Macro Pulse

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

One up, one down, one no change

Monetary policy normalisation has been a big theme over the past few days and, insofar as this signals that inflation is also returning to more normal levels, this ought to have been welcomed by global investors. Most importantly the Fed has signalled a high likelihood that it will cut its policy rate at its next scheduled meeting in September and, in doing so, kick start an easing cycle. In our charts this week we focus on:
·         US interest rate expectations
·         UK inflation and the housing market
·         Market-based inflation expectations in Japan
·         The global policy rate consensus
·         Labour markets in the euro area
·         Geopolitical instability and supply chain pressures

It’s the economy, stupid!

Politics has continued to dominate the headlines in recent days and will doubtless remain a big focus in the immediate weeks ahead. In the background, however, incoming data have suggested the outlook for the world economy has been darkening probably because more restrictive policy settings are now more forcibly weighing on aggregate demand. In our charts this week we focus on:
·         Markets and data surprises
·         Unemployment rates in advanced economies
·         The global credit impulse
·         Services and goods inflation
·         Shipping costs and PPI inflation
·         South Korea’s semiconductor sector

Walking a tightrope

Markets have become increasingly optimistic this week about a potential interest rate cut by the Federal Reserve in September following some dovish remarks from Fed Chair Powell. Meanwhile, the IMF has maintained that the outlook for the world economy remains broadly balanced, a message that chimes too with the latest Blue Chip survey of economic forecasters. In our charts this week we focus on:
·         The global growth consensus
·         US data surprises and now casts
·         Recession probability indicators
·         Global markets and economic data
·         China’s economy
·         South-East Asian trade
 

Political melodies and macroeconomic harmonies

A soft landing scenario for the world economy, driven by moderating global growth, and aided by disinflationary pressures, has remained the base case in financial markets in recent weeks. But investors have also been dancing to some political music in the US and Europe in recent days. In our charts this week we focus on:
·       The policy rate consensus
·       The US labour market
·       Euro area inflation
·       South Korea’s trade
·       Japan’s capital flows
·       UK economic performance

Global growth concerns

Growing concern about the economic ramifications from France’s upcoming election have been weighing on risk appetite in European financial markets in recent weeks. But the outlook for the broader world economy has also been arguably taking a turn for the worse. In our charts this week we look at:
·       European financial stress
·       European and global growth surprises
·       Global growth momentum
·       US growth and credit markets
·       Service sector inflation in advanced economies
·       Emerging market portfolio equity flows

Beyond the headlines

Soft landing narratives have remained in vogue in financial markets in recent weeks, partly due to weaker-than-expected US inflation data. In contrast, this week’s stronger-than-expected UK service sector CPI inflation data unsettled investors and probably played a role in the Bank of England's decision to keep interest rates unchanged. In our charts this week we home in on:
·       US inflation surprises
·       Wage growth in the US and Europe
·       European political uncertainty
·       China’s property market
·       Japan’s trade
·       Global equity sector returns

Energising the politics

A debate about the precise timing of a Fed rate cut has continued to dominate financial market sentiment in recent days. A nod from the Fed acknowledging progress in fighting inflation, coupled with weaker-than-expected CPI data, has, in particular, kept hopes of a soft landing for the US economy alive. In our charts this week we focus on:
·       US inflation
·       The UK economy
·       Consensus growth forecasts
·       The energy transition and climate change
·       China’s trade
·       The US dollar and global trade

Politics and Economics

A further batch of disappointing US growth data, coupled with policy rate cuts from the Bank of Canada and the European Central Bank, have continued to re-energize easing narratives in financial markets over the past few days. But politics has also been grabbing the headlines thanks to some unexpected election results from e.g. India and South Africa. In our charts this week we delve into:
·       Global household purchasing power
·       Policy uncertainty
·       Oil prices and global growth
·       US manufacturing activity and EM trade
·       Japan’s wage inflation
·       China’s NEV production