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. Latest data have, on the whole, reinforced expectations that most central banks will loosen monetary policy in the immediate months ahead (chart 1). And that’s partly because incoming inflation data have been well-behaved (chart 2). In the meantime, forward-looking survey data have, with one or two exceptions, remained above the threshold that would typically generate recession alarms (chart 3). Soft landing narratives have, accordingly, remained in vogue. That being said, lingering imbalances—particularly in China (chart 4)—combined with growing concerns about an unwinding of Japan’s carry trade (chart 5), have left the risks to the global economic outlook skewed to the downside. Added to that, the potential profitability of technology companies and the broader health of the US economy are also now being more actively challenged (chart 6). Either way, central banks continue to face a complex mix of challenges in the period ahead, not least if political instability (e.g. in the US) were to hamper confidence in the final quarter of this year.
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| Aug 22 2024Charts of the Week: Growth Alert
We will not be publishing ‘Charts of the Week’ and our accompanying podcast next week. 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. That’s partly because incoming growth data have continued to surprise forecasters on the downside (charts 1, 2 and 3). Lingering uncertainty about how a further unwinding of Japan’s carry trade might amplify financial instability in the period ahead could also be weighing on confidence (chart 4). In the meantime, while incoming inflation data have offered some reassurance that monetary policy will be loosened in the US and Europe in the coming months, still-sticky service sector inflation is generating some doubt about the scope and the scale (chart 5). Finally, and looking beyond these cyclical issues, there remain several structurally-rooted headwinds that could be knocking growth optimism off course, including ageing demographics (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Aug 15 2024Charts of the Week: 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 have kept investors anxious about the potential for a broader conflict in the Middle East. The recent narrowing of interest differentials between the US and Japan is additionally amplifying uncertainty about how a further unwinding of Japan’s carry trade might destabilise markets in the period ahead. In our charts this week, we examine some of the key messages from the latest Blue Chip survey of Economic Indicators (charts 1 and 2). We also highlight some of the key economic reports that have been published in the past few days, including Japan’s Q2 GDP figures (chart 3), and the latest inflation reports from the US and UK (charts 4 and 5). Lastly, we examine airport traffic statistics for the UK, Spain, and Germany (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Aug 08 2024Charts of the Week: Summer Storms
Financial market instability has been in the ascendancy over the past few days as investors shunned risk assets and flocked to safe havens such as government bonds (chart 1). A key catalyst was last Friday’s weaker-than-expected US employment report (chart 2) but there have been other factors that have amplified investor concerns. These include last week’s decision by the Bank of Japan to lift its policy rate and the impact of this on so-called carry trades (chart 3) coupled with heightened anxiety about the potential profitability of big US technology companies (chart 4). Geopolitical concerns regarding the Middle East together with thin summer trading conditions have additionally played a role. All that said, markets have returned to calmer waters over the past 48 hours, partly thanks to some dovish comments from central bankers, and most notably BoJ Deputy Governor Uchida. Concern about the impact of financial instability on the world economy could, in any case, have been over-baked. This week’s US dataflow have certainly been more reassuring (chart 5). That inflation has been ebbing and there is now greater scope to relax monetary policy ought to also help allay recession fears (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Aug 01 2024Charts of the Week: One Up, One Down and 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 has 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 (see chart 1). The Bank of England, in the meantime, has cut its policy rate by 25bps this week, a little earlier than some market participants had anticipated (chart 2). And on the other side of the equation, the Bank of Japan also sprung a surprise by unexpectedly lifting its policy rate and announcing a new plan to taper its bond buying programme (chart 3). While the timing of these communications and policy shifts has caught some analysts by surprise, there has been little to dislodge the view that most major central banks will embark on – or extend – an easing cycle over the next few months (chart 4). And this, coupled with recent evidence suggesting that labour market activity is softening and that inflation is subsiding, is reinforcing a soft landing narrative (chart 5). All that aside there is no shortage of factors that are challenging this narrative. One of these factors concerns the further flare-up of instability in the Middle East in recent days, which might amplify supply chain pressures and lift global energy prices in the period ahead (chart 6). Inasmuch as goods price disinflation has been a critical driver of the downward drift in broader consumer price inflation in the global economy, this could be of some significance in coming months, not least if service sector CPI inflation remains sticky.
