Macro Pulse

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

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