Archive

February 28, 2024
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EA Still Stuck in Stagnation

  • The flash services PMI’s bounce raised a risk that the Euro area’s stagnation might be ending. However, we still believe that is residual seasonality rather than substance.
  • ESI survey data corroborate this sceptical assessment as they were broadly unchanged at levels below the historical average for most sectors and countries.
  • Ongoing labour market resilience in the EEI and unemployment data sustains cyclical support for wage costs. Services and retail price expectations remain historically high.

By Philip Rush

February 27, 2024
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Why Neutral Rates are High

  • Market interest rates still price a mean reversion, albeit with less imminence than earlier this year. Resilient economic data imply the prevailing neutral rate is higher.
  • Slow GDP growth suggests opportunity is low, depressing the consensus view of neutral, but rising time preferences in the post-pandemic regime would also drive rates up.
  • We find reasons for this structural shift and are mindful that another regime change is unlikely outside of a recession. This still provides a hawkish anchor to our forecasts.

By Philip Rush

February 26, 2024
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Russia/Ukraine

  • As the war in Ukraine enters its third year, investors should continue to essentially sideline scenarios for the conflict per se and concentrate instead on the implications of increased defence spending in the West in general and Europe in particular.

By Alastair Newton

February 22, 2024
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EA: HICP Median Splits Higher

  • The final EA HICP inflation print confirmed the flash’s slight slowing to 2.8% for Jan-24. Housing energy price base effects offset most of the negatives in food and transport.
  • Underlying inflation measures are slowing y-o-y, but the monthly impulse moved sharply higher in some cases, including the median for Germany and Spain.
  • Split signals on underlying pressures confuse the optimal policy response. Sustaining higher numbers should delay cuts, but a sub-2% convergence would mean the opposite.

By Philip Rush

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