Heteronomics Archive

March 15, 2024

HEW: Keep Kicking the Cutting Can

Resilient US data continued to defy dovish hopes, with CPI and PPI inflation exceeding expectations again. UK activity data were at our below expectations but still broadly excessive. Markets have continued to kick rate cut pricing later.
Next week’s monetary policy decisions can at least officially confirm the dovish delay. Contrary to pricing not long ago, the Fed won’t cut, and the median rate dots may rise. The BoE is also on hold, and February’s disinflation won’t change that.

By Philip Rush

March 08, 2024

The UK Budget proved an anticlimactic snoozefest as the government didn’t go beyond recent leaks. Monetary policy was also broadly steady, with the ECB and Bank of Canada waiting for news, but Peru defied expectations for another cut.
Next week is quiet for policy announcements outside of Eastern Europe. Labour market and GDP data are the main UK releases, but US CPI inflation data on Tuesday will be far more critical for global markets. Some final national HICP releases are also coming.

By Philip Rush

March 01, 2024

Markets keep pushing back easing, but we believe pricing needs to adjust to higher time preferences raising neutral policy rates. The shock from past increases appears to have blown over, although ongoing EA stagnation is not breaking resilient services inflation.
Dovish market expectations for the ECB’s March decision have also faded amid cyclically tight labour market and services inflation data. It should easily clear this hurdle without policy change while preserving the data-dependent option to cut in June or later.

By Philip Rush

February 23, 2024

Dovish market expectations have continued to be ground out of pricing amid a failure of the economic data to weaken or policymakers to signal cuts soon. We explained our view that proximity to 2% inflation is neither necessary nor sufficient for rate cuts.
Flash HICP inflation data for February is the main event for us next week. Without any national releases so far, and with the 2024 weights now known, our forecast aligns with the economic consensus of 2.5%. The RBNZ is the only major policy decision next week.

By Philip Rush