Archive

UK Revisions Raise Inflationary Pressure

• Updated UK population estimates and projections drove a 402k upward revision to the employment level while unemployment was broadly unchanged.
• With output and wages unaffected, productivity was weakened into a slight trend decline while implied unit wage costs are 1.3pp higher and stuck above 5% y-o-y.
• Full typical passthrough to consumer prices reinforces the underlying inflation problem. The BoE should discount labour market data and cautiously hold rates in December.

By Philip Rush

HEM: Shrinking Euro Doves

• Europe’s underperformance is over-priced
• Labour cost rises remain above target-consistent levels
• Activity trends signal monetary policy as nearly neutral
• We see the BoE on hold while the ECB and Fed cut 25bp
• Cuts remain likely to stop early in 2025 as 1998 replays

HEW: Euro Doves Face Reality

• Resilient Euro area inflation and activity data (in the ESI) reiterated the need for ECB easing to be careful. Monetary policy divergence is priced far too widely, depressing EURUSD excessively. Schnable’s guidance was consistent with our contrarian pushback.
• Next week’s calendar is quiet ahead of the usual pre-Christmas concentration. US nonfarm payrolls are the uncontested highlight, where we expect their rebound to be soft enough for the Fed to cut by 25bp in December.

By Philip Rush

ECB Gradualism Secured By Reflation

• Euro area inflation increased by another 0.3pp in November to 2.3% y-o-y. Headline surprises were small and balanced, but the resilience doesn’t fit dovish pricing.
• Core and services price inflation rates were little changed at above-target levels. They will likely rise again in December and stay too high throughout 2025.
• The ECB believes policy is tight and demand is too weak, allowing it to cut again in December. Gradualism is required to avoid over-easing amid ongoing data resilience.

By Philip Rush