A 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 suggestions that the US labour market, in particular, is re-balancing (chart 1). Notwithstanding some softening in the US, more of the dataflow from the euro area has been firmer-than-expected in recent weeks (see chart 2). Until recently those trends, however, have failed to impress FX investors (chart 3). One reason for this arguably concerns interest rate expectations and growing evidence, in particular, from the euro area to suggest that the ECB monetary policy is now very restrictive (chart 4). Still, with this week’s European inflation data offering little comfort for those with a dovish disposition (chart 5) a pivot toward easier monetary policy from the ECB is unlikely in the period immediately ahead. Finally, how China evolves from here will remain key for the global economic outlook which is why the messages from most of its high frequency data are equally unhelpful for those with a more bullish disposition towards its economy (chart 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| Aug 24 2023Charts of the Week (Aug 24, 2023)
We are publishing this edition of Charts of the Week and our podcast a little earlier this week owing to logistical issues caused by the August holiday season.
Although the anxiety that has lately gripped financial markets has ebbed a little in the early half of this week, investors are no longer actively embracing the soft landing consensus that had previously held sway. Growing evidence of economic instability in China have certainly magnified those concerns (chart 1). But these have been further amplified by the break higher in government bond yields - and most notably in Japan’s JGB yields - over the last few weeks (chart 2). Firmer-than-expected economic data from the US may have been a contributing factor behind those moves in yields (chart 3). But lingering inflationary pressures in other major economies, such as the UK (chart 4), coupled with reticence from policymakers to pivot toward more growth-friendly policies, have also been critical for that trend as well. And since inflation and policy tensions have been key drivers of global macroeconomic and financial market instability in recent months (see charts 5 and 6), it is perhaps unsurprising that alarm bells are now ringing more loudly about the economic outlook from here.
by:Andrew Cates
|in:Economy in Brief
Global| Aug 18 2023Charts of the Week (Aug 18, 2023)
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. These minutes specifically suggested that most officials are more concerned about inflation as opposed to growth, amplifying the prevailing investor pessimism. Our charts for this week offer additional insight. They demonstrate that the recent downturn in global equity markets has unfolded against a backdrop of unusually low volatility and highly positive investor sentiment (chart 1). Consensus forecasts for US profits had, until quite recently, also been falling at the same time as forecasts for long-term interest rates had been rising (chart 2). The economic outlook for next year for most major economies has also darkened in recent weeks according to the latest Blue Chip survey of economic forecasters (chart 3). Pessimism about the UK has, in particular, become fairly acute and has possibly now been further magnified following this week’s spate of economic data (chart 4). On a brighter note, this week’s Q2 GDP data from Japan were much stronger than forecasters had anticipated notwithstanding less favourable underlying details (chart 5). Finally, and sticking with some more upbeat news, geopolitical risks have continued to ebb in recent weeks and, according to one metric, have now returned to levels that pervaded prior to the conflict in Ukraine (chart 6).
by:Andrew Cates
|in:Economy in Brief
United Kingdom| Aug 16 2023The UK economy: Poor health
The UK economy is not in great shape. That’s the overriding message from the battery of UK economic data that have been published over the past few days.
Although last week’s data revealed that GDP grew by a stronger-than-expected pace of 0.5% in June, the UK’s post-pandemic recovery has nevertheless remained poor. The level of GDP in Q2 2023, for example, was still some 0.2 percentage points below the level in Q4 2019, just prior to the onset of the pandemic.
by:Andrew Cates
|in:Economy in Brief
Global| Aug 11 2023Charts of the Week (Aug 11, 2023)
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. Under that scenario central banks could take their proverbial foot off the brake, and sit back and wait for a few months, before gently re-applying the accelerator. 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. GDP data, for example, for most major economies suggest that a recession was averted in Q2 (see chart 1). This is despite the high odds that had been assumed by many economists and financial market participants about that scenario (chart 2). In the meantime, ebbing US labour market activity, firmer productivity growth and more benign unit labour cost pressures (chart 3) have aligned quite convincingly with the Goldilocks narrative, not least given the importance of the latter for inflation outcomes. And this has found an echo in the headline CPI inflation outcomes for June (and July) not just for the US but for other major economies as well (chart 4). Not for the first time, however, the incoming data can still be cut both ways. Much of the good news on the inflation front, for example, can be traced to the weakness of energy prices in recent months. But with oil prices having strengthened again more recently – and core inflationary pressures less benign than the headlines suggest – market-based measures of inflation expectations are now somewhat un-friendly for most central banks (chart 5). Finally – and in the other direction – latest data from China are not all friendly for soft-landing enthusiasts either as downside risks to the growth and inflation outlook have been accumulating (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Aug 04 2023Charts of the Week (Aug 4, 2023)
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 ADP) 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 latest views on central bank policy that emerged from August’s Blue Chip Financial Forecasts survey (chart 1). That those views remain consistent with the idea that tightening cycles are near completion is, in part, a reflection of tighter financial market conditions, which we offer some perspectives on in our next exhibit (chart 2). It is also, however, a function of inflation, and for many central banks, service sector inflation which we focus on next (in chart 3). The decline in global economic policy uncertainty that’s unfolded in recent months is the takeaway from our next exhibit (chart 4). We then contrast this with the recent weakness of demand and of pricing power in the world’s traded goods sector (in chart 5). Lastly, (in chart 6) we look at the escalation in global rice prices in recent weeks given the threats this is posing for economic, political and social stability in many emerging market economies.
