Archive

July 31, 2024
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EA: Inflation Drift Risks Drowning Cuts

  • EA inflation exceeded consensus expectations by 0.2pp as it increased to 2.6% y-o-y in July but was within 1bps of our forecast as our surprises were less and offsetting.
  • Further resilience in services inflation kept the core at 2.9%, demonstrating upside news in the less volatile areas more reflective of domestic conditions.
  • Forecasts for July have been trending higher, challenging the ECB narrative where stability permits cuts. September remains likely, but the cycle could be doused swiftly.

By Philip Rush

July 30, 2024
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EA GDP Growth Steadier Than Surveys

  • Euro area GDP growth remained at 0.3% q-o-q in Q2, defying expectations for it to slow like the surveys. Germany’s surprise fall may disappear as actuals replace estimates.
  • Sustaining something close to potential growth without a shallow recession to recover suggests cyclical pressures are stable, like the unemployment rate.
  • Effective monetary conditions do not currently look tight in the Euro area. Rate cuts to offset belated passthrough are inherently more limited and at risk of reversal.

By Philip Rush

July 29, 2024
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UK Fiscal Hole Reeves-ealed

  • The new UK Chancellor has revealed a £22bn fiscal hole in plans for the current year. Only a quarter of that cost is loosely covered by freshly announced cuts.
  • Over half of the cost reflects enormous public sector pay increases that the government chose to accept. Budget announcements on 30 October should pay for some of that.
  • Looser fiscal policy and bumper pay settlements warrant relatively tighter monetary policy. However, the policy rate impact will prove more significant in 2025.

By Philip Rush

July 24, 2024
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PMIs Persist Past Softening Seasonals

  • The PMIs proved surprisingly resilient in the flash releases for July, especially in the US where its already high level pushed up further rather than converge down to its peers.
  • Residual seasonality should be depressing the activity data, as appears to have occurred in the EA. Other US data softened, including the ISM, leaving the PMI as an outlier.
  • Central banks seem set to conclude that policy is still tight amid broader softening signals. Indeed, we still expect the Fed to start a short rate-cutting cycle in September.

By Philip Rush

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