Macro Pulse

Higher for Longer

Financial markets have been on the back foot in recent days with some oil-related inflation jitters combined with a “tighter for longer” message from the Fed a couple of contributory factors. In our charts this week, we made a nod to these and other issues with some colour on:
 
·         Firming US Treasury yields
·         Higher consumer energy prices
·         UK financial markets (this year versus last year)
·         Firming JGB yields
·         Foreign exchange reserve in EM economies
·         India’s favourable FDI flows

A troublesome consensus

Following this week’s ECB policy decision, investors will likely remain focused on central banks in the coming days with the Fed, the BoJ and the BoE all due to meet next week. With that in mind, we look at some of the key considerations for these policymakers in our charts this week. Specifically we home in on:
 
·         Quantitative tightening and real yields
·         A mixed global growth consensus for 2024
·         A still-high global inflation consensus for 2024
·         Slowing UK labour market activity
·         The China-induced slowdown in South Korea’s export growth
·         The US dollar and FX reserves

More stormy waters

The world economy’s resilience over the last few months has surprised many forecasters but the incoming data from Europe coupled with a further climb in the price of oil suggest that downside risks are accumulating. In our latest charts of the week publication we dig into this with some perspectives on:
·       Recent global business surveys
·       Credit impulses in the US and euro area
·       Oil prices and inflation surprises
·       Manufacturing capacity pressures and inflation
·       Risk assets and data surprises
·       Productivity and demographics
 

Some necessary re-balancing

The trend toward higher government bond yields that had been in vogue for much of August has reversed in recent days. This can be traced to a batch of weaker-than-expected economic data and stronger suggestions, in particular, that the US labour market is re-balancing. In our charts this week we offer some colour on:
 
·       The re-balancing of the US labour market
·       Data surprises in the US versus the euro area
·       The dollar and real interest rate differentials
·       Supply and demand pressures in the euro area
·       Still-sticky euro area inflation
·       The messages from China’s high frequency indicators
 

What will drive global growth?

Some of anxiety that has lately gripped financial markets has ebbed a little in the early half of this week but investors are no longer actively embracing the soft landing consensus that had previously held sway. Our charts this week focus on the following related themes:
·       China’s structural growth foundations
·       The Bank of Japan and higher yields
·       The US economy’s resilience
·       UK inflation drivers
·       The growth and inflation consensus
·       Equity markets and liquidity

Sour, bitter and sweet but not that spicy

The mood in financial markets has soured over the past few days thanks to some downbeat messages from the global dataflow and most notably from China. The minutes released from the Fed’s July FOMC meeting further contributed to this negativity. Our charts for this week offer additional insight on this and, more specifically, on the following factors:
·       Investor sentiment
·       The US macro consensus
·       The global growth consensus
·       UK supply side challenges
·       Japan’s economy in Q2
·       Geopolitical risks

Goldilocks, or not?

Financial markets have continued to gravitate toward the ‘Goldilocks’ scenario where economic growth is neither “too hot” nor “too cold” and where inflation gradually moderates to more target-friendly levels. But while that view may have appeared overly optimistic a few weeks ago, much of the incoming data more recently appears to support this narrative. In our charts this week we focus on:
·       Upbeat GDP data for Q2
·       The messaging from August’s sentix surveys
·       Ebbing US unit labour cost pressures
·       Target-friendly inflation outcomes
·       Inflation expectations and oil prices
·       China’s soggy imports and PPI deflation

Close to completion?

The downgrade of US government debt by a credit rating agency has been a big driver of this week’s financial market gyrations. The decision by the Bank of England to lift policy rates by 25bps (with hints of more to follow) coupled with firmer-than-expected private sector payrolls data from the US also served as a reminder that central banks may not yet have completed their tightening cycles. In our charts this week we look at:
·         The central bank consensus
·         US financial market conditions
·         Service sector inflation in the euro area and US
·         Global economic policy uncertainty
·         World trade and commodity market activity
·         Rice prices

Energy matters

Central banks have dominated the financial headlines over this past week but, with the possible exception of the BoJ, they don’t appear to have spawned any big policy surprises so far. That said their communications continue to suggest a readiness to calibrate monetary policy at a more restrictive level if the incoming dataflow exceed their expectations. With this in mind our charts this week home in on the following factors:
·         Market expectations for Fed policy
·         Slowing money supply growth in the euro area
·         The revival in US and European consumer confidence
·         Goods and services inflation in advanced economies
·         Energy prices in advanced economies 
·         Global energy consumption sources  

Rising in the West, falling in the East

The mood in financial markets has remained upbeat over the past few days partly thanks to some stronger-than-expected US earnings reports. Last week’s weaker-than-expected inflation data have also continued to lift hopes that a hard landing scenario can be avoided. As we illustrate in our charts this week, however, the incoming data from elsewhere has not been as auspicious. More specifically this week we focus on
US data surprises and equity markets
China’s cyclical and structural challenges
Still-high UK service sector inflation
Ebbing wage growth in the US and Europe
Some evidence for re-globalisation
Refugee flows in high income economies