Archive

EU Politics: A Tale Of Three Cities

(With apologies to Charles Dickens)

• Faced with, at best, floundering governance in the short- to medium-term, at least in both Berlin and Paris, investors should be doubly concerned at the distinct possibility that the incoming College of European Commissioners will be significantly weaker than the outgoing one.

By Alastair Newton

HEM: Dovish Delirium

• Fed pricing defies resilient activity and the risk rally
• Underlying wage inflation remains excessive
• We expect 25bp Fed and ECB cuts in Sep (BoE in Nov)
• Excessive easing can blow bubbles like in 1998
• We still see a risk of rate hikes in 2025 to reverse cuts

EA: Forecast Stability Secures Sep-24 Cut

• Headline EA inflation reassuringly matched consensus expectations by slowing 39bps to 2.2% in Aug-24 on energy price falls, with relatively small and neutral national surprises.
• A rebound in services inflation offset goods price weakness again to keep the core at 2.84%. Resilience here isn’t worrying enough to prevent further interest rate cuts.
• Broader stability in the forecast seems more relevant to the ECB, who should cut again while welcoming the reversal of the upward revisions after July’s upside surprise.

By Philip Rush

No Alarm From Global Cycle

• Broad increases in the flash services PMIs reinforced the signal that global activity remains resilient enough not to require forceful monetary easing.
• Residual seasonality hasn’t appeared in the PMIs again this summer, but it pollutes some unemployment data. A slight majority of countries have a higher UR than a year ago.
• Softening labour market trends from a relatively neutral cyclical position are consistent with gradual and limited rate cuts, even if they need reversing without a recession.

By Philip Rush