Several key themes have been driving financial market fluctuations in recent weeks, including the resilience of the US economy, the policy direction of the new US administration, geopolitical instability, and the productivity potential of AI. The trajectory of central bank policy has also taken centre stage, particularly following this week’s widely expected decisions by the ECB and the BoC to cut their respective policy rates by 25bps, while the Fed opted to leave its policy rate on hold (see chart 1 and 2). Despite the recent wave of optimism pervading financial markets, several factors continue to warrant caution. Chief among them is the uncertainty surrounding the policy direction of the new US administration, which could have far-reaching implications for global growth (chart 3). China's outlook more specifically remains fragile—not only due to potential shifts in US policy but also because of persistent stress in its property sector (chart 4). Additionally, weaker-than-expected economic data from the euro area this week, particularly the flat reading for Q4 GDP, further underscores concerns about the region’s sluggish growth momentum (chart 5). Meanwhile, central banks continue to face a delicate balancing act, as the resilience of the US labour market risks reigniting inflationary pressures, complicating the calibration of monetary policy. Lastly, while artificial intelligence is widely seen as a long-term driver of growth and productivity, growing competitive pressures within the tech sector have recently sparked concerns about the profitability of firms supplying AI infrastructure, highlighting the risks to one of the market’s most celebrated growth narratives. Still, there are bright spots that help offset some of these downside risks. One such example is India’s economy, which continues to show resilience amid incoming data that point to strong domestic demand, sustained investment flows, and policy measures aimed at bolstering growth (chart 3 and 6).
Introducing
Andrew Cates
in:Our Authors
Andy Cates joined Haver Analytics as a Senior Economist in 2020. Andy has more than 25 years of experience forecasting the global economic outlook and in assessing the implications for policy settings and financial markets. He has held various senior positions in London in a number of Investment Banks including as Head of Developed Markets Economics at Nomura and as Chief Eurozone Economist at RBS. These followed a spell of 21 years as Senior International Economist at UBS, 5 of which were spent in Singapore. Prior to his time in financial services Andy was a UK economist at HM Treasury in London holding positions in the domestic forecasting and macroeconomic modelling units. He has a BA in Economics from the University of York and an MSc in Economics and Econometrics from the University of Southampton.
Publications by Andrew Cates
Global| Jan 30 2025Charts of the Week: Looking at the Here and Now
by:Andrew Cates
|in:Economy in Brief
Global| Jan 23 2025Charts of the Week: Trump Cards
Financial markets have enjoyed a notable lift in sentiment over recent days, driven by renewed optimism about the domestic economic policies of a new US administration. Investors have certainly been cheered by early signals of a pro-growth strategy, with the energy sector taking centre stage following a ceasefire between Israel and Gaza and the announcement of measures aimed at reducing US energy costs (see charts 1 and 2). Meanwhile, China’s stronger-than-expected growth figures last week and softer-than-expected inflation readings from both the US and the UK have fuelled gains across equity and bond markets, bolstering risk appetite in other markets. However, despite the prevailing optimism, several factors warrant caution. Chief among them is the global uncertainty that surrounds the policy choices of a new US administration. The policy choices of central banks will also be critical, particularly as labour market strength could keep inflation risks alive (charts 3 and 4). Questions also linger about China’s ability to sustain its growth momentum, especially as its property sector and consumer demand face ongoing challenges (chart 5). Finally, while artificial intelligence is increasingly seen as a driver of future growth and productivity, doubts persist over its near-term potential to meaningfully transform the world economy (chart 6). For now, investors appear content to ride the wave of positive sentiment, but vigilance over these risks will be critical as the economic landscape continues to evolve.
by:Andrew Cates
|in:Economy in Brief
Global| Jan 16 2025Charts of the Week: Yielding Conclusions
A steep sell-off in global bond markets has dominated financial headlines over the past week or so, drawing intense scrutiny from investors and policymakers alike (chart 1). The implications of this for the global economy, however, will depend on the underlying drivers that have been fuelling the rout. With our charts this week, we examine the data to identify some of the likely culprits. Inflation concerns are front and centre, with rising consumer prices in recent months (chart 2) reigniting fears of tighter monetary policy. Waning overseas demand, particularly from Japan and China (charts 3 and 4), may also be playing a significant role. Meanwhile, quantitative tightening (chart 5) has possibly siphoned liquidity from financial markets, while fiscal policy uncertainties are further rattling investor confidence. The easy conclusion is that all these factors—ranging from inflationary pressures to fiscal risks—are complicit to varying degrees. However, whether this marks the beginning of a broader reckoning or merely a passing squall hinges on how incoming data now evolve and how policymakers respond to these challenges. On that first point, weaker-than-expected inflation data from the US and UK this week appear to have stopped the rot for now (chart 6). On the latter, a new US administration could add another layer of unpredictability and the coming weeks could prove pivotal in shaping market expectations and the trajectory of the global economy.