by:Andrew Cates
|in:Economy in Brief
Global| Jul 25 2024Charts of the Week: 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 (chart 1) probably because more restrictive policy settings are now more forcibly weighing on aggregate demand (charts 2 and 3). However, still-sticky service sector inflation (chart 4) could postpone any moves to (further) ease the stance of monetary policy not least if traded goods price inflation now begins to stir (chart 5). This week’s evidence suggesting robust demand for semiconductors has continued to support global trade also serves as a reminder that there are some tailwinds behind the world economy at present that are countering policy-related headwinds (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Jul 18 2024Charts of the Week: 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 (chart 1). That being said, incoming data from many major economies, including China, have disappointed to the downside much more frequently in recent days (see charts 2 and 4) keeping recession risks elevated (chart 3). And while investors in big US technology companies have, until very recently, brushed off those risks, buoyed by optimism about the productivity-related potential from AI, broader global equity market gyrations equally suggest heightened concern. Still, aside from AI’s-productivity potential, there are grounds for optimism about other areas of the global economy, including India (chart 1) and South-East Asia (chart 6). Latest data and forecasts additionally suggest the near-term outlook may be brightening a little in the UK (charts 1 and 3).
by:Andrew Cates
|in:Economy in Brief
Global| Jul 03 2024Charts of the Week: Political Melodies and Macroeconomic Harmonies
We will not be publishing ‘Charts of the Week’ and our accompanying podcast next week.
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. A recent – and prospective – loosening of monetary policy by the world’s major central banks has also been reinforcing the view that a severe economic downturn can be avoided (see chart 1). Writing ahead of the non-farm payroll report on Friday, this week’s dataflow from the US and the euro area offered some mixed messages. The US labour market, for example, still appears to be quite tight judging by May’s data for job vacancies and turnover (chart 2) while June’s ISM surveys suggest the economic activity more generally could now be slowing much more sharply. Service sector inflation in the euro area, in the meantime, still appears to be quite sticky, judging by June’s flash CPI data, and possibly because regional labour markets also remain relatively tight (chart 3). On a brighter note, latest data from South Korea have reinforced the idea that global demand for new AI infrastructure is still solid (chart 4). Japan’s exporters have also been in vogue in recent times, partly thanks to a weak yen (chart 5). Finally, and just after the UK election, but ahead of the second round of the French election this weekend, financial markets have also been dancing to political melodies in recent days. However, a lack of domestic macroeconomic harmony, and much uncertainty about how politicians will respond, remain key sources of downside risk in the period ahead (see chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Jun 27 2024Charts of the Week: 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 (see chart 1). But the outlook for the broader world economy has also been arguably taking a turn for the worse. Evidence is certainly mounting that global growth momentum is slowing (see charts 2 and 3), that financial conditions are tightening (charts 4 and 6), and that central banks may now be more hesitant to loosen monetary policy in the period immediately ahead (chart 5).
by:Andrew Cates
|in:Economy in Brief
Global| Jun 20 2024Charts of the Week: 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 (see chart 1). 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 (chart 2). European investors have also been unsettled by the political instability in France and its broader regional implications (chart 3). Meanwhile, property market instability continues to impact China’s economy, as evidenced by this week’s slew of economic data (chart 4). On a more positive note, Japan's latest trade data indicated healthier economic conditions, partly due to firmer export growth (chart 5). That improvement can be attributed, in part, to sustained demand for semiconductors, which also acts as a reminder that soft landing narratives have additionally been bolstered by the productivity potential of Artificial Intelligence over the past few months (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Jun 14 2024Charts of the Week: 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 (chart 1). Elsewhere, the timing of a potential rate cut by the Bank of England has also been actively discussed, following a downbeat batch of UK economic data (chart 2). Meanwhile, politics has grabbed headlines again, particularly in France, following President Macron's decision to call a snap election (chart 3). More generally, political instability in Europe has arguably increased due to growing hostility from fringe parties regarding the economic implications of the global energy transition (chart 4). Additionally, European politicians have shown growing hostility toward China’s industrial policy, which has coincided with lacklustre trade data between both regions (see chart 5). In the background, and returning to Fed policy, the US dollar has continued to strengthen, which could have some consequences for global trade growth in the period ahead (see chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Jun 06 2024Charts of the Week: 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 some of the globally-rooted macroeconomic factors that explain why incumbent political parties have struggled to gain renewed traction with their electorates in recent months (see charts 1 and 2). Given that some of these relate to consumer prices and interest rates, near-term relief could be forthcoming if recent declines in global oil prices are sustained (chart 3). However, the decline in oil prices might indicate a broader downturn in the world economy, a message that finds an echo in this week’s disappointing US ISM manufacturing survey (chart 4). Shifting focus, we also examine this week’s firmer-than-expected wage data from Japan and its implications for the BoJ (chart 5). Finally, we highlight China’s electric vehicle production, given the sector's significance for the world economy and its prominent role in the industrial policies of several nations (chart 6).
by:Andrew Cates
|in:Economy in Brief
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