Macro Pulse

Energy, naturally

Investors have returned to focusing on several familiar themes so far this year including the resilience of the US economy, the implications of a new US administration, simmering geopolitical tensions, and the productivity potential of AI. The steep climb in global bond yields that’s unfolded over recent weeks additionally suggests that inflation concerns and debt sustainability issues have re-surfaced as well. In our charts this week we focus on:
·         US yields and growth surprises
·         Natural gas prices and US inflation
·         Consensus forecasts for policy rates
·         Euro area inflation and wage pressures
·         The US dollar and energy trade
·         Energy trade in selected major economies

Inflated Expectations

Investors have shifted their attention back to the economic data and monetary policy over the past few days, marking a shift from recent weeks when political developments took centre stage in shaping financial market sentiment. While this week’s decision by the US Fed to cut policy rates by 25 bps was widely anticipated, the accompanying commentary and forecasts have heightened concerns that US monetary policy will remain tighter for longer in the months ahead. In our charts this week we discuss the following issues:
·         Stock markets and economic data
·         Monetary policy and services inflation
·         Broad money growth and house prices
·         Supply chain pressures and inflation risk
·         The Bank of Japan’s monetary policy
·         China’s economic outlook

The Year Ahead

Economic forecasts for next year largely hinge on the assumption of a soft landing for the world economy, but this outlook is anything but certain. Recent weeks have seen a sharp rise in uncertainty, driven in part by the prospect of significant — and potentially disruptive — policy shifts from a new US administration. Meanwhile, persistent supply-side pressures, including the challenges of climate change, the energy transition, aging populations, and lingering geopolitical tensions, continue to fuel economic and political instability, with Europe bearing the brunt of these strains. The potential of artificial intelligence to boost productivity offers a glimmer of hope amid these headwinds. However, whether AI’s transformative impact materializes by 2025 or takes much longer remains open to debate.

Leading with a Trump

The macroeconomic implications of a new Trump administration are sparking fervent debate. Financial markets have responded to last week’s news with heightened expectations of some fiscal stimulus which could spur US growth in the near term. However, that boost may come at the cost of higher domestic inflation, more elevated public debt, and a ripple of adverse effects across the world economy. In our charts this week we illustrate some of the forces at play with some colour on:
·      Global current account imbalances
·      US financial imbalances
·      Financial market depth indicators
·      Major holders of US Treasuries
·      US Participation in Value Chains
·      Energy policy
 

Uncertainty Is the Easy Part

The policy decisions of a new US administration could potentially impact the global economy in a number of ways with key areas that might be affected including trade and tariffs, geopolitical stability, fiscal policy, deregulation, and immigration policy. In our charts this week we focus on:
·       Global equity market responses
·       Economic policy uncertainty
·       The consensus for policy rates
·       Oil prices and yields
·       China’s economy
·       Japan’s politics
 

Data, policy and politics

Some unexpected resilience in the US economy and particularly in the labour market has continued to reinforce soft landing narratives over the past few days. At the broader global level, weaker-than-expected inflation data have also been reinforcing the view that most major central banks will continue to loosen monetary policy in the period ahead. In our charts this week we focus on:
·       Markets and data
·       US bond yields
·       Global growth momentum
·       The UK Budget
·       Japan’s politics
·       China’s and US politics
Finally, in our podcast this week we summarise some of the key messages and a forthcoming webinar on the global growth outlook.

Sharmila Whelan on India

In our podcast this week Andy Cates discusses the outlook for the Indian economy with Sharmila Whelan, the founder of Westbourne Research and a seasoned Global Geopolitical-Macro Strategist. Key areas that are addressed include:  
·       The sustainability of India’s growth trajectory 
·       The impact of recent structural reforms on improving India’s business environment and investment climate
·       How investors presently perceive India’s economic prospects
·       The broader global economic outlook and the IMF’s latest economic forecasts. 

Following the leader

A soft landing narrative has continued to shape sentiment in financial markets over recent days, supported by several factors. These include upbeat corporate earnings news, a sharp drop in oil prices, weaker-than-expected inflation data and US labour market resilience. In our charts this week we focus on:
·       Oil prices and yields
·       UK inflation
·       China and traded goods price inflation
·       EM portfolio flows
·       The euro area banking sector
·       Global equity sector performance

Fed up with surprises

Last week’s stronger-than-expected US employment report have combined with some comments from FOMC members suggesting the Fed may be in no great hurry to reduce interest rates next year to generate a big repricing in financial markets over the past few days. Geopolitical uncertainty in the Middle East and the plight of China’s economy have additionally been a key focus for many investors. In our charts this week we home in on:
·       US data surprises and the Fed
·       Supply chain pressures and inflation
·       China’s economic outlook
·       Electricity prices in Germany and the US
·       The global economic cycle
·       The Blue Chip growth consensus for 2025

Where Now for Europe? - Featuring Special Guest George Buckley, Nomura's Chief European Economist

In our podcast this week we discuss the European economic outlook with George Buckley, Nomura’s Chief European Economist. We home in on a number of topics including this week’s euro area inflation data, the broader outlook for the euro area and UK, as well as what needs to be done to repair some of the structural fault-lines. We touch too on the escalation of geopolitical turbulence in the Middle East and how this is challenging the status quo.
Elsewhere, in our Charts of the Week publication we focus on the following:
·       The policy rate consensus
·       The US labour market
·       Oil prices and geopolitical risks
·       Oil prices and productivity
·       De-globalisation pressures
·       Indebtedness and interest rates