by:Andrew Cates
|in:Economy in Brief
Global| Jan 09 2025Charts of the Week: Energy, Naturally
Investors have returned to focusing on several familiar themes so far this year. These include the resilience of the US economy compared with the rest of the world, the macroeconomic implications of a new US administration, simmering geopolitical tensions, and the productivity potential of AI. Inflation concerns have also been amplified in recent weeks, however, partly due to some firmer-than-expected inflation data, most notably in the US (see charts 1 and 2). Against that backdrop and fuelled by greater caution about the scope for easier monetary policy from the US Fed, expectations for the scale of US policy rate cuts in the year ahead have been significantly scaled back (chart 3). This adjustment, however, has not been fully mirrored in forecasts for policy rates in Europe (chart 4), partly due to the region’s more subdued growth outlook. In the background to these developments, energy price fluctuations continue to play a major role in shaping both cyclical gyrations and broader structural trends. It has certainly been no coincidence that inflation concerns have intensified at the same time as energy prices have been climbing. The US economy’s (and the US dollar’s) ongoing resilience relative to the rest of the world can also be attributed, in part, to the former’s energy trade surplus, which has been shielding it from instability stemming from global energy price shocks (charts 5 and 6).
by:Andrew Cates
|in:Economy in Brief
Global| Dec 19 2024Charts of the Week: 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 (chart 1). 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. Similarly, the BoE’s likely decision to leave rates unchanged this week has stoked comparable concerns about the UK’s policy trajectory. The key driver behind these concerns is inflation. Persistent inflation in the services sector (chart 2) and ongoing wage pressures are leaving policymakers in the US and UK reluctant to ease monetary policy further. This hesitancy has been amplified by financial conditions that have arguably been looser in recent months than central banks would prefer (chart 3). Additionally, a potential shift toward a more protectionist global trade environment next year could exacerbate price pressures in traded goods sectors, further complicating efforts to bring inflation back toward target levels (chart 4). Meanwhile, in Japan, the BoJ’s decision to maintain its accommodative monetary policy highlights a contrasting challenge: low inflation and a fragile economy. These dynamics stand in stark contrast to the issues confronting the US Fed (chart 5). Further complicating the global picture is China (chart 6), where recent data point to an economy weighed down by weak consumer demand, excess industrial capacity, and tepid inflation. This also underlines the increasingly divergent challenges faced by policymakers across the world’s major economies as they navigate a highly complex and uncertain macroeconomic landscape.
by:Andrew Cates
|in:Economy in Brief
Global| Dec 12 2024Charts of the Week: The Year Ahead
In our penultimate Charts of the Week publication for 2024, we turn our attention to the upcoming year and highlight several themes that are poised to mould the economic and financial market landscape. Although a soft-landing consensus for the world economy is presently implicit in most economic forecasts for next year (chart 1) that view is not without challenges. Uncertainty about the economic outlook has bolted sharply higher in recent weeks (chart 2) partly because of the likely major - and potentially disruptive - policy changes from a new US administration (chart 3). Lingering supply-side challenges, such as climate change and the energy transition, are also generating a great deal of economic and political instability at present, most notably in Europe (charts 4 and 5). In the meantime, many Asian economies face additional challenges, including the potential for higher tariffs on trade (chart 6) and lingering debt-related problems in China (chart 7). Generating sufficient domestic growth momentum to mitigate those problems is also proving to be tough for a number of countries, not least in Japan (chart 8). As Japan’s policymakers are all too aware a key reason for weak domestic demand momentum is ageing demographics, a structural problem that will likely remain in vogue in 2025, not least in the realm of healthcare provision and fiscal policy (chart 9). Geopolitical risks will also likely remain elevated even if there is some progress next year in mitigating those risks in Eastern Europe and the Middle East (chart 10). Finally, and ending on a more positive note, there are some offsets to these downside risks, not least via the productivity-enhancing potential of AI technology (chart 11). The rebound that has been unfolding in the travel and tourism sector in recent months is also noteworthy, and a push back against the trend toward a de-globalisation of the world economy in recent years (chart 12).
Global| Dec 05 2024Charts of the Week: The Year in Review
This year, the narrative in financial markets has been defined by the unexpected resilience of the US economy. This resilience has stood in stark contrast to Europe, China and Japan, where growth outcomes have frequently fallen short of expectations (see chart 1). These growth considerations have also yielded important consequences for inflation (chart 2) and monetary policy. But feedback loops via savings imbalances have been significant too for shaping financial markets, particularly as the US has continued to attract substantial capital inflows (chart 3). Those inflows have amplified US asset market performance and generated enthusiasm for alternative assets, such as Bitcoin, and safe assets, such as gold, at the same time (chart 4). In the background to this there has been heightened enthusiasm about the productivity-potential of AI, further supporting demand – via its technology leadership - for US assets (chart 5). However, there has equally, and more recently, been heightened concern about the potential trade policy consequences of a new US administration (chart 6). We will be discussing the outlook for the year ahead in more detail in next week’s publication.
