC’s positive outlook and intention to remain nimble suggests the easing cycle will start with one cut in September. Recent comments from FOMC members suggest the September median dot will show […]
Henry Occleston
Summary A September cut may require a continued undershoot in headline and services inflation (our expectation) and signs of further labour market easing (less certain). The September meeting will also see a decision on QT for the year ahead. Given the maturity profile, the risk is skewed towards slower active sales. This would present more […]
Henry Occleston
Summary The market is fully pricing a 25bp cut in September. However, recent data suggests the ECB will need to revise their forecasts more hawkishly at the September meeting. This, and the amount of incoming data, elevates the risk of the ECB pausing in September. We therefore see good value in fading the 25bp cut […]
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