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).
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| 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
Global| Jun 16 2023Charts of the Week (June 16, 2023)
Central banks have stolen the limelight over the past few days but with policy shifts that reveal stark differences – and perhaps greater disagreement among policymakers - about the outlook for their respective economies. For example, the decision by the US Federal Reserve to pause its tightening campaign, while simultaneously hinting at future rate hikes in the coming months, undoubtedly raised a few eyebrows. Meanwhile, China's decision this week to reduce its 7-day reverse repo rate by 10bps, lowering it from 2% to 1.9%, was also noteworthy but not entirely surprising given a series of disappointing data releases. As for the ECB, this week’s decision to lift its key policy rates by a further 25bps came as no surprise even though the incoming growth data from the euro area have been equally underwhelming (compared with China). Against this backdrop, our charts this week focus on the Fed’s tightening campaign (in chart 1), the recent strength of global equity markets (in chart 2), and US and broader global inflation issues (in charts 3 and 4). We then turn to the growing inflexibility of the UK labour market (in chart 5) and finally focus on China’s disappointing reopening phase (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Jun 09 2023Charts of the Week (June 9, 2023)
Financial market sentiment has continued to improve in recent days despite conflicting signals from the economic data flow. This improvement can be traced, in part, to the removal of uncertainty surrounding the US debt ceiling. However, as indicated by our first two charts this week, there is now growing evidence to suggest that headline inflationary pressures are receding in most major economies, which could have been a further contributing factor. Nevertheless, as our next three charts this week also suggest, the world economy is not yet out of danger. Among other potential negatives, this week's data flow signalled a big slowdown in export growth in China (chart 3), still-fragile growth expectations from the global investor community (chart 4), and increasing inventory imbalances in the US economy (chart 5). Lastly, and on a completely different and more structurally-rooted note, our final chart this week looks at some of the challenges Asian economies face in their transition to a Green economy (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Jun 02 2023Charts of the Week (June 2, 2023)
The world economy’s underlying vulnerabilities have been in sharp focus over the past few weeks, but more deep-seated wounds with longer-lasting scars have been avoided, at least for now. This applies specifically to the anxiety that had surfaced about the health of the US banking sector and more recently to the willingness of politicians to lift the US debt ceiling. But it applies more generally to the outlook for the world economy, partly thanks to the relief that’s been provided by weaker energy prices. Still, as most of our charts this week suggest, while deeper wounds have been avoided for now, this does not mean that underlying vulnerabilities have been erased. We illustrate, for example, the heightened tendency of incoming data for global growth to disappoint expectations to the downside (in chart 1). Inasmuch as that trend toward disappointment has been rooted in a deteriorating outlook in Europe and Asia (compared with the US) we look next at the renewed upward pressure on the US dollar (in chart 2). The downward pressure on European inflation and on bank credit growth (in Europe and the US) is our next focus (in charts 3 and 4). Then, on labour market issues, we home in on the mixed messages that were conveyed about employment activity in the US from this week’s April JOLTs report (in chart 5). And finally we turn to the worrying trend toward higher youth unemployment that’s established itself in China over the last few months (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| May 26 2023Charts of the Week (May 26, 2023)
Lingering concerns about US debt ceiling negotiations have left financial markets on the back foot over the past few days. But incoming economic data this week have not helped. May’s flash PMIs, for example, disappointed to the downside in Europe with the details revealing stubbornly high price pressures in the service sector. Those details found an echo in a much stronger-than-expected UK inflation print for April as well. Against this backdrop our charts this week firstly home in on market expectations for Fed policy (in chart 1). We then contrast these with the more downbeat messages for global growth that are being signalled by falling copper prices and negative global growth surprises (in chart 2). We turn next to the sobering messages from the stalling pace of GDP growth in Asia’s more developed economies (in chart 3) and one reason for this (in chart 4), namely soggier world trade growth and rising inventories. Our last two charts then return to inflation issues and examine the relatively high level of energy price inflation in the UK compared with the US and to a lesser extent the euro area (in chart 5). This is then contrasted with the firming trend for core inflation in the UK and the ebbing trend in the US and euro area (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| May 19 2023Charts of the Week (May 19, 2023)
Financial markets were a little unsettled earlier this week but heightened optimism about the willingness of US politicians to raise the US debt ceiling has calmed some fears. Incoming economic data, however, have taken a turn for the worse and there is arguably now mounting evidence to suggest that tighter monetary policy is beginning to exact a heavier toll. Against this backdrop, our charts this week look at the expectations for US monetary policy that are now implicit in the shape of the US yield curve (in chart 1). We turn next to the trend toward private sector deleveraging that’s being instigated by tighter monetary policy (in chart 2). China’s economy is our next focus (in chart 3) and the accumulating evidence to suggest that its reopening phase has failed to live up to expectations. That’s an indirect message too from the drag on Japan’s economy from net trade in Q1 that we subsequently explore (in chart 4). A slowing UK labor market and the welcome messages this is offering the Bank of England in its inflation-fighting campaign is our next focus (in chart 5). Finally, and staying with inflation issues, we explore what US companies have to say about demand pressures and profit margins and their impact on prices (in chart 6).
