Archive

HEM: One-Touch Easing

• Payrolls revisions challenge the rolling resilience seen in most other hard data releases, but seem over-weighted.
• Underlying price and wage inflation mostly track >2%, especially in the UK, which doesn’t need more rate cuts.
• Policymakers biased to ease will deliver it on a batch of bad outcomes, even if the evidence proves fleeting.

EA: Sticky Summer Inflation

• The ECB’s victory party can continue for another month, as inflation proved surprisingly sticky at the target. But the hangover is disappointing, amid broad-based upside news.
• Two-thirds of national outcomes exceeded our expectations, with a slight skew higher, and pressures concentrated in services. Seasonal travel parts would be payback-prone.
• Another upside surprise to the ECB’s forecast makes the profile likely to shift higher in September. The news is the opposite of what is needed for another rate cut.

By Philip Rush

ECB Job Tightened By Jobs

• The EA labour market proved tighter than the ECB expected in Q2 as the unemployment rate held at a downwardly revised 6.2%. That is hawkish news to its neutral stance.
• Most countries still face falling unemployment, suggesting monetary conditions were slightly loose, and avoiding pressure to lower underlying inflation further.
• A hawkish domestic surprise should keep the ECB on hold, especially with the US trade policy risk fading. Passthrough of past cuts may mean the ECB needs to hike later.

By Philip Rush

Activity’s Tariff Hangover In Q2

• GDP growth broadly beat expectations again in Q2 on both sides of the tariff disruption. Euro area growth slowed by less, while the US rebounded vigorously.
• Temporal distortions to demand didn’t open up slack as European supply growth stays stagnant. Surveys suggest it won’t appear in Q3 either as demand growth rebounds.
• Underlying US GDP growth may have slowed, but the extent is modest and questionable. Rolling resilience should keep delaying rate cuts, preventing them from occurring.

By Philip Rush