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).
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| Apr 21 2023Charts of the Week (Apr 21, 2023)
Concerns in financial markets about the underlying health of the US and European banking sectors have continued to ebb in recent days leaving more familiar macro factors to re-take centre stage. The focus this week in particular has been on the Q1 US earnings season but some stronger-than-expected GDP data from China and another positive inflation surprise from the UK were also in the limelight. In our charts this week we underscore how important the incoming macroeconomic data have been for financial market outcomes in recent months (in chart 1) and the heavy role that energy prices have played in driving that data (in chart 2). With China in the news this week, we look next at the absence so far in this reopening phase of any big impulse from domestic credit growth (in chart 3). We then throw the spotlight on global food prices, and, in particular, the big divergence that’s opened up between consumer food price inflation in North America and Europe (in chart 4). The UK labour market is our next port of call and specifically the evidence this week that suggests that market is beginning to wilt, presumably under the weight of tighter monetary policy (in chart 5). Finally, and away from the ebb and flow of the macroeconomic data, we illustrate the latest update of global surface temperature anomalies from the National Oceanic and Atmospheric Administration (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Apr 14 2023Charts of the Week (Apr 14, 2023)
This week the International Monetary Fund (IMF) trimmed its global growth outlook for this year and flagged downside risks from a potential further flare up of financial instability. Lingering concerns about high inflation and tight labour markets were also emphasised, not least because a further monetary policy response might re-ignite financial market tensions. In our charts this week we pick up on these themes. We look, for example, at one of the factors that’s been driving banking sector stress and specifically the shift away from US bank deposits and into money market funds in recent months (in chart 1). We then turn to the uncomfortable trade-off between the outlook for profits and interest rates that’s recently established itself (chart 2). Next, we look at the equally uncomfortable messaging for global growth from this week’s sentix surveys of investor confidence (chart 3). More comfortable messaging is, however, now being signalled for the inflation outlook via the recent normalisation of supply chain pressures, an issue we assess next (in chart 4). And that messaging chimes too with recent data from Asia and specifically the weakness of China’s producer price inflation and South Korea’s exports (in chart 5). Finally, and in tune with some structural analysis in the IMF’s latest April Economic Outlook, we explore the links between demographics and long-term interest rates (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Apr 07 2023Charts of the Week (Apr 7, 2023)
Financial markets have remained on a more upbeat footing over the past few days as fears about the US and broader global banking sector have ebbed. The additional liquidity support that’s been offered by central banks, and the Fed in particular, coupled with heightened expectations of a pivot toward looser monetary policy are surely key reasons for this new-found optimism. Many observers, nevertheless, are questioning whether the conditions that ultimately warrant this additional policy support will be positive for growth and profitability in the period ahead. Many of our charts this week weigh in on this debate. We look, for example, at the latest Blue Chip consensus for policy rates in the major economies (in chart 1). We also contrast the degree to which phases where US bank lending standards were tightening (like now) typically chime with phases of broader financial instability (in chart 2). On macroeconomic matters we then look at the ongoing dysfunction in the US labour market via a Beveridge curve analysis of job openings and unemployment (in chart 3). We follow this in the euro area with a look at a new index of service sector activity (in chart 4) and the omens this is carrying for the region’s economic outlook. We then turn to the UK with a look at another source of downside risk, and specifically the spike in strikes and industrial stoppages that’s been weighing on the economy in recent weeks (chart 5). Finally, in Japan, we look at the indications from the latest Tankan index and, in particular, the more intense pricing pressures that this latest survey reveals (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Mar 31 2023Charts of the Week (Mar 31, 2023)
A more positive mood in financial markets has unfolded so far this week as fears about the health of the world’s banking sector have ebbed. For how long that more positive mood endures is, however, still open to much debate. That investors are still anticipating a looser path for monetary policy over the next 12 months even as many central banks have been lifting interest rates over the past two weeks certainly suggests much anxiety about the economic outlook from here (see chart 1). In our charts this week we highlight latest euro area data for monetary developments which certainly underscore growing vulnerabilities in the financial system (see chart 2). That the pace of broad money growth in advanced economies more generally has been feeble in recent months additionally highlights how restrictive the stance of policy may now be (see chart 3). The impact of this on economic activity will be hard to discern in the immediate weeks ahead but high frequency sentiment data will be some of the key indicators to watch. It was, therefore, notable that this week’s Conference Board data from the US suggest that consumer confidence has held up well, at least so far (see chart 4). A relatively upbeat message is also being signalled about the US (and Switzerland) by the OECD’s high frequency indicators of economic activity (in chart 5). Finally - from a more structurally-rooted perspective - we illustrate this week the great strides that India has made in its technological development in recent years via some data for internet penetration (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Mar 24 2023Charts of the Week (Mar 24, 2023)
Financial market sentiment has improved over the last few days thanks to reassuring communications and targeted policy support from central banks together with a high profile acquisition of a troubled institution in the Swiss banking sector. Although the Fed has subsequently enacted a 25bps rate hike, Chairman Powell has further assuaged market fears by suggesting the US tightening cycle is nearly complete. Against that backdrop our first three charts this week dwell on financial instability and how this can be traced, in part, to central banks’ tightening campaigns. The trade-offs for policymakers, however, are now far more challenging, not least as inflation is proving to be far more sticky in some major economies (e.g. the UK) than expected (see chart 4). In the meantime, there remains little evidence yet of a revival in the world economy, notwithstanding the pick-up that might have been expected in some areas by now from China’s re-opening (see charts 5 and 6).