by:Andrew Cates
|in:Economy in Brief
Global| Jul 28 2023Charts of the Week (July 28, 2023)
Central banks have dominated the financial headlines this week but they have spawned few policy surprises so far. Rate hikes of 25bps from the Fed and the ECB were “in the price” as were comments suggesting that their tightening campaigns could be close to fruition. In light of this, our charts this week look at the view that persists among investors that a Fed policy tightening cycle is indeed close to completion (in chart 1). There is arguably less unanimity among investors on this over ECB policy but this week’s euro area money supply data certainly indicate that its monetary tightening campaign is working (chart 2). We then turn to this week’s firmer-than-expected US consumer confidence report from the Conference Board, how this tallies with recent surveys from Europe, and why weaker energy prices may have been a common driver (chart 3). Lower energy prices is a theme in our next two charts as well, firstly via its impact on goods price inflation in advanced economies (chart 4), and then on why the UK’s inflation arithmetic remains an outlier relative to other advanced economies (chart 5). We then stay with energy matters in our final chart this week via some updated data for 2022 for sources of global energy consumption (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Jul 21 2023Charts of the Week (July 21, 2023)
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. While US growth and inflation releases have been better-behaved (see chart 1), China’s latest data have been more downbeat (chart 2). And although this week’s UK inflation data were weaker-than-expected, progress toward normalisation remains painfully slow in part due to persistent price pressures in the service sector (see chart 3). Thankfully, tentative evidence has started to emerge to suggest that wage pressures in the US and Europe have begun to cool (chart 4). The sustainability of that trend in the period ahead, however, will partly hinge on competitive forces and global context, which we examine next (in chart 5). Finally this week, and via some data from the World Bank, we look at some refugee numbers in high income economies and the difficult messages these carry for political stability (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Jul 14 2023Charts of the Week (July 14, 2023)
Incoming economic data that concern inflation and labour market activity have continued to dominate the financial headlines over the past few days with Wednesday’s weaker-than-expected US CPI report a notable highlight. And this, coupled with evidence suggesting that labour markets may be cooling down, has driven soft landing scenarios into the ascendancy once again. In our charts this week we illustrate how the Blue Chip consensus for GDP growth and inflation in 2023 for some of the world’s major economies appears to have decoupled from global influences in recent months (charts 1 and 2). Domestic drivers of the economic cycle, in other words, are taking on more importance compared with global drivers, such as energy prices (chart 3). Our second chart additionally suggests that UK inflation is unexpectedly high relative to global norms but, as suggested above, there was some helpful evidence of a slowdown in the labour market in this week’s batch of economic data (chart 4). Calibrating monetary policy at present, however, remains hazardous, not least given acute uncertainties about prospective demand and supply patterns. Latest estimates from the New York Fed suggest the final destination for short-term interest rates is little different to where it used to be (chart 5). The same analysis, however, equally suggests that this destination could still be a long way off and with the road in between somewhat rocky and hazardous to say the very least (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Jul 07 2023Charts of the Week (July 7, 2023)
Communications from central banks together with firmer-than-expected US labour market data have continued to suggest that monetary policy could remain tighter for longer in the period ahead. This, coupled with disappointing survey evidence this week, has magnified growth concerns in recent days in financial markets. In this week’s charts we focus on the expectations for central bank policy that can be derived from the July Blue Chip Financial Forecasts survey (in chart 1). We then delve into the specifics for Fed policy with a look at the shape of the US yield curve (in chart 2). Next, we shift our attention to inflation matters and specifically the negative surprises that characterise the incoming data from major developed and developing economies (in chart 3). That diminishing inflation threat finds an echo too in the underlying details of this week’s June ISM survey (in chart 4). It finds an echo as well, albeit not as loud, in the latest consumer expectations survey from the ECB (in chart 5) as well as the latest Q2 Tankan survey from Japan (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Jun 30 2023Charts of the Week (June 30, 2023)
Financial markets have been a little more unsettled in recent days as recession fears have resurfaced again in several major economies. Those fears have been amplified by some remarks from central bankers at the ECB’s conference in Sintra this week suggesting that further monetary policy restriction is likely. Still, most gauges of financial market stress have not signalled any significant instability in recent weeks. This can be partly attributed to relatively sturdy US dataflow (see chart 1). That core CPI inflation appears to have turned a corner in many major economies is arguably another reason for the absence of financial instability (see chart 2). A key exception to this, however, is the UK where core inflation has deviated from global norms with consequences for the gilt market and sterling (see chart 3). Tight labour markets, in the meantime, are one of the factors that’s compelling central banks to keep monetary policy on a restrictive path but there are some suggestions in higher-frequency data that employment activity is beginning to ebb (see chart 4). Recent business surveys from the euro area certainly support the notion that activity in that region is now weakening quite sharply (chart 5). A broader and more pronounced global slowdown will arguably now depend on how consumers respond to a tightening of monetary policy, which we explore further in our final exhibit this week (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Jun 23 2023Charts of the Week (June 23, 2023)
A recurring theme in the dataflow over the past week, and reinforced in recent communications from policymakers, concerns the potency of monetary policy. In our charts this week, for example, we illustrate how activity in the US housing market appears to have picked up again in recent weeks (in chart 1), notwithstanding the Fed’s hitherto successful efforts to marshal a slowdown. We then turn to the UK’s still-troublesome inflation picture – and the BoE’s policy rate hike of 50bps this week - with some perspectives on its mortgage market, wage pressures and food and energy prices (in charts 2 and 3). The power of policy to curb liquidity in the euro area banking sector is our next port of call (in chart 4). However, the diminishing power of monetary policy in China to boost liquidity is evidenced in our next exhibit (in chart 5). Finally, and chiming with the sobering messages for the global economic outlook implied by most of our exhibits this week, we focus on the weakness of traded goods prices and South Korea’s export growth (in chart 6).
by:Andrew Cates
|in:Economy in Brief
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