Archive

HEM: Dovish Prices Deranged

• Activity remains surprisingly strong, defying dovish fears
• Labour markets are tight, and manufacturing is stable
• Underlying price and wage inflation is still too high
• Rates underrepresent the rebounding risk sentiment
• BoE cut pricing ahead of the Fed looks the most deranged

EA: April’s Awkward Core Rebound

• Resurgent services offset falling energy prices in April to deliver a surprisingly stable 2.2% rate, breaking the usual correlation between energy price moves and surprises.
• Surprises skewed positively across the Euro area, compounding the underlying signal from core inflation, which has reversed its weakness from the previous two months.
• The headline news is modest, and the composition won’t derail the ECB’s June cut, but it demonstrates the ongoing inflation problem that should truncate the easing cycle.

By Philip Rush

EA: GDP Stimulated Faster Than Supply

• Activity growth in Q1 shouldn’t be dismissed as it helps signal the economy’s momentum and effective monetary conditions that trade shocks will fall on top of in the euro area.
• GDP growth exceeded expectations again by increasing to 0.35% q-o-q. Productivity’s poor post-pandemic performance helps GDP drive the ongoing fall in unemployment.
• Supply’s trend seems to have softened despite demand’s improving, raising excesses and the risk that ECB monetary policy was already stimulative before the trade shock.

By Philip Rush

EA: Easing Stagflationary Noise

• Hard economic data must match gloomy sentiment to justify ECB rate cuts reaching a stimulative setting. The little evidence available so far doesn’t show much of a shock.
• Bank lending growth kept rising for companies and households in March as monetary conditions appear to be loosening, not tightening, due to the initial tariff shock.
• Activity surveys only softened slightly in services, while inflation expectations are broadly high. Failure to see much more stagflation eases the likelihood that it occurs.

By Philip Rush