by:Andrew Cates
|in:Economy in Brief
Global| Mar 17 2023Charts of the Week (Mar 17, 2023)
Last week’s failure of a US bank and growing fears about the underlying health of the world’s broader banking sector have dominated the financial headlines in recent days. A trend toward risk aversion has clearly been in the ascendancy. And central banks are now under growing pressure to offer targeted support and more generally to halt their tightening campaigns in order to restore financial stability. For while banks’ funding models and regulatory oversight are now being actively discussed, a key root of the present crisis concerns the synchronized – and relatively aggressive – campaign from central banks to squeeze out inflation. In our first two charts this week we illustrate how financial stress has been building and how markets have re-assessed their expectations for Fed policy in recent days. Our next two charts, however, illustrate how those expectations have been shifting in ways that are somewhat counter to the global economic scene. Still, at the margin, incoming data over the last few days suggest that labour market activity and inflation have continued to cool, which should alleviate the current dilemmas for policymakers. Our fifth chart, showing high frequency indicators of hiring activity, offers one example of that trend. Our final chart, showing how global air passenger traffic appears to be slowing down as well, is also possibly a sign that COVID-related distortions to the world’s economic fabric (and their inflation implications) are now normalising as well.
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by:Andrew Cates
|in:Economy in Brief
Global| Mar 10 2023Charts of the Week (Mar 10, 2023)
Testimony from Fed Chairman Powell has dominated macroeconomic discussions so far this week (and ahead of the latest US payrolls report later today). Against a backdrop where the US economy has been showing unexpected resilience and firmer-than-expected inflation it was perhaps unsurprising that Powell suggested the fed funds rate will likely have to be increased more than previously expected. Still, as our first chart this week suggests, there was some evidence in this week’s February ADP report to suggest that smaller companies are now feeling the pinch from tighter monetary policy. And as our next two charts suggest, the underlying health of the broader world economy is not demonstrating nearly as much resilience at present as the United States. In the meantime, while hopes are high that China’s reopening might marshal a firmer impulse to global growth, this week’s announcement at the National People’s Congress of a 5% growth target for 2023 was lower than many China economists had expected (and we offer some context to this in our fourth chart). As for the euro area, some good news emerged for the ECB this week from its latest consumer expectations survey, specifically via a big drop in medium-term inflation expectations (see our fifth chart). Finally, on financial market matters, we illustrate in our sixth chart the still-heavy role that monetary policy has been playing in the valuation of financial assets.
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by:Andrew Cates
|in:Economy in Brief
Global| Mar 03 2023Charts of the Week (Mar 3, 2023)
Having begun 2023 on a more upbeat footing, the mood in financial markets has continued to sour over the past few weeks. Incoming data suggest that labour markets are too tight and that inflation is too high for comfort, especially for central banks. And this combination has added to the case for further policy tightening. Our first chart this week illustrates how financial markets have specifically re-priced the trajectory of Fed policy in response to recent data. But we illustrate too – via charts 2 and 3 – that tighter policy is now choking off domestic demand in the US and Europe which ought to help restrain inflation in the months ahead. As we further illustrate in charts 4 and 5, global sources of inflationary pressure from traded goods sectors (e.g. semiconductors) are also now waning quite sharply, thanks to a recent reconfiguration of supply and demand. Finally, and on a different theme, we look at tourist arrivals in Thailand in chart 6 in order to examine whether China’s re-opening is beginning to exert an impact on domestic activity in South-East Asia.
by:Andrew Cates
|in:Economy in Brief
Global| Feb 24 2023Charts of the Week (Feb 24, 2023)
Financial markets have been pricing in tighter-for-longer monetary policy settings in recent weeks thanks to some firmer-than-expected US data. And this is now reversing the shift from a hard to a soft landing consensus that had begun to form in January. Our charts this week, however, turn the focus back onto some of the more positive trends that have established themselves in recent times. We look, for example, at falling European energy prices (in chart 1), ebbing core inflation rates (in chart 2), and at an arguably more realistic consensus for US profits and interest rates (in chart 3). We then hone in on the punchy US fiscal policy impulse that’s being enacted for the coming years (in chart 4) and how this (relative to elsewhere) might be affecting interest rates and the US dollar (in chart 5). Finally - and from a longer-term perspective - we throw some light on how costs of various renewable energy sources have been falling over the past few years (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Feb 17 2023Charts of the Week (Feb 17, 2023)
The shift toward a soft landing consensus that had been in vogue since the start of this year has suffered some setbacks over the past two weeks. Last week’s strong US jobs data combined with this week’s firmer-than-expected US CPI report have been the principal challenges to that view. Still-hawkish communications in the meantime from a number of central bankers have additionally thrown some salt onto the wounds. Our first two charts this week home in on the recent evolution of consensus growth forecasts for 2023 and how these contrast with high-frequency indicators of economic activity. China’s re-opening is another closely-watched theme at present and we offer some perspectives on this in our third and fourth charts. Then, returning to the US, we contrast indications about recession risks from a couple of indicators in our fifth chart. And finally we make a nod to this week’s UK labour market report and its suggestion that wage pressures could now be easing, in our sixth chart.
by:Andrew Cates
|in:Economy in Brief
Global| Feb 10 2023Charts of the Week (Feb 10, 2023)
Last Friday’s much stronger-than-expected US jobs report has set the tone for financial markets in the past few days. But it has not yet meaningfully derailed the more upbeat narrative concerning inflation and monetary policy that’s been in vogue since the start of this year. Our first few charts this week chime with the idea that inflation is rolling over and that tighter policy settings are taking a toll. Business sentiment data, however, are now exhibiting an unexpected improvement as we illustrate in our fourth chart. This improvement stands in contrast to harder (albeit more backward looking) data for industrial production, which we underscore in our next chart. Lastly the UK has been a notable underperformer on the industrial production front in recent years, so we dig a little deeper into its relative performance in our final chart this week.
by:Andrew Cates
|in:Economy in Brief
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