by:Andrew Cates
|in:Economy in Brief
Global| Nov 28 2024Charts of the Week: Treading Water
A holiday-shortened trading week in the US, combined with persistent political uncertainties on both sides of the Atlantic, have kept financial markets relatively subdued in recent days. Latest data releases have generally supported the prevailing view that US economic growth will remain resilient in the near term, although this strength could come at a cost for the global economy (charts 1 and 2). The Fed's approach to calibrating monetary policy in this environment remains a key area of debate, particularly given the significant role of global factors—such as capital flows—in shaping financial stability (chart 3). Europe, meanwhile, finds itself at the eye of the storm, with political gridlock in Germany and France compounding concerns about the region's economic outlook. In the UK, recent budgetary measures that raised the corporate tax burden have further clouded the picture, sparking worries about their impact on business sentiment and investment. These dynamics risk stalling much-needed structural reforms across Europe, potentially exacerbating global imbalances and widening growth disparities with the US (chart 4). Elsewhere, fears over China’s economic outlook and the trajectory of broader emerging markets have intensified amid speculation over shifts in US trade policy (chart 5). At the same time, climate change and the energy transition remain high on the agenda, with the possibility of significant policy changes in the US adding to the uncertainty (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Nov 21 2024Charts of the Week: Policy Conflict
The potential policy implications of a new US administration have been driving financial markets over the past two weeks. Global investors have responded with a more optimistic take on the outlook for the US economy but with more pessimistic views about the rest of the world (chart 1). A potential easing of US fiscal policy (e.g. via tax cuts) has also triggered a re-evaluation of Fed policy, causing US yields and the value of the dollar to climb (chart 2). The reverberations for the rest of the world will, in part, be felt via this impact on the US dollar. But trade channels will also be significant not least for economies with large US exposures (chart 3) and/or those that have been heavily reliant on US import demand to fuel economic growth (chart 4). Energy policies have also been under the spotlight over the past few days thanks to the UN Climate Change Conference (COP29) in Azerbaijan. And potential shifts in US energy policy under a new administration could certainly intensify global tensions surrounding the energy transition. For Europe more specifically, such a shift could complicate its transition strategies and sow the seeds for further economic underperformance compared with the US in the period ahead (charts 5 and 6).
by:Andrew Cates
|in:Economy in Brief
Global| Nov 14 2024Charts of the Week: Leading with a Trump
The macroeconomic implications of a new Trump administration are sparking fervent debate. Financial markets have reacted to last week’s news with heightened expectations of some stimulus through looser fiscal policy, 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 as policymakers weigh up their responses. For instance, global savings imbalances (chart 1), the US current account deficit (chart 2), and international demand for US financial assets (charts 3 and 4) lie at the epicentre of the policy agenda but equally highlight some of the underlying vulnerabilities. Should next year bring policies designed to curb demand for US imports or limit foreign investment in its financial markets, the repercussions for global economic stability could be significant (chart 5). Concerns are also mounting about energy policy, with the new administration eyeing an aggressive expansion of domestic oil production. While this may reduce energy costs and relieve inflationary pressures, it could carry environmental implications and strain international alliances (chart 6). Until such time as US policy become clearer, the easiest forecast is that uncertainty will persist. But even when some policy clarity emerges there are no guarantees that the fog will clear and there is a high probability that it could linger and even thicken.
by:Andrew Cates
|in:Economy in Brief
Global| Nov 07 2024Charts of the Week: Uncertainty Is the Easy Part
The policy decisions of a new US administration could potentially impact the global economy in a number of ways. Key areas that might be affected include trade and tariffs, geopolitical stability, fiscal policy (US tax cuts), deregulation, and immigration policy. And possibly in anticipation of some economic instability, sentiment toward global equity markets (excluding the US) has soured over the past few weeks (see chart 1). Gauges of global policy uncertainty, in the meantime, have remained relatively high (see chart 2). There remains a strong consensus, nevertheless, that most major central banks will continue to loosen monetary policy over the next 12 months (chart 3). That consensus view, however, might be challenged if prospective US policy decisions prove to be more inflationary (chart 4). One economy that will of course be an immediate area of focus will be China (chart 5). Japan is also in the spotlight at present though that’s more because of some uncertainty surrounding its domestic politics and prospective policy choices in the period ahead (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Oct 31 2024Charts of the Week: 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 illustrate how this soft landing narrative continues to shape sentiment in financial markets (see charts 1 and 2). But we illustrate too, that notwithstanding US resilience, latest forward looking business surveys suggest that global growth is losing momentum. Domestic policy and politics, however, have also been important in recent days with the new UK labour government’s first budget dominating the headlines (chart 4). Some uncertainty has additionally crept into Japan’s political scene and generated some financial market consequences (chart 5). Finally, and looking ahead to next week, US politics has continued to dominate the global headlines and may well be a key driver of economic and financial market outcomes in the period immediately ahead (chart 6).
by:Andrew Cates
|in:Economy in Brief
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