There has been little to dislodge the growing conviction in financial markets about soft landing scenarios over the past few days as data calendars have been thin and policymakers have been relatively quiet. Investors have, therefore, taken their cue from the dataflow that’s been released over the past month suggesting that inflationary pressures are cooling and that further interest rate hikes could now be unnecessary (see charts 1 and 2). We use this opportunity, therefore, to focus this week on some longer-term issues that could potentially generate heightened economic and financial instability in the period ahead. Uncertainty about the economic outlook certainly seems to have been much higher over the past 10 years compared with the norms in prior decades (chart 3). Moreover, the rapid advance – and adoption – of new technology (chart 4), demographic shifts (chart 5) and climate change (chart 6), could intensify this uncertainty in the period ahead.
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| Nov 17 2023Charts of the Week: Inflation Relief
Growing conviction that central banks have concluded their tightening cycles has fueled a rally in stock and bond markets over the past two weeks. And that conviction was reinforced by some weaker-than-expected inflation data released over the past days (see chart 1). That view has been supported too by growing evidence to suggest that higher interest rates are taking a heavier toll on economic growth (see charts 2 and 3). In some ways, the US economy stands apart in this narrative, having maintained a surprisingly resilient pace of growth compared with other major economies in recent months. But cracks are arguably now appearing there too when we dig beneath the surface (chart 4). Japan’s economy has also drawn attention this week following a much weaker-than-expected GDP report for Q3 (see chart 5). Notwithstanding concerns about the economy - and the Bank of Japan’s potential response to above-target inflation - it has continued to attract considerable interest from equity investors over the past few months (see chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Nov 10 2023Charts of the Week: Oiling the Wheels
In a week that’s been sparse with market-moving data and central bank communications the focus in financial markets has shifted to the oil market. That’s largely because oil prices have declined to three-month lows, with Brent crude now around $80 a barrel. In our charts this week we take a look at broader commodity price trends in the past few weeks (chart 1) and then go onto examine how the normalisation of supply chain pressures in the world economy over the past few months has been contributing to the decline of inflationary pressures more generally (chart 2). Staying with inflation, we look next at the ECB’s latest consumer expectations survey and still-sticky inflation expectations in particular (chart 3). We turn next to China and the surprising weakness of its foreign direct investment inflows in Q3 (chart 4). We then turn our gaze to trade flows and specifically highlight the weakness of the UK’s export activity with EU (and non-EU) countries over the past few years (chart 5). Finally, we weigh in on the US economy with some perspective on the Fed’s Q4 senior loan survey and the still-weak indications this carries about credit demand (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Nov 03 2023Charts of the Week (Nov 3, 2023)
Financial market sentiment has improved in recent days, partly thanks to the Fed’s decision this week to leave interest rates on hold. Although this decision was largely expected, recent data from the US and Europe have additionally revealed weaker-than-expected growth and inflation, bolstering the belief that a global tightening cycle may be near its end. In this week's charts, we examine the consensus on central banks' policy rates that emerged from the November survey of Blue Chip Financial Forecasts (see chart 1). Our focus then shifts to the United States, where we observe how tighter financial market conditions seem to be now steering the economy toward much weaker growth outcomes (see chart 2). With the BoJ also making headlines this week, we next analyse how Japan's significant yield differentials with the US are negatively affecting the value of the yen (chart 3). Our next stop is the Euro area, where we highlight this week’s encouraging news on the region's inflation front (chart 4). We then turn our attention to mutual fund flows in Asia, specifically examining how India, and to a lesser extent Vietnam, seem to be benefiting from some increased pessimism surrounding China. Lastly, amidst some escalation of geopolitical instability in the Middle East, we explore some indicators of credit card activity in Israel (see chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Oct 27 2023Charts of the Week (Oct 27, 2023)
Financial markets have been more unsettled over the past few days partly because of an escalation of geopolitical tensions in the Middle East. This has been exacerbated by a mixed set of company earnings reports from the United States coupled with lingering concerns about the trajectory of bond yields. In our charts this week we offer some insights on these issues with some perspective on US Treasury yields (in chart 1) and financial market stress (in chart 2). Then, ahead of the ECB’s policy decision later this week, we look at the messages from its latest Q3 survey of bank lending conditions (chart 3). With one eye on this week’s UK labour market release we subsequently focus on how unemployment rates have shifted in the world’s major economies over the last 6 months (chart 4). We then pivot to Asia with some colour on the region’s portfolio flows (chart 5). We wrap up with an update on temperature anomalies and highlight evidence that suggests September marked another month of record-breaking temperatures throughout the globe (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Oct 20 2023Charts of the Week (Oct 20, 2023)
Geopolitical instability in the Middle East has continued to weigh on sentiment over the last few days not least given its potential to amplify financial instability. In our charts this week we contrast the recent spike in a global gauge of geopolitical risk with the absence – to date – of any meaningful climb in financial market volatility (chart 1). We look too at the oil price – a key bellwether of geopolitical stress – and the critical role this could play in triggering global economic strain in the period ahead (chart 2). On the data front this week’s economic news from China was much more upbeat (chart 3). But the longer-term outlook for that economy remains uncertain, one reason for which we focus on next (chart 4). The downward revisions that have been made to the IMF’s longer-term forecasts for the world economy is our subsequent port of call (chart 5). That policy makers have felt compelled to deploy fiscal policy levers and ramp up government debt in order to mask a disappointing growth outlook is the message from our final exhibit this week (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Oct 13 2023Charts of the Week (Oct 13, 2023)