by:Andrew Cates
|in:Economy in Brief
United Kingdom| May 12 2023UK Growth Up Modestly in Q1
The UK economy grew by 0.1% in the three months to March 2023, matching market expectations. On a monthly basis, GDP fell by 0.3%, after showing no growth in February. The contraction in output in March was mainly driven by a weaker services sector, the output of which declined by 0.5% after a fall of 0.1% in February. In particular, output in the wholesale trade and retail sector fell by 1.4% thanks to much weaker household spending in response to rising inflation. Output in consumer-facing services fell by 0.8% in March 2023 after a rise of 0.4% in February.
In contrast, growth trends in other key component sectors such as production and construction were more upbeat. Specifically, industrial production grew by 0.7% in March which was the strongest pace of growth since May 2021. Construction sector output also grew by 0.2% in March following growth of 2.6% in February.
Despite the increase in output in Q1, GDP is still some 0.5% below its pre-pandemic level. Still, the economy has now eked out two consecutive quarters of growth, which chimes with the Bank of England’s revised view that the UK may now avoid a recession in 2023.
by:Andrew Cates
|in:Economy in Brief
Global| May 12 2023Charts of the Week (May 12, 2023)
Following a frenetic week on both the policy and data front, the macroeconomic calendar has been a little lighter over the past few days. This week’s key report, namely April’s US CPI data, more or less met market expectations while on the policy front the Bank of England matched forecasts too in hiking the Bank rate by 25bps. Otherwise the stability of the US banking sector and debt ceiling politics were a couple of themes for investors to additionally focus on. Against this backdrop, our charts this week home in on the latest Blue Chip consensus for economic growth (in chart 1) and how these contrast with recent investor surveys of the world economy (in chart 2). We then look at how the wheels of the US credit cycle are slowing down according to the latest Senior Loan Officer survey (in chart 3) and how the small company sector is responding to this via reduced expectations for inflation (in chart 4). Finally, we look at China’s reopening and the weaker momentum that’s being signalled by high frequency economic indicators (in chart 5) together with the absence of any big ripple effects from that reopening for the rest of the world (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| May 05 2023Charts of the Week (May 5, 2023)
The spotlight has been on the Fed and the ECB over the past few days with investors keen to hear some hints that an interest rate tightening cycle is close to completion. Notwithstanding further hikes of 25bps from both central banks, that certainly seemed to be a takeaway from the Fed judging by Chairman Powell’s post-meeting comments and the financial market response. Incoming economic data have been flagging downside growth risks over the past week or so and this has given cover for US policymakers to communicate a policy pause. But those growth risks combined with heightened financial stability concerns, still-high inflation, and arguably sanguine market pricing (e.g. in credit) underscore how difficult the calibration of monetary policy has become. Against this backdrop our charts this week home in on consensus forecasts for policy rates over the next 12 months (in chart 1) and the heightened US recession risks that recent surveys have been signalling (in chart 2). A more upbeat view about the US economy is, nevertheless, being signalled by this week’s labour market reports, one of which we additionally illustrate (in chart 3). As for Europe, much of this week’s data has been more damning for the economic outlook which we underscore via the ECB’s latest Q2 bank lending survey (in chart 4). On the inflation front we then focus on the disinflationary messages for traded goods prices that can be heeded from China’s latest manufacturing PMI survey (in chart 5). Finally, with oil prices falling sharply in recent days, we look at the tight relationship between global energy prices and core CPI inflation (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Apr 28 2023Charts of the Week (Apr 28, 2023)
Financial market jitters have resumed in recent days in part because of renewed concern about funding pressures in the US banking sector. Forward-looking US economic data have additionally disappointed expectations and continue to flag non-negligible risks of a recession in the period ahead. Our charts this week examine these issues with some perspective on global financial stress (in chart 1), consumer confidence (in chart 2) and US capex orders (in chart 3). We then home in on skilled labour shortages in Europe (in chart 4) before turning to the close relationship between commodity prices and emerging market inflation surprises (in chart 5). Finally, and drawing on the IMF’s latest figuring, we examine how some of the major advanced economies now stack up versus China and India in their respective shares of global GDP (in chart 6).
by:Andrew Cates
|in:Economy in Brief
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