Macro Pulse

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

Almost singing the same tune

The incoming data over this week have painted a more downbeat picture of the global economic outlook. But despite these weaker signals, financial markets have taken this news in their stride, possibly due to growing confidence that central banks will still manage to engineer a soft landing for the global economy. In our charts this week we home in on:
·       The global business cycle
·       US and European consumer confidence
·       The UK manufacturing sector
·       Policy stimulus initiatives from China
·       Goods and services inflation in advanced economies
·       AI and work automation

Communication Challenges

This week’s decision by the Fed to lower its key policy rate by 50bps was widely - but not universally - expected in financial markets. Still, the initial market response to this decision suggested that investors could be uncertain about what it implies for the economic outlook. In our charts this week we drill into the following factors:
·      The US yield curve
·      Global growth and inflation surprises
·      Supply chain pressures and monetary policy
·      Wage pressures in the US and Europe
·      UK inflation
·      Investment in AI

Inflation focus

The ECB’s decision to lower its key policy rates by 25 basis points this week, while widely anticipated, underscores a shift in focus, with central banks now prioritizing economic growth. This marks a departure from the post-pandemic period when monetary policy had been calibrated to curb inflation. In our charts this week we take a closer look at the global inflation scene. In particular we home in on:
·       The global inflation consensus
·       Capacity pressures
·       Unit labour cost inflation
·       Labour market flexibility
·       Remote working trends
·       AI’s productivity potential
 

Back to School

With the summer vacation season now over in the Northern Hemisphere our charts this week shed light on recent and prospective developments in the world economy. More specifically we look at the following:
·       The global policy rate consensus
·       Inflation surprises and oil prices
·       The global business cycle
·       China’s excess capacity
·       Japan’s carry trade
·       US monetary policy and labour markets

Growth alert

Financial markets have remained in much calmer waters in recent weeks following the bout of volatility that earmarked the first week of August. That’s partly thanks to the release of some reassuring inflation data together with some dovish signals from several central banks. However, concerns about the global growth outlook persist. In our charts this week we focus on:
·         Copper prices and global growth surprises
·         Oil prices and US yields
·         China’s property market
·         Japan’s carry trade
·         UK rental price inflation
·         Demographic change

Back to inflation

Some stability has returned to financial markets over the past few days thanks to some inflation-friendly economic data, some dovish signals from several central banks, and most notably the Bank of Japan, together with some upbeat corporate earnings news. That said, heightened geopolitical tensions are keeping investors anxious. Uncertainty is additionally being amplified by the potential for some further unwinding of Japan’s carry trade in the period ahead. In our charts this week, we examine:
·         The global growth and inflation consensus
·         The GDP consensus for the US versus Japan
·         Japan’s GDP growth in Q2
·         US inflation
·         UK inflation and the labour market
·         Airport passenger numbers

Summer storms

Financial market instability has been in the ascendancy for much of the past few days as investors shunned risk assets and flocked to safe havens such as government bonds. A key catalyst was last Friday’s weaker-than-expected US employment report but there have been other factors - such as the BoJ’s monetary policy - that have amplified investor concerns. In our charts this week we home in on:
·         Financial market volatility
·         US data surprises and the Fed
·         Japan’s carry trade and the BoJ
·         Technology companies and equities
·         US banking conditions and financial imbalances
·         Supply side pressures and monetary policy