The flare up of geopolitical instability in Israel and Gaza has led investors to re-examine the outlook for the world economy over the past few days. The release of the IMF’s latest World Economic Outlook publication (IMF WEO October 2023) also, however, grabbed some of the financial headlines though whether its staff additionally need to now re-examine that outlook in light of this instability remains to be seen. In our charts this week we take a look at the IMF’s forecasts (chart 1) and contrast these with the October Blue Chip consensus, the forecasts from which were also released this week (chart 2). That Blue Chip survey contained twice yearly long-term projections for the US which we additionally examine (chart 3). One of the key channels via which global growth could be dislodged as a result of a war in Israel and Gaza is the oil price, which we focus on next (chart 4). We conclude this week though with some broader perspectives on global current account imbalances (chart 5) and then on how China appears to have lost its allure as a haven of foreign direct investment in recent months (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Oct 06 2023Charts of the Week (Oct 6, 2023)
A further steep climb in US Treasury yields has been in the eye of the storm for financial markets over the past few days. In our charts this week we assess this trend (chart 1) and driving factors. The latter include a tighter-for-longer narrative from the Fed (chart 2), a broader global trend toward quantitative tightening (chart 3), and an oil-related lift in US (and global) inflation expectations (chart 4). We touch too on the potential role that Japan may have played in generating some financial instability in recent weeks (chart 5). We then conclude with some perspective on the implications of these trends for emerging markets (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Sep 29 2023Charts of the Week (Sep 29, 2023)
Financial markets have been roiled over the past few weeks largely thanks to a “tighter for longer” narrative from the Fed and a related - and steep - climb in US Treasury yields. That narrative has been amplified by recent comments from Fed officials, by a batch of stronger-than-expected US growth data, as well as by heightened concern that firmer oil prices could re-ignite inflationary pressures. Against that backdrop our charts this week focus on the more downbeat messages that have emerged of late from the global economic dataflow (charts 1, 2 and 3). As noted, the relative resilience of the US economy, nevertheless, has continued to surprise forecasters, and some potential reasons for this are subsequently highlighted (in charts 4 and 5). Away from these near-term cyclical matters we look at another more structurally-rooted reason for global growth concern, namely still-low levels of female labour force participation in the world economy, and in India in particular (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Sep 22 2023Charts of the Week (Sep 22, 2023)
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 first two charts this week, we made a nod to these with some colour on US Treasury yields (in chart 1) and the recent behaviour of consumer energy prices (chart 2). With this week’s UK BoE decision in mind, we next focus on the more settled nature of UK financial markets over the last few months (chart 3). Then, ahead of tomorrow’s BoJ decision, and with recent changes to its Yield Curve Control policy in mind, we offer some colour on the evolution of Japan’s JGB yields (chart 4). Subsequently we turn to emerging economy matters with some aggregate perspective on these economies’ dwindling foreign exchange reserves (chart 5). India is a noteworthy exception to this, however, one reason for which concerns its inflows of foreign direct investment which we additionally underscore (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Sep 15 2023Charts of the Week (Sep 15, 2023)
Following this week’s policy decision from the ECB, 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. To kick off we look at the impact of tighter monetary policy – and quantitative tightening policies in particular – on longer-term real yields in the United States (chart 1). We turn next to some perspectives on the global growth and inflation consensus for 2024 from our latest Blue Chip survey of economic forecasters (in charts 1 and 2). Given its significance for the world economy, China’s slowdown and the impact on its major trading partners is then given some airtime (in chart 4). For the BoE more specifically, we look next at the evidence that’s been accumulating to suggest the UK labour market is feeling some strain (chart 5). Finally, and with much discussion doing the rounds about the potential impact of a new currency for the so-called group of BRICS economies, we look at the still-high weight of the US dollar in the reserve holdings of the world’s central banks (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Sep 08 2023Charts of the Week (Sep 8, 2023)
The world economy resilience over the last few months has surprised many forecasters but the incoming data from Europe this week coupled with a further climb in the price of oil suggest that downside risks are accumulating. In our charts this week we dig into this with some perspective on the downbeat messaging from September’s sentix surveys (chart 1) and our calculations for credit impulses in the US and the euro area (chart 2). The potential for positive inflation surprises from the recent climb in the oil price is then explored in our next exhibit (chart 3). The offset to this, however, is the broader evidence of a post-pandemic re-balancing of the world economy (chart 4). Still, if the incoming growth data disappoint and inflation outcomes surprise to the upside financial markets are unlikely to react too positively (chart 5). The longer-term strength of that recovery and its dependency on productivity trends and demographic factors is then given some airtime (in chart 6).
by:Andrew Cates
|in:Economy in Brief
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